Finance and Accounting function outsourcing analysis TPG Advisory Practice srl BB&TP, Building A2, 1 st Floor, 42-44 Bucuresti-Ploiesti St., Sector 1, Bucharest, 013696, Romania Phone: +40 (0) 21 36 07 70/71 Fax: +40 (0) 21 361 07 72
Contents Today s realities..3 Major global trends in the finance and accounting (F&A) function.6 Why do companies outsource?...9 What do companies outsource?...12 Insights from 2012 global outsourcing survey...17 How TPG can help you?...23
Today s realities 3
Today s realities (1/2) Finance functions are under significant pressure to drive productivity improvements and maximize the ROI of the organization s resources and capabilities. Demands Investors Company Strategy Internal Customers Competitive Pressures Trends Impacting Finance Functions Business Performance Management and Predictability Cost Focus Risk Management Earnings Transparency Adaptability Regulators Value of Finance Cost of Finance = Finance ROI 4
Today s realities (2/2) Having a clear vision of how finance and accounting function should support the business is critical Current view Aspirational Business insight (decision support) Compliance & Control Efficiency 5
Major global trends in the finance and accounting function 6
Trends in F&A Function (1/2) What should be within Finance and Accounting? Finance and Accounting (F&A) account for business activity as opposed to undertaking it - but it should be process focused rather than create transactions. F&A support decision making but is not the decision maker. F&A focuses the business on long term profitability and shareholder value - but the business is responsible for making it happen. Decision Support Transaction Processing CFO Decision Support embedded in business Specialist expertise (Tax & Treasury) Transaction Processing What are the main trends? (outsourced, Shared Service Centre) Smaller finance and accounting function (cost of Finance Function moving towards 0.4% of revenue) Shifting emphases from 75% Transaction Processing and 25% Decision Support, to 25% Transaction Processing and 75% Decision Support. Decentralise Decision Support and integrate with business team. Create shared services or outsource transaction processing. Create centre of excellence for tax and treasury. Organise around the processes and outcomes: Revenue Cycle Expenditure Cycle General Accounting and Reporting Profitability and Cost Management Tax management Treasury Management 7
Trends in F&A Function (2/2) Smaller Finance Function challenging against best practices. According to the best practices, companies which incur high revenues, operate the finance and accounting function at a cost that is only a small percent from the revenue and require up to seven times fewer full time equivalent staff (FTEs) within the finance function than an organisation with smaller revenues. Focus on value creation and business performance enhancement: focus finance on its internal business customers. develop business analysis and communication skills. Strengthen role in shareholder value creation and decision support. The major elements include: lead the organisation in developing a shareholder value in decision making. build business adviser relationships with the business units. provide additional decision support capacity within treasury and tax to capitalise on their high impact on shareholder value. build stronger linkages between treasury and tax. support a centralised financial strategy capability seeking internal and external major opportunities. Strengthen control of policy and standards through: deliver greater control of policies and standards. provide stronger control over balance sheet assets. centralise business planning cycle to ensure consistency of planning. control standard cost concepts, tax and treasury. 8
Why do companies outsource? 9
Benefits of outsourcing (1/2) Strategic Focus on core competencies Better morale Defined service standards Generates shareholder value: - Up-front premium - Cost reduction - Economies of scale - Fixed to variable cost - Release of capital Financial Scaleable platforms Facilitates greater systems development and infrastructure upgrades Technological 10
Benefits of outsourcing (2/2) Outsourcing finance and accounting function plays a central role in the business transformation: Catalyst for change Source of skills : Transformation and other specialist skills Secure existing skills Delivery of financial benefits : Deliver lower cost base Share / pass on attrition risk Secure investment commitment Share / mitigate one off costs Secure underwritten economics 11
What do companies outsource? 12
It Depends... Company Risk Profile Strategic Aims & Objectives Prior Exposure to Outsourcing 13
Light Option Only low risk, manually intensive, transactional processes are considered for outsourcing. Typically Includes: Transaction management functions such us order-to cash, purchase-to-pay, etc. 14
Regular Option Extended scope of processes considered for outsourcing including reporting and compliance functions. Light Option + Business risk functions such us treasury and tax. 15
Deluxe Option All finance sub processes below CFO and core strategic functions are eligible for outsourcing. Regular Option + Business support functions such us management reporting, planning &forecasting etc. 16
Insights from 2012 global outsourcing survey 17
Which option best describes your company s current and future sourcing plan for the following business functions? The expected future state of all business functions shows an increase in outsourcing. Finance and Human Resources functions are expecting the largest percentage increase in outsourcing activity. Information Technology led all functions categories with a combined 76% of respondents partially outsourcing the function. Information Technology Operations Finance Huma Resources Legal Real Estate/Facilities Procurement Sales/Marketing support 42% 37% 30% 40% 32% 24% 12% 11% 12% 76% 5% 11% 16% 16% 2% 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Currently uses outsourcing Expected future increase in outsourcing Source: Outsourcing, today and tomorrow-insights from Deloitte s 2012 global outsourcing and insourcing survey 18
What factors/components do you feel are most critical to a successful outsourcing relationship? The ability to partner and clearly communicate expectations are the most important success factors to respondents. A spirit of partnership between client and service provider company Well engineered service level agreement Strong joint client/service provider company governance of the agreement 9% 15% 49% 14% 34% 15% Contracts and the joint Consistent client and service provider 7% company communications client/outsourcing company management team are 8% generally seen as somewhat important, but ineffective without the other key components. Detailed contract terms and conditions A strong account management team of the service provider company A strong internal management team of the 5% 6% service provider company 10% 10% 7% 9% 0% 10% 20% 30% 40% 50% 60% 70% Vey important Important Source: Outsourcing, today and tomorrow-insights from Deloitte s 2012 global outsourcing and insourcing survey 19
How effective is the management of your outsourcing service provider company organization/function in meeting the following objectives? While most respondents believe their internal organizations are competent across all dimensions, several areas stand out for improvement. Generally, the management of the outsourcing services providers organizations are viewed as being effective at transactional services, but fell short when it came to more strategic, advisory services. Ensure invoicing accuracy Perform necessary financial planning Maintain an independent and unbiased approach to service providers Proactively management issues, risks and disputes Ensure service providers' adherence to commitments Control scope through structured processes Manage successful completion of transition Build service provider governance processes and controls Effectively improve collaboration and reduce conflict of interest among service providers Ensure improvement by implementing industry leading practices Ensure service providers meet process improvement and innovation expectations 41% 32% 51% 49% 43% 58% 56% 55% 55% 54% 66% 39% 48% 42% 48% 33% 37% 34% 37% 38% 44% 31% 11% 20% 20% 9% 7% 8% 8% 4% 10% 9% 3% 0% 20% 40% 60% 80% 100% 120% Effective Somewhat effective Not effective Source: Outsourcing, today and tomorrow-insights from Deloitte s 2012 global outsourcing and insourcing survey 20
What were the objectives of your most recent outsourcing initiative? Reduce operation costs 62% 25% 40% 35% 37% 33% Improve customer service 42% 31% 30% 29% Gain competitive advantage 20% 29% 25% 25% Gain tax advantages Leverage new technologies 20% 17% 23% 25% 20% 15% 17% 19% Desire to consolidate Access more flexible HR models Improve controls 17% 25% 11% 42% 4% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very important Important 10% 5% 0% 0%-10% 11%-20% 21%-30% 31%-40% Greater than 40% Anticipated 9% 4% Achieved 10% 9% 1% 6% Costs actually increased Reduce operating costs is chosen as very important by the most respondents. The next important factor is improved customer service, demonstrating there are more drivers to outsourcing than just cost reduction. Overall, actual cost reductions through the most recent outsourcing experience are lower than expected with 53% of respondents anticipating significant savings (greater than 10% cost reduction), while only 42% experienced significant cost reductions. Source: Outsourcing, today and tomorrow-insights from Deloitte s 2012 global outsourcing and insourcing survey 21
Did the most recent outsourcing experience live up expectations? 7% Vendor underestimated scope/effort Lack of service level attainment Sub-par vendor performance 38% 52% 48% Extremely satisfied 16% Lack of timely project/service request execution 29% Neutral Sub-par vendor resources 24% Dissatisfied Satisfied 69% 23% Lack of business case attainment Attrition of key resources 24% 24% Lack of vendor innovation 24% Lack of vendor knowledge of my business 24% 0% 10% 20% 30% 40% 50% 60% Most respondents (76%) are either extremely satisfied or satisfied with their most recent outsourcing initiatives Underestimating scope is the most often reported problem with most recent deals, followed by outsourcing service providers being unable to meet service levels. Source: Outsourcing, today and tomorrow-insights from Deloitte s 2012 global outsourcing and insourcing survey 22
How TPG can help you? 23
TPG provides a holistic view of benefits derived from F&A outsourcing Promote a holistic view of outsourcing benefits, which includes base costs plus better practices and accounting and finance management Main cost of the finance and accounting function: Employees cost Processing cost F&A applications IT infrastructure Facilities Telephony Better accounting and financial practices. Quantifying the additional business benefits, for example: Avoiding duplicate invoice payments. Collection and applying cash more efficiently. Capitalizing on negotiated discounts. 24
TPG can provide professional accounting and finance services for F&A processes Key Phase I Phase II Phase III Overall finance function Functions Processes Sub-processes Transaction management Business support Order-to-cash Purchase-to-pay Payroll and personnel administration Record-to-report Performance management Order entry - billing Accounts receivable Credit & collections Inventory accounting Purchasing Accounts payable Settlement of payables Payroll Benefits administration Financial reporting Intercompany accounting Management reporting Planning & forecasting Business and KPI analysis TPG offers cross-functional processes for free which can ensure a smooth outsourcing and high quality services: - Finance and accounting procedures and controls aligned with global best practices. - Adequate systems and tools. Business risk Tax Fixed asset accounting Statutory compliance Strategy & planning Market risk - Highly specialized personnel. Treasury Liquidity risk Bank relationship management Settlement, accounting & reporting 25
Thank you! TPG Advisory Practice srl BB&TP, Building A2, 1 st Floor, 42-44 Bucuresti-Ploiesti St., Sector 1, Bucharest, 013696, Romania Phone: +40 (0) 21 36 07 70/71 Fax: +40 (0) 21 361 07 72