Why ‘pick and mix’ is the key to successful financial outsourcing
In some territories ‘outsourcing’ is still a dirty word, but all this will change over the coming years as organisations see the cost benefits of a blended approach, explains Technicolor’s Rick Floore, a speaker at this year’s Finance Transformation Europe event.
It’s quite common for software providers, so-called ‘strategists’ and – obviously – outsourcing providers to hail outsourcing as the future of financial management, but to hear it from a head of accounting who has not only outsourced the process himself, but actually taken the decision to bring the function back in house is something else entirely. Although his company has chosen to take back the burden of managing its financial processes, Rick Floore, global head of accounting at international multimedia solutions provider Technicolor is still an advocate of outsourcing and shared service centres as a cost saving measure.
“In some territories – for example in parts of the US – outsourcing has a negative image and can perhaps give a negative impression of the company, but when managed properly this doesn’t have to be the case,” explains Floore.
Technicolor has undergone a substantial financial transformation programme in recent years. The group moved from captive accounting to outsourcing, before bringing its accounting function back in house.
“There were two major challenges to this,” explains Floore. “The first was that we decided to put the 110 people who worked for our outsourcer, in Poland onto our payroll, which was a massive transfer. The second was setting up a shared service centre in the West Coast of the US to replace the centre our outsourcer had for us in Manila. This involved letting go the 50 staff they had there, so we had to do a reversed knowledge transfer, sending the staff from our new US office to Manila to acquire the knowledge”.
So is this reintegration process something Floore expects to be repeated by lots of companies as the global economy stabilises?
“It depends. Not all outsourcing contracts have a clear exit strategy defined in the contract, which is a problem. Also, there are some companies that switch from one outsourcer to another (this happens a lot in Eastern Europe in particular) and then decide to take it back in house, which can be a painful exercise. The cost advantage of outsourcing entire functions to countries like Poland and Hungary is disappearing for Western European companies”.
A three-step approach
Despite this diminishing overall cost advantage, the use of outsourcing won’t disappear altogether in Western Europe, predicts Floore. “Over the next few years Western European organisations will continue to think about how to make their finance organisation cheaper, deliver higher quality output and become more efficient, making sure finance is not too much of a cost centre for the company.
“What we’ll see among larger companies is a three step approach: core accountancy competency will remain in Western Europe; a front office will be established in Eastern Europe which can offer better language skills, more sophisticated accounting and IFRS skills; and transactional activities will be outsourced to places like India, Bangladesh or further reaches of Eastern Europe such as Ukraine. Smaller companies are likely to adopt a whole mix of these solutions”.
Risk versus reward
As companies embark on this journey over the coming years, what lessons can be learnt from Technicolor’s transformation? “The first is about how the split in responsibilities between accounting and controlling and the second is how these people need to work together if you want the report process to be efficient. People shouldn’t be afraid of reintegrating outsourced activities if they are not satisfied with them – it all comes down to good contract negotiation and project management”.
Rick Floore is global head of accounting and FSSC at multimedia group Technicolor. He will be speaking at SSON Finance Transformation Europe, an event focused on streamlining finance operations through business partnering, end-to-end process and optimised delivery. The event will take place on 15 – 17 February 2011 at The Bloomsbury Hotel, London. See www.fintransformation.co.uk for more information.