CFOs 'rolling up their sleeves' on FAO: finance and accounting outsourcing (FAO) is maturing, and finance executives have become more involved in understanding its benefits, determining its scope and choosing a provider.

• Author: McCracken, Bruce
• Position: OUTSOURCING - Report

The landscape for finance and accounting outsourcing (FAO) has been changing. Engagements are increasingly being driven by strategic objectives for business transformation, as opposed to pure-play cost savings through labor arbitrage. The FAO marketplace is steadily gaining traction and maturing. Some engagements have resulted in nuptial bliss, while others have ended in divorce. These factors have converged and led to increased involvement by CFOs and other financial executives to bring significant changes.

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The January 2008 FAO Research report, The Definitive Study of FAO Contract Pricing--Best Practices, Lessons Learned and Challenges for 2008, stresses that the increased sophistication and involvement by CFOs is changing the outsourcing relationship.

"CFOs are now becoming far more hands-on when the initiative involves transformation. FAO is not just the lift and shift of FTEs [full-time equivalents]," says Lisa Ross, CEO of FAO Research in Boston and author of its latest study. "CFOs are more involved due to the strategic nature of engagements based upon business objectives."

"CFOs are much more involved, much more engaged in the outsourcing process than in the past," echoes Praful Mittal, senior associate at Booz Allen Hamilton in Chicago. "When it comes to defining the strategic intent, CFOs are rolling up their sleeves and getting involved."

Les Keay, consulting principal, Global Sourcing practice for Pills-bury Winthrop Shaw Pittman LLP in Washington, D.C., sees the scope being considered as the determining factor in CFO involvement. "If there is a considerable amount of financial/accounting activities being outsourced, I would absolutely expect for the CFO to be involved at a significant level."

The FAO Research report includes three areas in particular where financial executives are making their presence felt:

* FAO buyers have become more sophisticated in 2008 during FAO contract pricing discussions than in previous years, when the market was less mature.

* When standard terms and definitions as related to FAO are nonexistent. Subsequently, interpretations and expectations between service providers and buyers/their advisors are misaligned, resulting in frustration and nonperformance of agreed-upon metrics.

* When communications break down and there is no proper relationship management construct in place.

Ross believes that maturation of the market is a major factor in FAO's increasing sophistication, adding, "In the past, CFOs were less comfortable with the outsourcing concept." Mittal, however, finds the issue of sophistication to be "a mixed bag. Has the market as a whole become more sophisticated? Absolutely. [However], organizations or executives that haven't been exposed to outsourcing still lack the experience that may be required to have an outcome that is mutually...