Cfos Expect Shared Services and Outsourcing To Increase: 2011 Gartner Fei Technology Study

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CFOs Expect Shared Services and
Outsourcing to Increase: 2011 Gartner FEI
Technology Study
27 May 2011| ID:G00213135
John E. Van Decker | Cathy Tornbohm
This research examines the results from the 2011 Gartner Financial Executives
International Technology Study for the outsourcing and shared services industry in North
America. CFO responses indicate slower, but consistent, evolution for these two
deployment models.
Overview
This Gartner Financial Executives International (FEI) Technology Study investigated the
perspectives of senior financial executives on adopting shared services and outsourcing.
The study shows a movement from local provisioning to shared services and outsourcing
models for future deployments.
Key Findings
Local provisioning for back-office finance, customer-facing processes, HR/payroll
and travel are expected to decrease 8% during the next 12 months.
Shared services center deployments are expected to grow 12% over current levels.
Outsourcing is expected to increase 21% over current levels.
Shared services center and outsourcing growth is lower than projections from the
2010 Gartner FEI Technology Study.
Recommendations
IT and business area professionals must build a sourcing strategy to guide and
document decision making, while considering outsourcing business processes or IT.
Prospective business process outsourcing (BPO) clients need the executive
sponsorship team to assign the right individuals from IT, sourcing and the business
process team to manage and execute the transition, and ensure that they have
adequate time, incentives, support and authority available to perform their
transition and ongoing duties.
BPO and IT outsourcing clients should understand their unique roles and
responsibilities during the transition. Once the process is outsourced, do not assume
that the vendor has complete transition responsibility, even if it has a line item in its
submitted pricing that covers "transition."
Be careful not to outsource some locally provisional services that differentiate or are
core to your brand business.
Analysis
The 2011 Gartner FEI Technology Study, the third year of the survey with Gartner,
provided 344 responses to approximately 50 questions that covered senior financial
managers' views of technology (see Note 1). Based on responses from the study, this
research points to the increasing use of shared services and outsourcing for core financial
services, HR and customer support.
The challenging economy has caused many organizations to pursue certain projects and
defer others. Figure 1 shows that 72% of organizations are continuing to invest in
initiatives that can improve competitive advantage, and 33% of the respondents see this
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as having the most long-term influence on the organization. Only 14% of respondents, a
much smaller percentage, are pursuing BPO as a result of the current economy; but
outsourcing has the second-largest longer-term impact (20%) of all the selected
technology initiatives.
Figure 1. Current Economy's Influence on Technology Investments
Source: Gartner (May 2011)
Organizations apparently see the value of cost-reduction opportunities and the ability to
focus resources on more value-added activities; however, they do not view these as major
initiatives in today's economy. We believe this will change, as many firms are questioning
their longer-term requirements for providing these services locally. Responses are based
on the question we asked about investments that are being made now as a result of the
current economy. Last year, we did not ask about the "most influence"; therefore, we do
not have comparable data for 2010. Gartner believes that the 2011 responses are
significant, because the promise of efficiency and cost savings from BPO deployments is
understood.
The questions we asked the participants concerned how they provision certain services in
their organizations. There were three choices:
Provided locally Each business unit provides its own services within its own
organization.
Shared services Many business units or organizations use a central, internally
supplied service center that provides business services to multiple business units.
Outsourced A third party provides the business service (which may or may not
include IT), typically from the providers' delivery centers.
Figure 2 shows the current state of how firms provision accounting, HR and other services
(see Note 2).
Figure 2. Current State of Service Provisioning
Local provisioning is still the largest delivery method used today. Customer-facing services
have the largest local provisioning, including:
Customer service (79%, same as 2010)
Order management (77%, down from 80% in 2010)
Billing and invoicing (71% versus 72% in 2010)
Credit and collections (9% versus 72% in 2010)
Services that leverage shared services centers the most are:
HR (31% versus 29% in 2010)
Payroll (27% versus 28% in 2010)
Accounting functions, such as fixed-asset accounting (32% versus 29% in 2010)
GL (33% versus 28% in 2010)
Billing and invoicing (26%, same as 2010)
Outsourcing is mostly used in payroll (40% versus 46% in 2010) and travel planning (20%
versus 26% in 2010) today. Note: We do not see changes in outsourcing due to people
moving out of these arrangements year over year; rather, the population of the
respondent companies has been changing.
Participants were asked what their plans were for these services in the next three to five
years. Figure 3 shows that customer-facing services still have the largest projection of
local provisioning (73%), followed by order management (72%, same as 2010), billing and
invoicing (64%, up from 59%), and credit and collections (64%, up from 61%). GL
accounting is forecast at 61%, the same as 2010. Increased forecasts for the use of shared
services are seen in all the services surveyed in the study, with accounts payable (36%),
fixed assets (35%), GL (36%), and billing and invoicing (31%) leading the pack.
Figure 3. Provisioning Plans in 12 Months
Outsourcing will continue to be used mostly in payroll (43%, down from 49% in 2010) and
travel planning (23%, up from 31% in 2010). There appears to be no big news here. The
adoption trend in the areas of payroll, travel and HR will continue. Accounts payable is
lower than expected (even lower than credit and collections), and this could be because
many firms are seeking to bring in business applications to automate the internal
invoice/transaction paper flow, and moving shared services and BPO for accounts payable
to a lower priority.
Local Provisioning Is Expected to Decrease 8% Over Current
Levels
When comparing the current to planned strategies for providing these financial accounting
services in local business units, Table 1 shows a movement away from providing all these
services locally. Comparing all the responses to that specified "provided locally today"
versus "planned," there is a 7.6% decrease in the local provision of these services (based
on 2,378 responses for current local provisioning to 2,198 responses for planned local
provisioning). This is down from last year, when the projection was 19% movement from
local provisioning, showing that this may have slipped in priority over last year.
Table 1. Services Provided Locally
Current Versus Planned
Service Planned Current % Change
Payroll 98 111 -12
Billing and Invoicing 214 237 -10
Travel Planning 189 208 -9
Customer Service 244 265 -8
According to the study, all the above services will move from being provided locally to
being provided through shared services and outsourcing. Customer-facing processes are
being slightly more emphasized to move from being provided locally, including billing and
invoicing (-10%), customer service (-8%) and order management (-7%). Travel planning
will decrease 9%. Core accounting services including fixed assets (-7%), accounts
payable (-7%), and GL and accounting (-6%) will all see reductions in local
provisioning. This shows a continued, yet gradual, movement to shared services and BPO.
Not all services are candidates to be moved from local provisioning to outsourcing. There
may be cases where you do not want to move services from local provisioning. For
example, some customer-facing processes like customer service/billing are the most
significant and important touchpoints between an organization and the customer. This is
an area that can make the difference between a happy customer and a very annoyed one.
Shared Services Deployments Are Expected to Grow 12% Over
Current Levels
The study shows that there is a planned movement from providing these services locally to
shared services and outsourcing. Table 2 shows the change from current shared services
usage to planned. Comparing all the responses to those that specified provided via shared
services centers today versus planned, there is a 12% increase in the shared services
provision (based on 981 responses to current shared services provisioning compared with
1,100 responses for planned). This is down from the 2010 Gartner FEI Technology Study,
which projected a 23% increase in shared services deployments. In this 2011 study,
shared services projections were lower than BPO. We believe that this was mainly due to a
lower level of financial executives' understanding the benefits associated with a shared
services deployment, where BPO benefits have been more socialized within the senior
finance community.
Service Planned Current %
Change
HR 189 204 -7
Fixed Assets 204 219 -7
Accounts Payable 199 214 -7
Order Management 239 256 -7
Credit and Collections 215 231 -7
Travel
Reimbursement
202 214 -6
GL and Accounting 205 219 -6
Total 2,198 2,378 -8%
Table 2. Shared Services Use Current
Versus Planned
Customer Service 80 60 33
Order Management 85 69 23
Billing and Invoicing 103 87 18
Travel Planning 68 58 17
Fixed Assets 118 106 11
Accounts Payable 120 108 11
Payroll 98 89 10
Credit and Collections 98 90 9
Customer-facing processes will see the larger increase over traditional financial back-office
management in movement to shared services centers. Customer service will see a 33%
increase, order management 23% and billing/invoicing 18%. Travel planning will see a
17% increase, and back-office finance processes will see fixed assets (11%) and accounts
payable (11%) increases in the use of shared services centers.
Outsourcing Is Projected to Increase 21% Over Current Levels
Table 3 shows the proposed changes from current outsourcing to future outsourcing. Most
services will undergo an increase in the use of outsourcing for provisioning.
Comparing all the responses to specific responses for provided services through
outsourcing today versus planned, there is a 21% increase in the outsourcing provision of
these services (based on 315 respondents currently outsourcing compared with 380 for
planned). Core back-office financial services will see increases, with GL and accounting
doubling fixed assets (33%) and accounts payable (25%). Travel reimbursement shows a
52% planned increase, with travel planning showing a comparatively smaller increase
(13%). Customer-facing finance processes including billing and invoicing (70%), and
credit and collections (62%) will see substantial increases. Note: While some of these
percentages are quite large, the measurement is taken from a relatively small base of
responses, which may exaggerate some of the expected growth. The significant aspect of
this metric is that BPO in total will increase 21%.
During tough economic times, many organizations turn to outsourcing technologies and
business processes to reduce costs, improve efficiencies and possibly reduce head count.
This focus on improving the cost base of the organization has led to many finance
departments being instrumental in evaluating outsourcing contracts and having a major
impact on outsourcing decisions.
Service Planned Current %
Change
GL and Accounting 119 110 8
HR 111 105 6
Travel
Reimbursement
100 99 1
Total 1,100 981 12%
Table 3. Services Provided Through
Outsourcing Current Versus Planned
GL and Accounting 10 5 100
Billing and Invoicing 17 10 70
Credit and Collections 21 13 62
Travel Reimbursement 32 21 52
HR 34 25 36
Fixed Assets 12 9 33
Accounts Payable 15 12 25
Travel Planning 77 68 13
Customer Service 10 9 11
Order Management 10 9 11
Payroll 142 134 6
Total 380 315 21%
In this study, payroll and travel planning are the main areas of outsourcing in the
enterprise. For buyers who have previously been reticent about outsourcing, Gartner
believes that payroll outsourcing offers a quick way to reduce costs (see "Cost
Optimization: Best Business Process Outsourcing Opportunities, 2009"). However,
outsourcing is not always the best solution for payroll. For example, the outsourcer must
provide a more-efficient payroll process than the buyer, and be able to support negotiated
labor agreements.
The finance and accounting domain within BPO is maturing. Savings are possible from this
offering, but buyers often are not organized enough internally to realize the savings fully.
When considering outsourcing firms, enterprises should establish strong interdisciplinary
teams that include senior and operational members from finance and procurement, IT, HR,
legal, and internal and external sourcing departments.
Buyers have rarely incorporated sufficient IT implications in their initial planning, and have
typically underinvested in their internal implementation teams. This can slow initial
transition plans from one to three months, and can cause further challenges in the first
year. The lack of uniformity in the technical offerings of finance and accounting BPO
providers can cloud buyers' abilities to evaluate offerings successfully. Typically, the initial
reduction in costs is achieved from labor arbitrage, but, over time, technical improvements
will reduce processing costs. Payroll and travel lead the pack because it's easier and more
obvious on how to get savings, while some of the other areas, such as customer service,
are a bit more challenging and have more conditions to consider (and are potentially more
complex in structure) before experiencing value from BPO.
Action Items:
Understand where outsourcing can provide economic and/or strategic benefits. The
IT organization must ensure that it supports the investigation initiatives so that too
much control is not handed to outsourcers, and enough skills are retained in-house
to manage the outsourcing activity.
Conduct appraisals of internal competency to design and manage successful
adoption of BPO.
Ensure that all internal parties understand the IT implications of BPO i.e., the
advantages and disadvantages of various offshore locations for process delivery for
continuing to internally manage the application and infrastructure, and the different
service providers' approaches to supporting the application interfaces and business
workflow tools.
Recommended Reading
Some documents may not be available as part of your current Gartner subscription.
"Oracle's Financial Systems Consolidation Reduces Costs and Improves Governance"
"2009 Gartner FEI Technology Study: Outsourcing and Shared Services"
"CFOs Cite BI and CPM as Top Priorities: 2011 Gartner FEI Technology Study"
"The CFO's Role in Technology Investment: 2011 Gartner FEI Study"
"CFO Update: The Top 10 Technology Priorities From the 2011 Gartner FEI Technology
Study"
"CFOs Need to Focus on XBRL and IFRS: 2011 Gartner FEI Technology Study"
Related Research
This research is part of a set of related research pieces. See CFOs' Priorities for Technology
Identified in the 2011 Gartner FEI Technology Study for an overview.
Note 1
About the Study
This is the 13th year of the FEI Technology Study, and the third year that Gartner has
sponsored and conducted the study, along with analyzing the results and sharing our insight
about CFOs' priorities.
The purpose of the study was to gain the senior financial executive's perspective on
technology, covering the following areas: the economic environment; the CFO and his or her
role in technology; the CFO's perspective on ERP, business applications, business
intelligence and shared services/outsourcing; the regulatory impact on technology; and the
CFO's perspective on the IT organization.
There are many consistencies with the prior years' studies; however, there are many
standouts this year, including the emphasis on business intelligence and business
applications, as well as the increasing role of the CFO in IT decisions.
This year's study had 344 respondents who were highly qualified in providing a perspective
on technology deployment within the enterprise. Granted, those who did not fit that criteria
were eliminated from the survey, so there is a bias in the study toward senior financial
executives who care about technology. Sixty-six percent of the respondents were enterprise
CFOs, 9% were business unit CFOs, and 95% could be considered senior financial
executives. A broad spectrum of industries was represented. Given FEI's North American
membership, responses were mainly from North America; however, 47% of those firms
represented had global operations. The survey contained small to large organizations,
representing the spectrum of membership of FEI.
Note 2
Services
Order Management A customer-facing service requiring multiple steps in a sequential
process like capture, validation, fraud check, payment authorization, sourcing and back-
order management. Order management may extend into warehousing areas, such as
pick, pack, ship and associated customer communications.
Customer Service The provisioning of a service to customers before, during and after a
purchase. This may include in-person, as well as phone, support.
Billing and Invoicing Production of a bill or invoice prepared by a supplier to present
for payment of goods or services. An invoice or bill is a commercial document issued by a
seller to the buyer, indicating the products, quantities, and agreed prices for products or
services the seller has provided the buyer. An invoice indicates the buyer must pay the
seller according to the payment terms.
Credit and Collections Includes the evaluation of credit risk of current and potential
customers and the terms that they should receive for payment of their debts. The
collections process includes the activities to manage interactions required with the
customer to obtain outstanding funds.
General Ledger (GL) and Accounting Providing a balanced GL at the end of an
accounting period that reflects the economic activities of the enterprise being managed.
Accounts Payable Includes receiving bills from suppliers or providers of services to the
enterprise, capturing their details in automated systems, including
scanning/imaging/optical character recognition, processing these through accounts
payable systems and making a settlement with the vendor.
Fixed Assets Includes the management of the enterprise's assets. May include the
tagging and inventory of assets, as well as the processing through fixed asset systems,
and managing the depreciation/amortization of assets.
Travel Reimbursement Includes providing collaborative systems to assign expenses to
expense statements, the management of the receipt process (including scanning and
document management), payment to employees and credit card vendors, and
audit/analytics capabilities.
HR Employee-related services that can be leveraged to manage the employee process
from hire to retire.
Travel Planning Services to manage the travel procurement processes.
Payroll Services to provide paychecks and reimbursement to employees.
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