F & A outsourcing: what buyers are saying; Original research from an FEI member questionnaire details current views about outsourcing finance functions--including what most would and would not outsource.

• Position: Special Section

Outsourcing finance functions--like auditing, tax consulting and payroll processing--has been going on for many years. But today, companies increasingly are asking solution providers to manage business processes on more of a turnkey, full-service basis, rather than transactional or processing services. Suppliers like Exult and others lend credibility to the value that many companies have seen from outsourcing portions of their finance procedures.

The finance and accounting (F & A) business process--including accounts payable, accounts receivable, order management and tracking, treasury functions, financial reporting, tax consulting and internal audit services--is expected to be one of the most widely outsourced business process categories in the near future. One industry estimate pegs spending on F & A outsourcing services at $65 billion by 2006, a 12.3 percent five-year compound annual growth rate. Even Dun & Bradstreet's Global Barometer for Outsourcing predicts that F & A outsourcing will represent 10 percent of the total worldwide market for outsourced services by 2005. All of this data shows the growing importance of F & A outsourcing and makes it one of the fastest-growing segments of the business process outsourcing (BPO) industry.

To understand what finance professionals--as the buyers of these services--truly think about F & A outsourcing, Financial Executive partnered with Ross Research of Cambridge, Mass., a firm noted for its research into outsourcing practices. Working with principal Lisa Ross, we developed a questionnaire on the subject that was emailed in December 2003 and January 2004 to FEI members. More than 100 members responded. Ross then tallied and interpreted the results and drafted a full report. Two sponsors, Exult and the law firm of Hunton & Williams, supported the research; neither organization was involved, directly or indirectly, in this project or the analysis of results. (For more about the methodology and the sponsors, see the box, "Methodology and More.")

Why Outsource F & A?

A myriad of factors drive companies to outsource F & A. The most important reasons listed by study participants indicate a growing sophistication on the part of outsourcing buyers--cost savings is no longer the preeminent reason for outsourcing, though it is still an important consideration. The most important reasons that executives said were primary drivers in their decision to outsource F & A include:

Access to better technology and systems

Cost savings (reduce and control operating expenses)

Increased service levels

The table above illustrates the importance levels that senior financial executives place on each factor as being a driving force behind the decision to outsource F & A functions.

What's Being Outsourced?

The types of F & A functions that have been outsourced to date, as noted by the senior financial executives in our study, represent relatively simple types of processes. The most widely outsourced F & A functions are:

Tax consulting

Payroll -- (Note: Some companies include payroll as a finance function, while others categorize it as part of the human resources business process.)

Two additional F & A functions that CFOs and other financial executives might consider outsourcing, if they are not already doing so, include:

Travel expense reimbursement

Risk management

The top three F & A functions that respondents would not outsource include:

1) Financial management activities (operating budgets/forecasts, capital investments, treasury functions, equity financing/debt, cash management, budgeting, performance analysis, investor relations)

2) General accounting (general ledger, cost accounting/revenue, equity accounting/debt, statutory accounting, fixed asset accounting, business unit accounting)

3) Financial reporting and accounting We were surprised, frankly, at the high number of F & A activities that CFOs and other senior financial executives would not consider outsourcing; yet, we believe that over the course of the next year or two, smart organizations will change their minds and elect to outsource more of these F & A functions. Why? Three reasons:

Transactional F & A functions--like accounts payable/receivable, leases, order management and tracking, billing/customer invoice, customer credit and expense reporting--are...