Are Third-Party Product Companies in the F&A Space Dead?
Developing solutions in-house vis-à-vis on-boarding an alliance partner (3rd party product companies in F&A space) to drive differentiation in F&A functions is a very tricky subject. Companies in F&A outsourcing business made different choices. We at Infosys BPO decided to focus on developing solutions in-house except in the case of a few strategic areas where developing solutions will have a long gestation period and there is network effect. In the last one year or so outsourcing companies have started to focus on developing solutions in-house as well.
In order to understand why we decided to focus on in-house solutions it is important to understand why outsourcing companies require additional technology solutions in an already complicated technology landscape. There are primarily three reasons for additional technology solutions:
- Functionality gaps in core financial application system - The current application, whether a leading ERP (Enterprise Resources Planning) software or a home-grown application to manage F&A function, does a fairly good job of managing core transactional processes but struggle to manage exceptions in the process. Moreover enterprise applications are not nimble and flexible enough to meet the changing requirements of today's business environment. For example, it is hard to imagine that even after 30+ years none of the leading ERP's has an inbuilt mechanism to manage non-PO based vendor invoices with appropriate control and audit capability.
- Complex and non-standardized technology landscape - In the majority of Global 200 enterprises, the technology landscape has become very complex as applications were added during the growth phase to cater to a new business line, geography or additional function. Furthermore, many organizations have taken an inorganic route to growth which has resulted in a disparate and disintegrated technology landscape. While these organization are going through top-down analysis to streamline and simplify their technology landscape they require an application that will make the inherent complexity of technology landscape invisible to end-users.
- Outsourcing on business processes - By definition outsourcing will lead to processes getting managed remotely and it is imperative that vendors (BPO companies) provide an additional level of visibility, control and audit capability to ensure that the client has full visibility into processes, and risks are managed appropriately.
Many companies (3rd Party Product Companies) identified these gaps and developed products / solutions integrated with leading ERP to manage these functionalities and provide a seamless experience to users. Over time leading ERP vendors have incorporated many of these functionalities into core application reducing the functionalities gaps. In the meantime, 3rd party solution provider also enriched their solutions to make sure they provide better and richer experience to user. The twin development has created a situation where overlap between ERP application and 3rd Party solution have increased significantly thereby making the business case for 3rd party solution weaker. Moreover, many companies are using outsourcing of processes as an opportunity to streamline their processes and technology landscape and looking for solutions that can complement existing technology landscape. The solutions companies would like to invest in should have following characteristics:
- Flexibility - The solution should be modular and each component should easily get coupled and de-coupled as needed.
- Quick implementation - Solution should get implemented along with transition of processes to create seamless experience.
- Should complement existing technology landscape - The solution should be technology and application agnostic and should be able to work with multiple applications as Fortune 2000 enterprise have already made significant investment in technology applications.
- Minimal investment - The implementation of solution should require minimal investment.
The 3rd party solution more often than not does not provide the value for investment and adds to the complexity of the technology landscape as well. Moreover, client expects BPO vendors expertize in recommending and implementing right solution which is a very different operating model for 3rd - party product companies as they have been selling directly.