By Dan Berthiaume
Once CFOs and controllers have elevated internal business processes to “best in class” status, the next logical step is to evaluate finance and accounting outsourcing (FAO). As detailed in a recent white paper from Alsbridge, “F&A Outsourcing, Crafting a Sustainable Relationship,” financial executives who decide to enter an FAO agreement should ensure it contains seven key elements to maximize high levels of satisfaction for both client and provider. A brief review of these elements follows.
Focus on Relationship Rather than Price
Alsbridge studied more than 340 FAO contracts and found that in more than 90% of contracts considered “good,” cost reduction was not the top objective. Instead, objectives such as compliance with financial regulations and improved service level scalability received highest priority. A contract that is fair for all involved parties enables the provider to deliver excellent service, while a low-priced contract leaves the provider with minimal room to maneuver, leading to client disillusionment.
Don’t Structure Contracts by the Transaction
“Pay as you go” contracts tend not to work well for FAO. Alsbridge advises FAO purchasers to structure outsourcing contracts around work drivers and service levels, which will lead to more sustainable relationships.
That Which Governs Most, Governs Best
Alsbridge found that most of the sustainable FAO contracts it studied featured a formal governance model. Well-designed governance structures ensure that work and service levels are monitored, monthly meetings are facilitated and conducted, new work is initiated and prioritized, billing and pricing are properly conducted, and that all contract terms are correctly in place. This helps ensure a sustainable FAO relationship.
Pay Attention to What Stays In House
FAO clients frequently focus all their attention on the work which gets outsourced and essentially ignore the work which remains in-house. Alsbridge recommends that FAO strategies include a process where work splits are determined and transactional functions are outsourced while more mission-critical functions remain in-house.
However, this requires significant focus on and redesign of staffing and work processes for the in-house functions to accommodate changes caused by removing intertwined transactional functions. Alsbridge research indicates FAO clients with the highest satisfaction levels are those who make the effort to re-engineer functions that are “left behind.”
Operationalize the Contract
While it is tempting for FAO clients to sign an outsourcing contract and then sit back and let the provider handle everything else, Alsbridge suggests the client go about the time-consuming task of extracting terms and conditions and turning them into client-side work processes. These work processes should be mapped to governance and to relevant internal organizations whose functions were not outsourced.
There’s No Substitute for a Good Education
FAO is an extremely complex process including variables such as the best providers and offshore locations, average market prices, expected service levels, and legal and contractual rights in the event the provider does not perform. By fully educating themselves in all aspects of FAO, Alsbridge says FAO clients can level the playing field with providers, allowing the development of a truly fair and sustainable relationship.
Engage a Third Party
In 88% of the sustainable FAO agreements studied by Alsbridge, the client engaged a third-party advisor for assistance in areas such as strategy design, provider selection, contract negotiations and transition design. Considering that most providers have extensive experience in negotiating FAO contracts, utilizing the services of a knowledgeable third party can help clients neutralize this disadvantage.
