FP&A outsourcing - will it ever fulfill its promise?
The potential of FP&A outsourcing has not yet been realized and it is important to analyze why customers have not adopted the outsourcing of FP&A in a meaningful way.
Over the last few years FP&A (Financial Planning & Analysis) has been touted as the next big thing in F&A (Finance & Accounting) outsourcing by almost everyone. BPO vendors also latched on to it as it perfectly aligned with their objectives of moving-up-the-value-chain, increasing revenue productivity, providing business insights etc. However, the potential of FP&A outsourcing has not yet been realized and it is important to analyze why customers have not adopted the outsourcing of FP&A in a meaningful way.
However, before we try to find out why potential of FP&A outsourcing is not getting realized it is important to understand why everyone thought (probably still thinking) that FP&A will be next big thing in F&A outsourcing. Following are the widely accepted challenges faced by CFOs of large enterprise:
- Increased complexity: with business going global and the technology landscape becoming complex it has become difficult to get a single source of truth from diverse systems, structures, processes etc.
- Increased focus on cost: increased business dynamics and competition have forced companies to look at SG&A through a microscope.
- Data overload: companies are swamped in data but struggling to derive meaningful information and insight from data. On an average FPA teams spend around 50-60% of their time collecting and collating data
- Lack of analytical maturity: majority of global 2000 enterprises have invested in business intelligence platforms but use it- at best - as a reporting system, that too in a limited way
- Parochial view: most organizations are sucked deep into their own mess and are not able to analyze beyond boundaries
The current challenges faced by CFOs make a perfect recipe for outsourcing and it is no surprise that a majority of analysts have concluded that large enterprise will have to outsource FP&A functions in a big way. However, FP&A outsourcing is more of an exception than a rule. I believe FP&A outsourcing did not take off because of the following reasons:
- Concerns around data security / privacy: FP&A analysts deal with highly confidential data and deal with senior management of the company. No business case in cost terms will substitute the concerns around data security and privacy.
- Proximity to CFO office: in a survey done in US it was found that chances of a doctor smoking is directly proportional to distance of her specialization from heart. Similarly, in my view the chances of a function getting outsourced are directly proportional to its remoteness from CFO office. FP&A function is closest to CFO so last to be considered for outsourcing.
- Planning the work: it is difficult to smooth out peak and troughs in FP&A work. Typical FP&A analysts spend around 12-14 hours in the last 5 days and first 10 days of a month but are relatively free the rest of the time. It is very difficult to structure a similar work pattern in an outsourced environment.
- High attrition is no-go: the BPO industry is plagued with very high attrition. However, BPO vendors are able to mitigate it with proper cross training, SOP etc. for transactional processes. It is not acceptable in FP&A work as it requires significantly higher touch time with the client and an individual has to spend anything between 12-18 months to understand the business nuances.
- Operating model: BPO companies have a model suited for voluminous work and have struggled to come up with a tailor-made model for FP&A.
- BI Platforms are sold as self-service platforms: Last but not the least, most of the BI such as Hyperion, Business Objects etc. are sold as service self-service platforms and clients believe that they will not need any further assistance from anyone to manage their reporting and analysis.
The challenges facing large enterprises are not going to go away in the near-future. Unless BPO vendors come up innovative operating models i.e. onsite / near shore location centric operating model, leverage technology to provide differentiated value and combine it with reporting and analytics service to address CFOs concerns and dilemma, I don't think the scenario will change in the near future.