The Hackett Group finds that businesses favor onshore and offshore shared services over outsourcing; the trend may continue over the next three years.
Posted Apr 21, 2006
Outsourcing has been garnering more attention in the past decade as many businesses have shipped out their processes to lower costs and increase effectiveness. However, a new report from The Hackett Group finds that for finance and accounting, the actual level of outsourcing is much lower than the buzz indicates. Companies are outsourcing only 4 percent of their finance processes, according to the study, compared to the 65 percent handled by onshore or offshore service centers.
Penny Weller, senior business advisor at The Hackett Group, says the outsourcing conversation is mostly hype. "A lot of finance controllers and executives in that area are being bombarded with information that says, 'Outsource, outsource, outsource. Here's the solution to all of your problems.' That's in the media daily. That's the kind of information the executives are seeing. The reality is, they have to look at the source of that information and realized that the majority...of it is coming from vendors. Our research supports that people are not [outsourcing] as much as the general media would believe."
The study compiled responses from 58 companies across many different business sectors. It was run to acquire quantitative data concerning finance and accounting outsourcing (FAO), and to gauge the projected development of FAO over the next three years. Researchers partitioned the investigation into 11 separate finance areas to get a richer understanding of key drivers in the industry as a whole.
The full version of the study is available on The Hackett Group's Web site. Findings indicate that businesses expect expansion in both outsourcing and offshoring over the next three years, with outsourcing is expected to double, jumping from 4 percent to 9 percent. Offshoring is expected to rise from 7 percent to 13 percent. The risks associated with both options were also examined. Most businesses (60 percent) said that the biggest risk of outsourcing was compliance and controls, followed by culture (40 percent), and unknown total cost (40 percent). On the other hand, culture was the overwhelming risk factor associated with offshoring (61 percent), followed by compliance and controls (46 percent), and unknown total cost (41 percent). Security came in as the lowest risk factor, 33 percent for outsourcing and 34 percent for offshoring.
All these factors may be deterrents for companies looking to move their F&A to outsource providers, but Weller sites unknown cost as the primary hurdle. "What typically happens is, companies are saying, 'Well, let me look at outsourcing as a solution,' but they...really don't know what their current costs are. How can you make a business case if you don't understand what the cost of that process is today?" This attitude explains, in part, the study's finding that only 9 percent of businesses believe that outsourcing will be their primary sourcing vehicle in three years.
Weller sees both outsourcing and shared services growing over the next three years and beyond, but she believes that businesses will continue to favor keeping processes within the company. "You see a lot of companies run to a particular part of the world, and the feedback is that they've got to make it almost like McDonalds, where they can roll it up and put it in another company. If you're only chasing around the globe to take care of a labor overcharge, that problem's going to move with you."
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