The market is still dominated by the big global outsourcing names, but lately there have been moves by regional and specialist F&A suppliers, as well as a number of Indian companies. While competition has led to some commoditization for the basic transactional services such as accounts payable and receivable, a number of key vendors have noted that the emphasis is shifting away from cost reduction alone and into other priorities such as process standardization and flexibility.
At Capgemini, the company has seen a growth in market confidence resulting in a new scope of services in its F&A away from core accounts work, including fixed assets, several types of reporting services, treasury, collection, inventory and VAT reporting, according to Tony Kelly, Capgemini’s global product marketing director for BPO. He said the most frequent content remains accounts payable and receivable and general ledger, but increasingly contracts are covering these additional services.
Customers are also expanding its accounts payable work into procurement services, both the transactional side of purchasing and category management, where Capgemini can drive some efficiency and savings in the procurement process.
Accenture, which is one of the leaders in both F&A and procurement outsourcing, sees a similar trend. Its F&A services fall into three categories: order-to-cash, including receivables, cash allocation, and often credit and collections work, all the way to order management and billing; procure-to-pay, where there’s plenty of invoice processing and more convergence between finance and procurement services; and record-to-report, covering functions like general ledger and financial calendar management, but also moving into analytics and reporting work, explained Anoop Sagoo, European sales lead for Accenture’s finance solutions group.
The market is growing as expected, Sagoo said. F&A is becoming a de facto thing to look at when you’re doing a strategic look at the finance department. And clients are starting to realize they can do a lot more then just move work around, such as compliance and increasing productivity.
The story is the same at Genpact, the most notable of the offshore suppliers. Over the past year alone, the company has seen a move to services such as analytics and decision support. Now Genpact might tack on services such as financial planning and analysis of a client’s sales forecasts, revenue stream, and marketing strategy. There are also tax services, statutory reporting, and supply chain functions that can be found in new deals, said David Jensen, Genpact’s senior vice president of corporate communications and investor relations.
Meanwhile ACS managing director Mark Brennan said his company’s F&A portfolio now runs the gamut based on clients needs and companies are looking hard at newer services, such as fixed assets, analytics, and procurement. In procurement, for example, ACS has long handled the payables part of the process, but Brennan said it’s now managing clients’ purchasing deals and putting out orders. This brings it into new areas such as spend analysis and demand aggregation.
A recent report from Deloitte Consulting found that the market is booming, tripling since 2004 to include 300 current deals. But it also found that the number of smaller-to-midsized deals is growing the fastest, especially as the midmarket begins to outsource F&A. Almost 40% of all deals in 2006 involved fewer than 75 full-time employees being deployed on the provider side, the report states. And Deloitte expects well over half of deals in 2007 to fall in this small-to-midsized range, said Phil Fersht, the F&A marketplace leader at Deloitte’s outsourcing advisory group.
Many companies are also experimenting with fewer processes in the initial outsourcing agreement, the report found. Sagoo at Accenture noted the same trend, whereby deals are starting more tactically and slowly building up to include more services from Accenture’s portfolio, such as its newly added profit recovery and analytics services.
A crucial part of F&A work is the integration and interfacing of client systems, often a messy affair of legacy technology or multiple platforms from acquisitions. Sagoo said Accenture’s uses wrappers to plug into these clients’ existing systems, using imaging and workflow tools, process optimizers such as better character recognition on scanning technology and analytics tools, as well as and user interfaces to connect customer, employees, and suppliers to the finance system.
ACS said many clients will already have their accounting systems in place, so it builds a workflow system on top of it to interface. A lot of our clients are moving to ERP systems. But it’s not so much the ERP or legacy systems that matter, it’s the interfaces, Brennan said.
There are some systems that have evolved and can get complicated, and some are more straightforward, added Brennan’s colleague Kent Schnacker, ACS’s senior managing director for vertical markets and F&A. We determine the best way and best places to do interfaces. If it’s too hard or complex for a direct interface, we’ll find a way to get the data back and forth.
A lot of the systems management and processing – most vendors say upwards of 75% – is now handled offshore. Schnacker said ACS has the ability to move as much of the work offshore as clients want. Some may want to keep certain processes only a few times zones away, for example. A large part of the offshore delivery is done form India, said Genpact’s Jensen, due to its English language skill. But there are components that are done nearshore or within geographies where same-time-zone voice interface is needed, or if there’s a government compliance or data privacy issues, he said.
The Deloitte report even found that 76% of the F&A employees working on midsized deals are now offshore. When we look at the offshore trends, we are seeing a very different picture from three years ago, where offshoring was reserved largely for the global companies that could transition some of their existing offshore operations to a service provider, Fersht said. Offshore services are now a commodity business that all service providers are offering, and most smaller-size projects are only economically viable if offshore services are introduced.
Sagoo from Accenture said that there was indeed some pricing pressure, but that it stayed away from the pure commodity work, and has seen strong growth in its F&A business in the last year. It appears that the top players have been able to avoid the price pressure, especially as cost reduction is no longer the first priority for buyers. Capgemini’s Kelly, for instance, cited new driving factors such as flexibility, process standardization, transformation, value-add, and long-term ROI.
Genpact’s Jensen thinks the pricing situation is mostly confined to newer market entrants, who are buying business but not always delivering as promised. It hasn’t driven down pricing among the big players, but the smaller players wont’ be able to survive unless they’re in a specific niche.
Each of the vendors we spoke with named the usual suspects as the top providers in F&A: Accenture, IBM, Capgemini, ACS, HP, and Genpact.
Another sign of the maturing market is the shift to more variable pricing structure. Fersht at Deloitte said that 2007 had seen a swing to mostly transaction-based pricing, as opposed to the traditional structure based on number of employees on the deal, which accounted for some three-quarters of deals in 2006. He said suppliers were more confident in their deliverables and thus being more creative with pricing methods.
Sagoo from Accenture agreed that this was a clear shift. There’s a definitive move to more variable pricing mechanisms, he said. That’s expected as our clients try to move from fixed to variable base. There are of course many different flavors of this, but it’s a sign that people are better understanding the processes.
