Going Away

The doubts that finance executives once had about offshoring are quickly disappearing as savings and process improvements become too good to pass up.

Frank Cocuzza’s first visit to an outsourcing vendor in India seven years ago left him intrigued but not ready to jump. “Nice story,” the senior vice president of finance for Penske Truck Leasing Co. recalls thinking. “But we weren’t going to trade our processes for a nice story.” Eighteen months later, Cocuzza flew back for a second look, stuck around for a five-day visit, and left dazzled. The vendor’s 600-person workforce had swollen to 3,000, service offerings had been expanded, and best-practice processes were in evidence everywhere. “We came away so impressed with what they had built that we realized we needed what they were doing,” Cocuzza recalls. He soon began shipping bits and pieces of his finance operation to the outsourcer, which was then a subsidiary of General Electric Co. but is today an independent company operating as Genpact. It now handles some 40 different finance processes for Reading, Pennsylvania-based Penske, including collections, various accounting and financial-reporting activities, and even on-demand data analysis for the business units.

Penske’s experience mirrors that of a growing segment of Corporate America. TPI, a Houston-based outsourcing advisory firm, says that while the total value of business-process-outsourcing contracts signed in 2006 was down for the second consecutive year, the total value of outsourcing contracts for finance services nearly doubled. Don’t look for the latter trend to end anytime soon. Richard Roth, president of Global Enterprise Solutions for consulting firm The Hackett Group, predicts that over the next three years the overall percentage of U.S. finance costs that are spent on outsourcing will double from about 4 percent to 8 percent.

Two factors are fueling the surge in finance and accounting outsourcing. First, cost pressures continue to drive companies to take advantage of cheap labor in developing countries like India, Poland, and China. Depending on how efficient a company’s finance operations are to begin with, net cost savings can reach 20 to 40 percent. Susan O’Day, chief information officer and vice president of global shared services for $17.9 billion Bristol-Myers Squibb Co., says that just 18 months into a finance, accounting, and information-management outsourcing agreement with Accenture, her company is realizing about a 30 percent return on its investment, in line with expectations.

Second, as outsourcers refine their capabilities and processes, companies want to take advantage of the productivity and quality improvements outsourcers can offer. “For us, the cost of labor arbitrage was secondary,” Cocuzza says. “It’s there, but the primary goal has been to improve what we do.” So, while Cocuzza is happy to acknowledge the $20 million a year he is saving on labor by outsourcing to Genpact, he gets excited talking about the 2,000 “lean” operating improvements his organization has made in the past three years by “shamelessly stealing” from Genpact’s own Lean Six Sigma program, and about reducing his company’s delinquent receivables rate to 6 percent from 14 percent, which he estimates is allowing him to carry between $40 million and $50 million less debt on Penske’s balance sheet.

For Bristol-Myers Squibb, says O’Day, the goal for outsourcing finance and accounting work — part of a broader, enterprisewide initiative aimed at saving hundreds of millions of dollars each year — was both cutting costs and improving processes. “We think about standardization of processes as a means of driving greater integrity to our reporting,” she says. “We found that an outsourcer could help drive that standardization as effectively or more effectively than we could. An outsourcer also provided a scale and access to labor markets we would not necessarily have.”

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