This article was first published in the July 2012 UK edition of Accounting and Business magazine.
Today’s CFO operates in a challenging and complex environment. With continuing uncertainty on the horizon of the global economy, more than ever the CFO is in the spotlight to transform the finance function so it can support the business more effectively. But how successful are current transformation activities, and are shared services and outsourcing really living up to the promise?
A recent study from ACCA, Finance leaders on sourcing success, suggests that many opportunities remain untapped. Uniquely, the survey focused on how CFOs themselves viewed the success or otherwise of shared service and outsourcing (SSO) strategies, outlining the drivers behind SSO adoption and gauging how the business outcomes that were initially sought have shifted. Almost 500 CFOs and other finance leaders across the world participated in the study, which was complemented by in-depth interviews with leading brands such as Microsoft, GE and AOL. The outcomes make compelling reading
First it is important to note that not everyone has adopted SSO, even for transactional finance activities. Twenty-eight per cent of respondents to the survey said they had not yet taken the plunge with remote delivery of some finance operations. For those CFOs that have, the survey suggests that shared services and hybrid models are the significant preference.
In many senses SSO has been an overwhelming success, particularly around transactional finance activities. Leading brands around the world have tapped into a compelling labour arbitrage and used SSO to drive process standardisation. But the survey also sounds a note of caution and suggests there is much more to do. Many CFOs are still not using remote delivery for transactional finance activities, and the promise of shifting the ‘higher value’ finance activity out remains just that, a promise, even with the largest businesses. Around 60% of respondents still keep higher value activities in-house.
The good news is that these findings don’t appear to detract from the attraction of SSO for CFOs. In fact, quite the opposite. The survey suggests most finance leaders have very high aspirations for the business outcomes that SSO can deliver, and – guess what? – these aspirations are getting higher.
CFOs cite the usual trifecta of business outcomes – cost reduction, efficiency and finance capability – as reasons for undertaking the journey in the first place but as they progress through the journey new priorities come on stream. Quality, scalability, transformation and talent quickly rise up the agenda as sought-after outcomes too. No pressure then?
As aspirations rise, the key question is whether CFOs believe SSO can deliver the outcomes desired. Here is the stumbling block – this survey suggests not quite. So this is a story of growing expectations not quite being matched. It’s a challenging picture with a consensus that effectiveness needs to improve. Not surprisingly, however, this survey suggests that it is those businesses with more longevity in their SSO relationships that typically see greater effectiveness.
The shape of success
Of course, one of the critical questions in the adoption of SSO is what success actually looks like. There is much talk about going beyond cost reduction as the barometer of success, yet this survey suggests that measures of success remain in their infancy. Overwhelmingly businesses remain focused on measuring success through two methods – cost reduction and the achievement of service level agreement. Fewer than one in six businesses adopt broader measures of success such as return on investment targets, profit contribution targets and net promoter scores. Just 5% of businesses attempt to link their SSO investment to shareholder value. Perhaps this is part of the problem.
Unsurprisingly, these findings also correlate with the use of monitoring tools, which remain in their infancy. According to the survey, only 31% of businesses use finance dashboards to monitor the programmes, and even fewer use internal/external benchmarking or tools such as six sigma and lean processes.
These findings are consistent with ACCA’s previous study on SSO at the start of the year, which was reported in the February and March issues of Accounting and Business. That study concluded much more could be done to embrace remote delivery and capitalise on the benefits promised; change management and service experience in particular were cited as key challenges.
So where next? Well, it’s not all bad news. CFO aspirations remain positive and this is reflected in the desire for future investment in SSO, according to the survey. Put simply, those CFOs who have already invested in SSO expect to continue to add significantly to their investment. In contrast, those who haven’t adopted remote delivery as part of the finance solution are seen to be less bullish about investing in their current finance delivery model.
These findings should be seen as a wake-up call to those people involved in SSO delivery on a daily basis. The reality is that SSO won’t always be at the forefront of the CFO’s mind, and won’t always be given the focus and priority it perhaps deserves.
There is no doubt that SSO has delivered significant cost reduction, improved finance processes and helped drive control transparency. Leaders in the SSO space need to continually restate and remind businesses and finance chiefs, and not just themselves, of the significant benefits already achieved. This is particularly true when making the business case for transitioning higher value finance activities and unlocking the value that SSO can deliver. Our survey suggests that some CFOs may need a little bit more convincing.
HOW ARE CFOs USING SSO MODELS?
28% Have not yet implemented SSO
40% Have had their current finance delivery model in place for more than five years
3/5 CFOs use shared services or a hybrid of SSO models
50% Still keep their transactional finance activities in-house
Jamie Lyon, head of corporate sector, ACCA