Tuesday, May 20, 2014

Finance & Accounting Outsourcing Market - Beyond Costs moving to Transformation

According to an article in www.the-outsocurcing .com written by Saranya Sundararaja, Senior Research Analyst at Beroe Inc., the Finance & Accounting BPO market is expected to surpass US$ 25 billion in 2013, and grow at a CAGR of around 8% between 2012 and 2017. The overall Global BPO market is estimated to be US$304 billion and the share of F&A BPO of the total market is 8%. Most of the organizations (75%) have outsourced their FAO mostly termed as P2P (procure to pay), O2C (order to cash) and R2R (record to report). The key factors driving the growth of this market are primarily cost savings (ranging 25% - 40% on current cost base), labor arbitrage (low cost locations labor cost is one third of the developed markets labor cost), efficiency focus, standardization, innovation and innovative technologies. Most of the Fortune 500 companies outsource primarily transactions related to Accounts Payable, Accounts Receivable, Payroll and General Accounting. A growing number of technology companies are leveraging third-party service delivery, with the number of global services agreements rising from 20 per year to 50 a year over the last ten years.  The average length of contract [5 years] and average size of contract ($4.7 million for F&A) is relatively unchanged, according to recent Everest Group research. The largest buyers of FAO services are Telecom, Manufacturing and BFSI, however, in terms of growth, Telecom, Media and Publishing, and Retail are facing highest growth (CAGR of 8-10%).

F&A BPO Market has matured over the years and with the entry of new players like small, medium and large players over the years, the market also has become highly competitive. Most of the F&A outsourcing contracts these days have either outcome based pricing model or gain sharing model where the pricing is tied to achieving certain specific outcomes or goals. Clients are demanding more from the vendors other than cost savings they want the vendors to participate in their business transformation and create significant impact. Financial Planning and Analysis, Budgeting, Forecasting and Internal Audit are some of the processes that are being outsourced to third party vendors which are high risk and high pay in nature. In terms of business transformational activities like Financial Process Consulting, Change management and supporting innovation roadmap, the level of outsourcing has increased by 20% to 25% over the last 3 years, according to Saranya Sundararaja, Senior Research Analyst at Beroe Inc. Another important aspect is the integration of analytics into the F&A BPO where some of the vendors are also offering predictive analytics and other advanced data analytics offerings along with the traditional Reporting to clients as well. Indian BPO Vendors have built significant market share in the F&A BPO market over the years and they now have to build skills or acquire skills that help them in offering high end judgment based services to the clients and move up the value chain.

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