building an agile finance function alternative approaches to sourcing financial operations.pdf

7/27/2019 Building an Agile Finance Function Alternative Approaches to Sourcing Financial Operations.pdf

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Building an Agile Finance Function:Alternative Approaches to Sourcing Financial Operations


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FINANCIAL EXECUTIVES RESEARCH FOUNDATION, INC.WOULD LIKE TO ACKNOWLEDGE AND THANK THE GENEROSITY AND SUPPORT OF

FOR THEIR SPONSORSHIP OF THIS EXECUTIVE REPORTAND FOR UNDERWRITING ITS PRINTING

t h e s o u r c e f o r f i n a n c i a l s o l u t io n s

200 Campus DriveP.O. Box 674

Florham Park, New Jersey 07932-0674www.ferf.org

an affiliate of financial executives international
http://www.ferf.org/http://www.ferf.org/


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William M. SinnettDirector of Research

Financial Executives Research Foundation

Rhona L. FerlingResearch Associate

Financial Executives Research Foundation

t h e s o u r c e f o r f i n a n c i a l s o l u t io n s

200 Campus DriveP.O. Box 674Florham Park, New Jersey 07932-0674

www.ferf.org

an affiliate of financial executives international
http://www.ferf.org/http://www.ferf.org/


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TABLE OF CONTENTSPurpose and Executive Summary 1

Research Methodology 3

Exhibit 1: Companies Interviewed 4Exhibit 2: Annual Revenues of Companies Interviewed 5Exhibit 3: Number of Employees of Companies Interviewed 5

Shared Services 6

Insights from the Companies 7

Co-Sourcing 11Insights from the Companies 12

Offshoring 14Insights from the Companies 15

Outsourcing 19

Insights from the Companies 20

Appendix A: 2007 Technology Issues for Financial Executives 21

Appendix B: Company Profiles 22

About the Authors and Financial Executives Research Foundation, Inc. 30


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Building an Agile Finance FunctionAlternative Approaches to Sourcing Financial Operations

Pu r p o s eThe purpose of this study is to help financial executives understand the managementissues and economics of alternative approaches to sourcing financial operations, includingboth costs and benefits. It is based on interviews with executives at 18 companies, 11 ofwhich are in theFortune 500, who provide insights based on their experiences with varioussourcing alternatives. Four common approaches to sourcing are investigated, includingshared services, co-sourcing, offshoring, and outsourcing. This research study wassponsored by The Siegfried Group, LLP.

Executive SummarySenior financial executives continue to seek ways to run their finance functions more effectively andefficiently. Many have investigated outsourcing and offshoring, but there is still uncertainty regarding thebest sourcing approach for their own companies.

At the request of FEIs Committee on Finance and Information Technology (CFIT), Financial ExecutivesResearch Foundation (FERF) undertook a research study to investigate various alternative approaches tothe sourcing of financial operations. FERF staff interviewed financial executives from 18 companies ontheir approach to the sourcing of financial operations. (See Exhibit 1.) These companies ranged in sizefrom large to very large, as can be seen from a comparison of their annual revenues and number ofemployees. (See Exhibits 2 and 3.) Eleven of these 18 are Fortune 500 companies, two are privatelyheld, and three are based in Europe. In light of the sensitive nature of sourcing, especially outsourcingand offshoring, the executives names and company affiliations will remain anonymous.

All of the executives interviewed emphasized that the sourcing decision for financial operations must bemade in the context of the business as a whole and the companys overall strategy. As a result, changemanagement is often a key issue. All interviewees also consistently highlighted the need to have a well-thought-out approach to sourcing, one that encompasses the varied aspects of integrating sourcing into

both the business model and the corporate culture. For some companies, external sourcing of even asingle function can meet with serious resistance. For others, the path to sourcing is relatively smooth,especially if it has started as a small pilot project and has grown organically.

One or more of four general approaches to the sourcing of financial operations were used by theexecutives interviewed for this research study:

Shared Services: The finance team looks internally to a centralized or dedicated department(functional area) or to a specially assembled internal team for support in completing a function orproject.

Co-Sourcing : To extend its in-house capabilities, the finance team uses outside professionalson a periodic basis to assist internal teams with major projects. Also known as accountingresource services, this is an approach that enables the finance team to maintain primary controlof the project, which minimizes project risk, accelerates delivery time and achieves cost

efficiencies. Of fshoring: Work is done in another country, in the offices of either the client company or the

service provider. Work can be completed as part of a shared-services arrangement or as part of aco-sourcing arrangement.

Outsourcing: The finance team looks to an outside provider to assume primary responsibility forperforming or providing a specific function or deliverable.


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Most of the companies interviewed used more than one sourcing alternative, showing that an agilefinance function often requires a combination of approaches to financial operations. Of the 18 companiesinterviewed, only eight indicated that they used just one sourcing approach. Six used two sourcingapproaches, and four used a combination of three sourcing approaches.

The executives interviewed provided a number of insights on the implementation and use of thesesourcing approaches, which are explored in greater depth in this report. The primary findings for each ofthe general approaches can be summarized as follows:

Shared services The need to streamline financial operations often motivates the shift to shared services.

Implementation of enterprise resource planning (ERP) systems facilitates the transition to sharedservices.

Clear expectations and defined metrics are critical when implementing and leveraging a shared-services model.

Co-sourcing Co-sourcing provides access to talented professionals who execute special projects at the

direction of the client. Co-sourcing to backfill internal employees increases a companys capacity and flexibility, while

ensuring that important work is completed during times when internal resources are constrained.

Offshoring Offshoring provides the opportunity to reduce costs.

Offshoring may create change-management issues.

Offshore co-sourcing may be used to transition to shared services.

Outsourcing Select only highly functioning processes to outsource.

To provide a broader context for this study, Appendix A includes a summary of responses to questions onoutsourcing from the 2007 Annual Report: Technology Issues for Financial Executives, a joint researcheffort of CFIT and FERF.

A brief profile of each of the companies interviewed is provided in Appendix B.


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Research MethodologyFERF staff invited financial executives from large companies to participate in this research project. Theexecutives were told that they would be interviewed on their companys approach to the sourcing offinancial operations. Possible approaches could include:

Shared services;

Co-sourcing;

Offshoring; and

Outsourcing.

Senior financial executives from 18 companies agreed to be interviewed. The titles of the intervieweesranged from senior vice president and CFO to director of accounting. Because of the sensitive nature ofsourcing, especially outsourcing and offshoring, the executives were assured that their names andcompany affiliations would remain anonymous.

Exhibit 1 assigns a code letter to each company interviewed, and indicates its industry and the sourcingalternatives employed. The companies participating in the study ranged from large to very large. Exhibit 2categorizes the size of the companies interviewed by annual revenues. Exhibit 3 categorizes the size of

the companies interviewed by number of employees.

Approaches to sourcing financial operations are defined as follows:

Shared Services : The finance team looks internally to a centralized or dedicated department(functional area) or to a specially assembled internal team for support in completing a function orproject.

Co-Sourcing : To extend its in-house capabilities, the finance team uses outside professionalson a periodic basis to assist internal teams with major projects. Also known as accountingresource services, this is an approach that enables the finance team to maintain primary controlof the project, which minimizes project risk, accelerates delivery time and achieves costefficiencies.

Of fshoring: Work is done in another country, in the offices of either the client company or theservice provider. Work can be completed as part of a shared-services arrangement or as part of aco-sourcing arrangement.

Outsourcing : The finance team looks to an outside provider to assume primary responsibility forperforming or providing a specific function or deliverable.

Most of the companies interviewed used more than one sourcing option, showing that an agile financefunction often requires a combination of approaches to financial operations. Of the 18 companiesinterviewed, only eight indicated that they used just one sourcing option. Six used two sourcingapproaches, and four used a combination of three sourcing approaches.


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Exhibit 1: Companies InterviewedCompany Industry Sourcing AlternativesA Business Services Shared Services

B Metal Manufacturing Shared Services, Offshoring

C Distribution Shared Services, Outsourcing

D Biotechnology Co-sourcing

E Technology Manufacturing Shared Services

F Financial Services Shared Services, Offshoring

G Media Shared Services, Outsourcing,

Co-sourcing

H Chemicals Shared Services,

Offshoring

I Chemicals Shared Services, Outsourcing,

Co-sourcing

J Diversified Manufacturer Shared Services

K Energy Shared Services

L Shipping Shared Services, Outsourcing

M Retail Shared Services

N Engineering Services Shared Services

O Telecommunications Shared Services, Outsourcing

P Media Shared Services

Q Business Services Shared Services,

Co-sourcing,

Offshoring

R Financial Services Shared Services,

Co-sourcing,

Offshoring


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Exhibit 2: Annual Revenues of CompaniesInterviewed

4

4

3

7 Less than $5 Billion

$5 to $9.9 Billion

$10 to $25 Billion

Over $25 Billion

Exhibit 3: Number of Employees forCompanies Interviewed

4

4

3

7 Less than 10,000

10,000 to 24,900

25,000 to 50,000

Over 50,000


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Shared ServicesDefinit ionThe finance team looks internally to a centralized or dedicated department (functional area) or to aspecially assembled internal team for support in completing a function or project.

OverviewCompanies use shared services to standardize and centralize financial and other operations into one ormore centers, which may be either domestic or offshore. The theory is that fewer operating locations willrequire fewer employees and fewer redundant systems, thus allowing the company to work moreeffectively.

As companies standardize and centralize financial systems, they often migrate to just one, or at most aselect few, enterprise resource planning (ERP) systems to facilitate the transition to shared services.

EquaTerra research finds that organizations view internal shared services as a key means to enablefinance and accounting (F&A) transformation. An EquaTerra study on F&A transformation revealed thatmore than 60 percent of organizations had already deployed F&A internal shared-services operations.Fifty percent of those same respondents also planned to undertake business process outsourcing,

1a fact

that underlines the importance of multiple service-delivery models under the shared-services umbrella.

EquaTerra projects that organizations successfully deploying shared services can expect to reduce F&Acosts by 20 to 40 percent three to five years into the effort. These savings, both hard and soft, can bederived from the following areas:

Headcount reduction

Lower operating costs (e.g., IT spending, real estate, audit fees)

Consolidated operations and economies of scale

Cost avoidance (i.e., decreasing future IT investments)

Improved efficiency of the F&A function

There are a number of potential benefits resulting from the use of shared services. One major benefit isoften a reduction in the costs of financial operations. A second benefit is a monthly accounting close thatrequires less time and effort. A third benefit is more control over financial operations, with less opportunityfor error or fraud. Finally, the use of shared-services centers should enable the company to reduce thenumber of systems that must be documented, maintained, tested, and audited in compliance withSarbanes-Oxley Section 404.

The interviewed companies used shared-services centers primarily in North America, Latin America,Europe, and Asia. Asia is especially attractive for companies looking to lower costs.

1The Role of Shared Services In Enabling Finance & Accounting Transformation, EquaTerra, May 2007.


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Shared ServicesInsights from the Companies S treamlining f inancial operations is a key motivator.

Even companies on the leading edge of business practices, such as Company E, may find that they needto streamline. According to the senior vice president-finance, Company Es decision to move towardshared services stemmed from a large growth spurt in the year 2000. At that time, the company decidedto selectively centralize and standardize its U.S. processes. Then, in 2002, the company experienced adecline in growth. As a result, it began to investigate business-process outsourcing across humanresources, finance, information technology, and procurement. Adding to the pressure to reduce costs, thecompanys chief operating officer insisted on managing to world-class standards. The company began tocontemplate how to transform finance into a world-class function.

The companys main goal was stronger best practices and internal controls in a more centralizedenvironment. Another important goal was cost avoidance that is, avoiding the need to invest in an ITupgrade, new facilities, etc. It wanted to maximize the investments it had already made in technology,personnel, and other areas.

This was largely the reason that Company E eventually decided not to use an external provider andchose instead to move to a shared-services model. We wanted to leverage our internal capabilities anduse outsourcing to augment areas that were not strategic for us, and then carry out the process globally,the company recounts. Company E chose a regional model that worked well from a change-managementperspective. Now it is able to process any regions transactions in any of its shared-services centers.

In the reengineering effort, Company E focused on its transactional processes first, and these are still thefarthest along. Functions now under the shared-services umbrella include order to cash, including creditanalysis, collections, and billing; accounting; and general-ledger activities, including facilities closing,journal entries, and consolidations. IT service delivery is also located in the shared-services organization,including the global help desk.

Company E has been tracking its shared-services costs and reports that shared services represents 12percent of the total functional cost for finance, not including audit fees. Of that 12 percent, less than 10percent of the shared-services budget goes to sourcing. Thus, sourcing represents about 0.5 percent ofthe total finance budget. Overall, Company E spends 10 percent on process improvement annually.

Of course, some cost is involved whenever the company transitions work over to a new center. But oncea shared-services center is complete, the company shifts to steady state mode, standardizingprocesses, centralizing work, and reducing costs. Now that the centers overall are better established, it isless costly to make changes in processes. Therefore, Company E does not foresee its costs growing agreat deal in the long run, with the exception of organic growth or acquisitions.


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Shared ServicesInsights from the Companies Implementation of ERP systems facil i tates the transit ion to sharedservices.

Despite large savings, Company Es experiences demonstrate that staging a major shift to a shared-services environment is no small task. However, several strategies and approaches can ease thetransition. Many of the companies interviewed report that full-scale ERP (enterprise resource planning)implementations, the use of an enterprise-wide approach, and the development of a common chart ofaccounts greatly facilitated their move to shared services.

For example, Company M has begun an initiative to develop a common chart of accounts so that it cancentralize some of its key functions, beginning with fixed-asset accounting. This represents a shift from anearlier, more decentralized model. Three years ago, as we entered new markets, we would install fullycontained back-office functions that were completely self-sufficient, the vice president of financialservices says. But this has proven too expensive and difficult. Its hard to have control and to account forit under SOX. With shared services, internal audit only has to look at it once.

He adds, Until recently, our broad strategy was coming from a high level in the organization and waswell-established, but the tactical piece was one step at a time. But now, with the fixed-asset move underour belt, we know what can be done and how quickly.

The assistant controller of Company B said that a similar initiative to develop new processes and a newchart of accounts has meant tremendous strides in efficiency and the ability to close the books on time.Its financial processes and systems are now standardized worldwide, the result of a decision in 2000 toinstitute a global ERP system.

Company K, too, found that its full-scale ERP implementation was a huge benefit during its transition. Theassistant controller reports that the resulting uniformity and standardization has allowed the company togo in-house with shared services far more easily. Its approach is an outgrowth of Y2K to avoid

problems by uniformity and standardization in the enterprise platform, the company explains.

Of course, the need for good data integrity goes hand in hand with any ERP initiative. Once a commonchart of accounts has been established, many companies take firm measures to ensure data integrity andconsistency going forward. For example, the assistant controller at Company K says it stringently mapsits chart of accounts and maintains published corporate data standards. The company has a surveillancegroup of eight to 12 people, who go into the SAP system and do forensics. The forensic report looks forany change in the account mapping.

In the complex and seismic shift to shared services, most companies begin by focusing on transactionalprocesses such as accounts payable and receivable, order processing, travel and expense reporting, andso on. The transactional side of the business is usually the easiest to shift to a shared-servicesenvironment, because it is considered more discrete and less complex.


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Shared ServicesInsights from the Companies Metrics are crit ical.

This need for clear expectations and defined metrics to assess whether those expectations are being met

was a strong theme for many companies. Companies with well-established, thriving shared-servicescenters say that solid metrics are a vital aspect of the shift to shared services, in terms of goodgovernance, assessing cost savings, monitoring efficiency, and other key concerns. Company K, forexample, which has 15 major shared-services centers and nine hub centers, reports using extensivemetrics, including monthly, quarterly, and annual measures. The company maintains a database withmore than 200 line items, including the number of open balance-sheet items; the number of unreconciledaccounts; safety statistics; personnel measures, such as headcount; number of defects; and downtime onthe computer system. With two exceptions, all of its metrics have been stable or have improved over thepast five years.

In addition to tracking costs, Company E establishes service-level agreements with each partner; baseoperational metrics include quality, service, and cost. There are both input and output metrics, and in thisrespect the shared-services centers are treated just like factories. For instance, gross functional costs are

tracked as a percentage of sales, and as compared to external benchmarks.

Overall, notes the senior vice president-finance, Company E tracks more than 100 process-controlmetrics that include indicators like error and productivity rates. High-level metrics from a managementperspective include the cost of payroll per employee and the cost of an invoice to be processed. In thecompliance area, the main metrics are the annual audit and Section 404 testing. The company also doesexternal benchmarking. Finally, within each region, a business unit may have performance-data needsspecific to its circumstances and can request tracking for a particular metric.

Metrics and change management are closely intertwined for many companies as they begin shifting to ashared-services environment or other sourcing alternative. Metrics can carry a great deal of weight, notmerely in assessing the efficacy of the move, but in tackling the sensitive issue of change management ingeneral, and more specifically in persuading business units to accept fundamental changes in the way

they conduct business. This is certainly true for Company P, which is currently evaluating how best tomove toward a shared-services environment in a corporate culture long characterized by decentralizedand autonomous business units.

Just as Company A views consistent metrics as a change-management tool, Company P envisions themas a catalyst for change. The vice president who was interviewed reports, Right now, we dont have areal emphasis on metrics yet, but we need to move towards that. For example, wed like to do someexternal benchmarking to get some hard data. One of our major problems is that because we dont haveany metrics in place now, everyone thinks everythings perfect. So if you put a new system in place andstart to track things, the metrics will show that service and quality have declined. Then it looks as if thenew system has failed. Its a very awkward position you almost need to put in the metrics first, as awake-up call.

Company P has been considering instituting metrics for certain transactional items, like the number ofchecks cut and the number of invoices processed. However, the larger issue is the potential for servicelevels to drop. We have some important change-management issues to address, its vice presidentnotes. Ive run an SAP implementation, so I know what its like to try to wrestle with some of theseproblems. We are going to need to mandate participation and address some personnel issues. There isan attitude of entitlement in many areas. The business units need to be told whats expected of them.

Metrics have also been critical for Company F. According to the global head of financial accounting, Ourchallenge is that we have not measured KPIs [key performance indicators] in the past, so we use currentproductivity measures to gauge improvement. The company has now identified minimum target levels ofoperational performance. It has key performance indicators for each operational process, of which there


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are over 100. Examples include quality of performance, error rates, the percentage of transactions thatneed to be rebooked, and meeting deadlines. Local management is responsible for meeting quality andproductivity standards.

Company M has a slightly different approach. Our metrics are mostly around timeliness and accuracy,not so much cost. Our focus is on taking the burden off individual accounting functions. We try to keepour metrics down to five to seven key measurements, the vice president of financial services explains.These are:

Percentage of required account reconciliations finished by the 10th

day of the business month;

Posting of manual journal entries within the closing period (by the fifth business day);

Percentage of P&Ls distributed by the 12th day of the fiscal period;

Percentage of missing bank deposits that the companys German accounting group is notified of;

Percentage of capital project numbers set up and communicated within one day of the physicalsite information;

Percentage of assets placed in service in the correct period;

Percentage of invoices entered within five days of the receipt of information, as well as timelinessof payment.

We also try to make the SLAs (service-level agreements) two-way, he adds. In other words, did the

customer provide the necessary data and information to allow the shared-services center to do its job?


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Co-SourcingDefinit ionCo-Sourcing : To extend its in-house capabilities, the finance team uses outside professionals on aperiodic basis to assist internal teams with major projects. Also known as accounting resource services,this is an approach that enables the finance team to maintain primary control of the project, which

minimizes project risk, accelerates delivery time and achieves cost efficiencies.

OverviewCo-sourcing is also known as accounting resource services (ARS). In March 2006, The Siegfried Group,LLP, issued a white paper that described ARS:

Unlike traditional consulting or other outsourcing options, the client maintains control ofthe project and provides direction to dedicated and focused professionals. Projects mayinclude, but are not limited to:

carve-out financial statements

merger integration issues

problem accounting issues

internal-control documentation Sarbanes-related evaluation and testing

financial analysis

internal and external reporting

internal and external auditing and forecasting

accounting position backfills.

Typically, the client is charged an hourly rate for highly qualified labor on non-annuitytype projects. Depending upon the solution providers model, the professional providingthe service could be a full-time or temporary employee or a contractor of the organizationthat was engaged by the client.

2

Used on an as-needed basis primarily for special projects of limited duration, co-sourced professionals

are released by the client when the project is completed, without any additional obligation or liability. Dueto the fact that a co-sourced project is controlled and managed by the company, project risk is minimized,delivery time is accelerated, and the overall cost of the project is reduced.

The onshore co-sourcing market is large and growing. The Siegfried Group estimates the ARS sector in2005 was $5.12 billion. This represented a 14.2 percent increase over a similar 2004 estimate, and acompounded increase of 17.8 percent over the previous two years.

Companies interviewed for this project use onshore co-sourced professionals for limited-term projects,such as Sarbanes-Oxley compliance initiatives and work related to the sale of a business. One of thecompanies interviewed added that it prefers this solution to using professionals from large accountingfirms, who may have independence restrictions or be pulled back to perform audits for other companies.

2A White Paper on Accounting Resource Services (ARS), A Major Growth Sector Within the Accounting Industry,

The Siegfried Group, LLP, March 2006.


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Co-SourcingInsights from the Companies Use co-sourcing for special projects.

Like many companies, Company D uses co-sourcing for special projects. Dont hire people you will notneed later on, says the director of accounting. We have had good success with our co-sourcingprovider, which provides the arms and legs that we need for special projects. Should the project scope orrequirements change, external professionals can be substituted quickly. This arrangement allows thecompany maximum flexibility and provides it with a skilled, variable work force, but only when and if thatwork force is needed.

Company R agrees. From time to time, we have projects for which we need a lot of skilled people rightaway, says the president and CEO of a U.S. division. These could be special projects that have a four-to six-month life span, and it does not make sense to hire full-time people for these projects. He is verysatisfied with the people sent by his co-sourcing provider. They are well-versed in sophisticated financialprocedures, and they are quick learners.

The senior vice president and CFO of Company G used a co-sourcing provider when he worked atanother company for Sarbanes-Oxley Section 404 documentation work, and also for the consolidation ofacquisitions. Currently, his company uses a co-sourcing provider for financial reporting, financial planningand analysis, and acquisition due diligence. He said that the provider is a good fit for the companysneeds, because its people are highly skilled, flexible, and have broad knowledge. The provider focusessolely on accounting and finance co-sourcing. When you work with a services firm, you want to be in thecore of their business, he points out. An outside auditing firm is used for internal-control systems.

The companys aim is to deploy co-sourcing strategically to make costs more variable, enable a focus onmore strategic activities, and access external skills and talent. Overall, Company G has been verysatisfied with its providers, a big change from 10 years ago, according to our interviewee, when it wasvery difficult to find highly qualified people.

Likewise, Company I uses co-sourcing to extend our internal capabilities on large, complex projects.Were not looking for people to key-punch, emphasizes its U.S. controller. She explains that we usedco-sourcing heavily when we did the carve-out and sale of one of our businesses, which was a three-yearproject overall.

She adds, We can always go to these firms [co-sourcing providers] when we have a need. Therefore,theres no point in hiring and then terminating more employees on a project basis. The company prefersto contract people first rather than hire them from the outset, to ensure adequate coverage for a projectand avoid permanent hires too early on. In other words, If we think we may need eight people for aproject, but arent sure, we sometimes contract four and hire four. Even if we end up hiring eight peoplelater on, we err on the side of contracting at first so that were not overcommitted.

Company C uses co-sourcing with Web-based software providers that can add value to the companys

existing finance operations. We will implement a [co-sourcing] solution if we determine that it improvesour ability to efficiently complete all or a portion of the steps in the total process, says the vice presidentof financial operations. For example, in our payables processing, we co-source the OCR (opticalcharacter recognition) scanning of invoices that are not already sent electronically, in order to reduceinternal data-entry costs.


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Co-SourcingInsights from the Companies Using co-sourcing to backfi l l internal employees adds both f lexibi l i tyand capacity.

Co-sourcing can also provide companies with much-needed flexibility and additional capacity during timesof transition, ensuring the seamless completion of important financial work. The senior vice president andCFO of Company G uses co-sourcing to fill high-priority, time-constrained needs to either clean up aprocess or to execute a new demand (such as an acquisition) where there is a real need to do it right thefirst time and put the work behind you. The incremental resources for this type of activity often do notjustify new full-time headcount, he explains. People try to get it done with reallocated resources, and thework doesnt get done either as well or as fast as desired, which can be quite costly if an importantbusiness initiative suffers.

The director of financial controls at Company Q views co-sourcing partly as backfill for departingemployees. Also, it sometimes brings in external professionals to handle employees ongoing workloadwhen the company needs to redeploy employees to take ownership of more strategic projects, such as

mergers and acquisitions work. Conversely, this variable solution is occasionally used to tackle specialprojects in instances where the company cannot take an employee off his or her daily job.

Professional fit, in terms of culture, personal attributes, and technical expertise, is critical when backfillinghigh-level internal positions. Decisions on co-sourcing are made at the vice president level, the directorsays. The company began using a new co-sourcing provider last year and has been very pleased with theresults. The key factor is the quality of people they send, she explains. Well go to whichever firm sendssharp, on-the-ball, professional people. With its current provider, the quality of people for the price is farbetter than what the company has been able to find elsewhere. Our provider is very accessible; theresalways someone in the field available. They seem to have a good model a very high-quality employee,somebody youd typically expect to find at a very large firm, combined with the more individualizedservice and lower costs of a smaller company, she reports.

Although co-sourcing has proven to be very successful for Company Q, it seems likely that as a sourcingalternative, it will eventually be absorbed into the companys transition to shared services. This has to dowith its particular corporate culture, rather than dissatisfaction with the performance of its providers. Ingeneral, management dislikes the idea of bringing someone on, training them, and then having thatexpertise walk out the door it doesnt sit well, our interviewee reports. Therefore, movement in thesourcing area will entail looking at other areas that the company can move into shared services, as part ofan overall effort to centralize its European business as much as possible.


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OffshoringDefinit ionOffshoring : Work is done in another country, in the offices of either the client company or the serviceprovider. Work can be completed as part of a shared-services arrangement or as part of a co-sourcingarrangement.

OverviewThe companies interviewed use offshore shared-services centers as a means of lowering costs. Or theymay hire offshore co-sourcing providers while transitioning to an offshore shared-services center that theyare planning to operate themselves. A company that is developing an offshore shared-services center in,say, India, will often use co-sourced Indian professionals to staff that center, until the company is ready toreplace them with full-time company employees.


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OffshoringInsights from the Companies Of fshoring provides the opportunity to reduce costs.

Companies are often looking for geographical and labor advantages in achieving their cost-savings goals,which is why many have shared-services centers offshore, often in India or China. Most of these centersfocus on transactional processes. Examples include Company Hs shared-services center in China andCompany Ls documentation function, which has been offshored to China. However, several companieshad also implemented offshore shared-services centers by market region, including Europe, NorthAmerica, and Latin America.

Company O, which already had a major manufacturing facility in China, leveraged its well-establishedpresence, infrastructure, and local contacts to open a shared-services center there. Today, 10 percent ofthe companys finance function is in China. The center performs activities such as fixed-assetcapitalization processing, inter-company activity processing, and travel and expense reporting. Thus far,these sorts of transactional processing activities have been our main focus for shared services, so wetend to hire college graduates looking to cut their teeth with their first job. Its not top-level work, but wefeel there is room for growth in the type of job that is performed there; were looking to ratchet up the

complexity of the activities, explains the vice president for global financial shared services. That said, wehave kept the frontline customer support in the U.S. Someone who needs an immediate response byphone will be directed to a person here in the U.S. E-mail inquiries, on the other hand, are more likely tobe directed to the shared-services organization in China, he says.

Similarly, for its offshore shared-services center, Company K hires people just out of school and alsothose who have two years experience with a multinational. At one time, the company had a fairly limitedview of the development path of these offshore recruits. However, it has been impressed with theircapabilities, which extend far beyond transaction work. The company believes these capabilities will openup career paths all over the world. Our offshore recruits have outstanding skill sets. The level of theircomputer skills has exceeded my expectations, says the assistant controller. These employees arecapable of fairly exotic analysis, and they are far more innovative and creative than the older workforce.They have youth and enthusiasmthey seek out change, he observes.

This has been an unexpected bonus for Company K, which initially found that the major obstacle insetting up its centers was the absence of a particular skill set in specific locales. Our interviewee counselsflexibility in strategy, both in the implementation of a labor migration strategy and in adjusting to locallabor laws and conditions. Another key to its success has been its ability to gradually but steadily gainregional support from its business units, starting with its initial proof of concept in its Latin Americanmarket.

Company Ks assistant controller also noted, We have a number of companies to account for, as well assome complex financing activities. Our offshore shared-services centers were originally used for routinetransactions. Now we are beginning to move accounting for all of this offshore. This new shift, plus someother factors, is increasing the level and complexity of the shared-services centers activities. And likeCompany O, Company K also expects to assign more complex processes to its offshore shared-services

centers as the skill set of their staffs continues to improve.

Although many companies choose to largely or completely offshore their shared-services centers inpursuit of labor and real estate arbitrage, others find that a mix of domestic and offshore centers is thebest fit for their business model and customer-service needs.Company A, a business-services company,is one of the latter. It incorporates both domestic and offshore shared-services centers in its vision ofshared services. The company works from a build-prove-expand model, and closely examines whichfunctions are best suited for specific locations. Currently, the company has two smartshore locations inEl Paso, Tex., and Augusta, Ga. These shared-services centers focus on customer-facing, language-dependent functions. For example, the collections function remains onshore, because it is both client-


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facing and language-specific, and also because there are sensitivities to moving it offshore. Planning andanalysis also remain a domestic function.

Company F also sought labor arbitrage and better access to talent. Currently, two-thirds of its headcountare in high-cost areas, while one-third is in the low-cost area. Our goal is to get 45 percent of ourheadcount into a low-cost area and 20 percent into regional areas, with only 35 percent remaining in thehigh-cost area, the global head of financial accounting reveals.

Company F is now planning to move some operations to India to take advantage of lower costs. Thecompany has decided that it has three options: outsource the operations to an Indian outsourcing firm; setup a shared-services captive in India; or co-source the Indian operations, using a combination of the firsttwo options.

The company plans to try option number three. It will provide the managers, and the Indian outsourcingfirm will provide everything and everyone else. The Indian firm has better brand recognition in India, so itshould be able to hire the best people. Company F reports that all of the firms employees havebachelors degrees in accounting, and 40 percent are CPAs under the Indian or English accountingsystems. They perform rules-based transactions, so we call this accounting as a factory, ourinterviewee comments.


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OffshoringInsights from the Companies Of fshoring may create change-management issues.

At Company B, a shift to an offshore co-sourcing arrangement in India for most transactional accounting

and much of IT created a great deal of stress and anxiety during the transition. Company B had its firstco-sourcing transaction with its Indian partner in mid-2005. According to the assistant controller, We hada very thorough change-management process that took account of many issues severance packages,retention bonuses, human resources issues and a detailed communication plan.

The company kept its employees apprised of the analysis and decisions as it moved closer to finalizingthe co-sourcing arrangement. Some key employees left for other jobs, both inside and outside of thecompany, and there was concern that some key institutional knowledge might fall between the cracks.We needed to make sure the knowledge was transferred over completely before we moved the U.S.-based folks to other jobs, the assistant controller says.

Plus, the company had underestimated the attrition rate in India. Because business-process outsourcingis a top growth area there, people move around a great deal, jockeying for better positions. At one point,

the attrition rate was around 80 to 90 percent, the company reports. This was happening at the sametime we were experiencing a great deal of turnover at home. And your internal customers are just asdemanding, regardless of the circumstances. In the end, detailed planning and a strong partner in Indiacarried the day, and the arrangement has succeeded.

Company B now has several co-sourcing providers based in India. Although they are third-partyproviders, their team is connected into ours. We consider that we own the process and are leading thechanges, the company says. They handle accounts payable, accounts receivable, general accounting,property and fixed-asset accounting.

The company describes its strategy as pyramid-shaped, noting that our co-sourcing provider in Indiarepresents the base of the pyramid, the nuts-and-bolts transactional processing. In the middle are ourcore processes, those that are business-related that we want to have centralized in a lower-cost country

but retain in-house. And finally, at the top, is our real expertise that will remain in the regions close toour business-unit customers, supporting the exceptions and unique items.


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Offshoring Insights from the Companies Of fshore co-sourcing may be used to transit ion to shared services.

Over time, Company F will need to decide whether to make its offshore co-sourcing arrangement into aforeign shared-services center. We will have to ask ourselves, Should these people be employees?Should we convert this operation into a captive? muses the global head of financial accounting. But weare flexible, and we are not in a hurry to make a change. By the time a decision needs to be made, thecompany plans to have built brand recognition in India, with the goal of attracting top-notch people on itsown. It will also be able to offer a better career path, reduce turnover, and grow people into theorganization who know the nuances of the business.

In a similar move, Company H has teamed up with an offshore co-sourcing provider to create a center inMumbai, which will eventually become its global shared-services center. Although it is a co-sourcedoperation, the Mumbai center will be managed, albeit somewhat differently, under the umbrella of theshared-services center. Our provider is very experienced in setting up shared-services centers,

particularly in dealing with local labor laws and hiring practices, the global accounting director reports.The center is headed up by one of our employees. Half of our worker bees are internal people, and halfare the providers employees, so we can hedge our bets in case the relationship doesnt work out, hesays.

The center will handle invoicing, accounts receivable, accounts payable, and payroll; some back-officecustomer-service functions that are not customer-facing; IT support (again, non-customer-facing);purchase-order creation; global sourcing; and supply-chain management. The Mumbai facility willgradually displace the companys German center as its global shared-services center, although thecompany will probably retain certain areas of expertise in Germany, such as European Union statutoryand tax expertise.

The Mumbai center will represent about 15 percent of the total shared-services operations, with about 3

or 4 percent of the total shared-services budget. By comparison, Company Hs main shared-servicescenter in the Midwest is about half of its total shared-services operations. Like many of the companiesinterviewed, Company H uses service-level agreements for its Mumbai operations. The metrics usedinclude turnaround time/throughput, error rates, and cost and productivity-driven metrics.


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OutsourcingDefinit ionThe finance team looks to an outside provider to assume primary responsibility for performing orproviding a specific function or deliverable.

OverviewCompanies usually outsource work that is not considered a core business competency, and that can bedone more efficiently and at less cost by an outside provider on an ongoing basis. Outsourcing servicesmay be provided either domestically or offshore. Finance and accounting outsourcing (FAO) to anoutsourcing provider can involve a single process, such as credit and collections or accounts payable, orthree or four processes, often across multiple business units.

EquaTerra conducted a market study on FAO in the first half of 2006. Over 30 percent of the respondentorganizations already had undertaken FAO, and another 10 percent were in the process of doing so.Equally important, of those buyers that had undertaken outsourcing, over one-third planned to expandefforts going forward, and less than 5 percent planned to curtail or eliminate them.

3

Here are some of the key findings of this EquaTerra market study:

Multi-purpose deals have been smaller, and one- or two-process deals are still popular. FAO more often is coupled with other alternative sourcing strategies, like shared services, as well

as internal process-improvement efforts that are undertaken in advance of or in lieu of outsourcing.

India-based service providers are making solid FAO inroads, typically through point-solutiondeals, and nearly always in buyer accounts, where they already are performing ITO (informationtechnology outsourcing) work.

Mid-market demand for FAO is strong, particularly in tax and accounts payable, and is attractingboth Indian and tier-one multinational service providers attention.

Since 2000, EquaTerra has seen approximately 100 FAO deals involving three or more functional areas,with a total contract value in excess of $10 million.

Companies typically outsource routine transactions, such as payroll and accounts payable, and alsohigher-level work, such as taxes and external financial reporting, in foreign countries where the companydoes not have local expertise.

3How real is the F inance & Accounting outsourcing market? EquaTerra, February 2007.


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Outsourcing Insights from the Companies Select highly functioning processes to outsource.

The consensus of our interviewees was that you need to get your own house in order before you cansucceed at outsourcing. In other words, most companies said that they needed to be sure they had agood handle on their own processes before going to outsource providers. As the vice president offinancial operations at Company C says, Our key strategy is to obtain internal efficiencies to get ourarms around existing processes, make them as efficient as possible first, and then talk to outsourcingproviders. We want to keep those profits for ourselves, not hand them over to an outsourcer. But, hecautions, This takes discipline: to ensure that you have adequate measurements in place to benchmark,and to know that you are getting more efficient every year. Our people are measured on efficiency andeffectiveness. This has allowed us to grow the business without adding staff.

Echoing these sentiments, the senior vice president and controller at Company N observes that in hisorganization, we always want to make sure that our processes are working properly before weoutsource. You cant outsource something that doesnt work you must make sure the interface is

working. Otherwise you have quality issues. If you approach it in this way, you get greater efficienciesfrom your partner because of their scale or knowledge.

The vice president of financial services at Company M agrees. The company does outsource some of itsfunctions, including travel and expense payments, as well as the printing and mailing of customerinvoices. However, within its organization, there is a desire and a need to develop a strategy get it rightand then outsource, the company says. We want to consolidate get it all back in under our wing,stabilize things, and then outsource, our interviewee explains. Our business is growing so fast that weneed to be careful what we do. It is faced with a difficult dilemma, he says, because our processes aretoo fragmented, but if we turn them over to a third party to fix, it will end up being too costly.

Yet in the right circumstances, outsourcing can prove very effective for some companies. Company L isone company that has successfully outsourced a number of its functions, including HR, documentation,

cash management, and most of IT. If its a process you can do worldwide, we outsource it, says theCFO for the Americas of his companys approach. With the documentation function, costs were a bigfactor, plus the need to find people willing to perform this kind of work. Cost savings were also a factor inoffshoring financial and cash management the idea of getting a float on the dollars was appealing, henotes.

Plus, the company has found that closer tracking of metrics has improved its service levels in cashmanagement, for example, it tracks error rates and clearance time for checks. In the documentation area,it focuses on the error rate as well as the number of e-mails sent, because previously we had a longturnaround time, he notes. An improved control environment is an additional benefit. There is lots ofregulatory compliance, which is one reason to outsource it to one location. If you centralize it, its easier toaddress the regulatory issues.

Keenly aware of the change-management issues inherent in an outsourcing initiative, the company hasproceeded with due caution and solid numbers on its side. Whenever it outsources anything, it alwayshas a budget and a cost-benefit analysis. The payback has usually come within two years. This is a keypoint, because some of the things we have done involve big changes to the organization, so you neednot only a good plan, but good ROI, advises our interviewee, adding, You need to be able to convinceother people and get buy-in. The financial side is one way of selling it.


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Appendix A2007 Annual Report: Technology Issues for Financial Executives,Financial Executives Research Foundation, June 2007 (Selected highlights)FEI members were surveyed between January and March 2007 on a variety of technology issues thatthey face, including outsourcing. The results were distributed in the 2007 Annual Report: TechnologyIssues for Financial Executives (Financial Executives Research Foundation, June 2007).

Here are some of the questions regarding outsourcing:

Has your organization already outsourced any activities or processes, or does it plan todo so within the next year?Payroll was, by far, the most commonly outsourced activity, with 57 percent of the respondents indicatingthat their companies outsource payroll. Only about 5 percent of the respondents outsourced accounting,although another 5 percent planned to outsource it the following year.

For each area that is currently outsourced, how successful has the arrangement been?As in the previous year, the report card on outsourcing produced very good grades. Eighty-five percent ofrespondents that have outsourced one or more areas consider their arrangements to be successful. Of allthe outsourced areas, payroll got the highest marks, with 93 percent rating it successful.

How important are the following criteria to your organization when it evaluates whatactivities to outsource?Not a core competence and cost is too high, together representing over 70 percent of responses, arethe main drivers of outsourcing as an activity. Companies outsource processes and activities that theycannot do well or are too costly in-house.

Do you currently use or plan to use a shared-services center for transactionalaccounting or other services?The most commonly implemented shared services continue to be internal processes, those that provideservices to individuals or other functions within the organization. These processes include payroll, travel,and information technology, and they are also the most commonly outsourced activities.

For each area currently in a shared-services arrangement, how successful has theoperation been?Shared services, the in-sourcing or centralization of common, repetitive processes, technology andpersonnel, appears to be overwhelmingly successful, with about 90 percent of respondents reportingeither highly successful or moderately successful results. Similar to the previous year, the percentage ofrespondents reporting highly successful results remained at 50 percent.


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Appendix BCompany Profi les Company ACompany A, a business services company, has about 40,000 employees worldwide. Of these employees,about 1,200 are in accounting and finance.

Company A has decentralized financial operations, with operations located around the world. It describesits financial operations model as distributed. However, although this model has worked well in the past,the company now plans to migrate to a shared-services model for three primary reasons:

1. The company wants to reduce the cost of its financial operations, or at least slow the rate of costincreases, which it expects to achieve through the use of shared services.

2. The company expects that the use of shared services will allow it to refocus its financialresources. If less time and effort is spent on business administration, more time and effort can bedevoted to business analysis.

3. The company expects to achieve better overall control with shared services, which will reduce thenumber of systems that must be documented, maintained, tested, and audited in compliance withSarbanes-Oxley Section 404.

Company A expects to complete its transition to shared services within the next year. In the process, itwill reduce the number of financial operations centers, as well as the number of employees, and thus cutcosts. The company has a number of legacy systems that are over 20 years old. As it migrates to sharedservices, it will replace these legacy systems with one enterprise resource planning (ERP) system.

Company BCompany B, a metal manufacturing company, has about 124,000 employees worldwide. Of theseemployees, about 1,800 are in accounting and finance. The company has a very lean financeorganization, with a distinct set of best practices.

Most of the companys transactional processing and expertise services in the non-core areas of the

company are contained in its shared-services centers.

The companys financial processes and systems are standardized worldwide. In 2000, the companydecided to implement a global ERP system and some complementary systems. It developed newprocesses, which included a new chart of accounts, and built a transactional foundation. This has enabledthe company to make tremendous strides in efficiency and its ability to close the books on time. All of thiswas done before the Sarbanes-Oxley Act of 2002 was signed into law, so the company had a mucheasier time with compliance than it otherwise might have had.

In mid-2005, the company had its first business-processing outsourcing (BPO) transaction with its Indianco-sourcing partner. It used a very thorough change-management process that encompassed manyissues severance packages, retention bonuses, human resources issues and a detailed communicationplan. One key consideration was ensuring that institutional knowledge was transferred over completely to

its partner before moving U.S.-based employees to other jobs.

Company B describes its strategy as a pyramid. The Indian provider represents the base of the pyramid,the nuts-and-bolts transactional processing. In the middle are its core processes, those that are business-related, and that the company wants to centralize in a lower-cost country, but retain in-house. At the top isits real expertise, which will remain close to business-unit customers.


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Company CCompany C is in the distribution business, with over 10,000 employees. Currently, the company operatesglobally, providing value-added services, supply-chain management and warehouse distribution.

The company uses a shared-services model for its financial operations domestically, although itoutsources payroll and cash application/bank processing transactions. Records management, includingfinancial records, is also outsourced. Its key strategy is to obtain internal efficiencies. Due to internalpriorities within finance- and accounting-related functions, outsourcing has been reviewed and is anoption. However, it wants to get its arms around existing processes and make them as efficient aspossible, before evaluating the costs and benefits of other sourcing alternatives.

Given that approach, it is not surprising to find no full-scale outsourcing of financial operations at thecompany. Over the past several years, the company has focused on process improvements andrestructuring, resulting in over 50-percent cost savings in financial shared services. However, thecompany acknowledges that in order to continue improving, it may need to consider outsourcing in thefuture, as well as in-sourcing its own operations globally.

Company C approaches any kind of sourcing endeavor from the standpoint of efficiency and whats rightfor the business, and the customer and supplier relationships are critical to the success of the business.Therefore, incremental cost savings may in fact be disruptive to the operation.

This is important, because its model is less about direct distribution and more about customerrelationships. Key customer relationships must remain under the companys control, and they will not beoutsourced, even if that means overstaffing

Company DCompany D is in the biotechnology industry. It has about 3,500 employees worldwide, of which 250 are infinance. About 200 of those finance employees are in the controllers office.

The companys approach to sourcing is to hire the finance talent that it needs to grow its business,particularly for project management, and then to use co-sourcing for special projects and as a way oftrying out employees before hiring them on permanently.

The company has used the services of a co-sourcing provider since last summer, as a way of bringingmore resources to the table without making a permanent commitment. In general, these employees haveperformed lower-level, transactional tasks, and the company has had good success with them thus far. Ithas also used other firms that have higher-level people with project management experience.

Payroll, accounts payable, and international operations are all done in-house. The company doesnt doany outsourcing, nor does it have a shared-services center. Currently, the company sees no reason toreevaluate that decision.


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Company ECompany E is a global, diversified manufacturing and technology corporation. It has about 24,500employees worldwide, including approximately 10,000 employees in the U.S. About 650 employeesreport to the CFO. Finance comprises five groups: control, treasury, technical accounting, tax, and sharedservices.

The company has three regional shared-services centers, located in the U.S., China, and EasternEurope, each of which supports its operating units. The shared-services centers handle:

payroll (U.S.);

credit management and cash applications;

purchase orders and customer service; and

general accounting.

The U.S. shared-services center also has a consolidation and reporting group.

Company FCompany F is a financial-services company based in Europe. It has 3,000 full-time equivalents in the

finance function, including 900 in financial accounting and 800 in product control; 900 employees report tothe chief accounting officer.

The company does not have shared-services centers per se, but that is how it describes its back-officefunction. In January 2006, it took certain functions shared by its divisions and consolidated them into theshared-services divisions. Strategically, the companys approach has been to take back-office activitiesfrom its divisions and consolidate them into a centralized back office.

The next step will be to look at consolidation. The company wants to get as much work as possible doneoffshore. It plans to centralize physically both the front and back office into lower-cost locations. The twoprimary sourcing objectives are better access to talent, at a lower cost and a lower attrition rate, and theability to place employees in growth areas, especially Asia.

Company F found that its competitors were using shared-services centers offshore for both front-officeand back-office work, including high-end processes, rather than just lower-risk processes. It started withlow-risk, simpler operations, and then moved on to higher-level processes.

The company plans to use shared services not just for payroll and accounts payable, but also inter-company reconciliations for the financial-statement closing. Eventually, it will examine all processes thatcould be consolidated at offshore sites, where costs are lower.

Company GCompany G is a media company that provides programs in 170 countries. It has 4,500 employees, ofwhich 650 are in finance.

Company G has four operating divisions, each with its own CFO and its own controller. The U.S. divisionhas a shared-services center that handles treasury and accounts payable. Outside of North America, ithas accounting centers in four major regions: Asia, Latin America, Europe, and the United Kingdom.

The company relies on co-sourcing for staff augmentation, because co-sourced employees have a highskill level and do not mind changing projects. It prefers this solution rather than using professionals fromlarge accounting organizations, which have independence restrictions and may pull employees back toperform audits.


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Company HCompany H, a global chemical company, has manufacturing operations in 40 countries, and doesbusiness in about 170. The company has a total of 43,000 employees, of which 1,600 are in finance. Thecompany describes itself as being heavily centralized in the finance area, and all of its processes arestandardized worldwide.

Company H has a shared-services center in Europe. Some activities are being moved from this center toa co-sourcing center in India.

Company ICompany I, a chemical manufacturing company, has about 60,000 employees worldwide. The financefunction has about 3,500 employees, and the company describes itself as a decentralized matrix, withboth centralized and decentralized areas.

The company has used a range of sourcing services for different needs. For example, it used co-sourcingheavily in the carve-out and sale of one of its businesses. A project staff, comprised of its co-sourcingprovider and in-house staff, collaborated on this three-year project. It also used co-sourcing providers forearly Sarbanes-Oxley compliance work.

The company also uses professionals, such as CPAs, to extend its capabilities on large, complexprojects. It generally doesnt seek out temporary staffing for lower-level, transactional tasks. Outsourcingis limited to the accounts payable function of the parent company.

Company I has a European shared-services center, which it implemented because of the cost incentivesat the time. In general, finance has been driving the decisions about when and how to use the shared-services center. However, the company says it is at a point where it cant keep everything in one center,so it is reevaluating its options.

Company JCompany J, a diversified manufacturer, has 60,000 employees worldwide, of which 1,600 are in finance.

Company J uses shared services for general ledger, payroll, accounts payable and receivable, and fixedassets. Different areas of the company worldwide are at different stages of implementation in terms ofshared services. The company says it uses shared services because it can maintain control, and it thinksthat shared services are just as cost-effective as other alternatives. It believes that companies cannotbuild institutional knowledge and organizational capability when relying on outsourcing.


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Company KCompany K, an energy company, has 80,000 employees, with 5,000 finance employees.

The company began doing pilot projects for a shared-services center in Latin America in the latter part of2000. In 2002, it decided to go global with its shared-services philosophy. It began to develop a shared-services environment in the lowest-risk areas first, and worked its way up to the more complex regions.Currently it has shared-services centers in Latin America, Asia, North America, and Europe.

A full-scale ERP implementation greatly facilitated the companys move toward in-house shared services.That approach was an outgrowth of Y2Kto avoid problems by having uniformity and standardization inthe enterprise platform.

The company does not do outsourcing or co-sourcing because it prefers not to rely heavily on outsiders.However, it does use consultants from time to time on a project basis.

Company K now has 8,500 people worldwide in its shared-services centers. By 2008, it will have morethan 10,000, because it will be using shared services for more sophisticated areas. It expects to have1,600 to 1,800 employees there in finance alone.

Company LCompany L is in the liner shipping and container industry and is headquartered in Europe. It has over3,500 employees worldwide, with about 650 in the Americas.

Company L uses shared-services centers, and it has focused its outsourcing efforts on processes that arestandardized and less reliant on people and communications. It believes that functions that are morepeople-oriented, or that require specific skills, are difficult to outsource. For example, although thecompany has outsourced payroll, timesheets, and many of its benefits, the more personal side of humanresources, which requires communicating with employees and unions, cannot be outsourced.

Company L has moved its documentation function to China, to be handled by the Asia CFOsorganization. Cost savings and process improvement were the main drivers in this decision.

Other areas, such as its call center and special projects, are outsourced to consultants, because it doesnot have the internal expertise necessary. For most of the outsourcing, it used a project team from theoutsourcing provider, in collaboration with internal staff.

Given the emphasis on easily automated functions, the key to successful outsourcing is to look at thequality and consistency of processes and systems that the provider is offering, the company says. Also,companies need vendors with decision-making authority and an ability to solve technical problems.


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Company MCompany M, a retailer, has 150,000 employees worldwide. About 700 of these employees are in thefinance function.

The company is slowly migrating toward shared services. However, it has examined outsourcing for itsEuropean operations, and has concluded that it doesnt yet have enough critical mass to turn over afunction to an outsourcer. The consensus is that the company needs to standardize and streamline itsbusiness processes, to develop a common chart of accounts, before it can move to outsourcing or sharedservices.

There has been a cultural barrier against outsourcing certain functions, although that barrier isdisappearing as the company grows and resources are increasingly squeezed. But the company saysthat any potential outsourcing provider would have to understand and operate within the companysunique corporate culture.

Company NCompany N is in the engineering-services industry. It has about 10,000 employees worldwide. In itshighly decentralized finance function, only about five people report directly to the CFO, but there are

about 400 to 500 people in finance worldwide.

Currently, the company outsources only payroll and some tax preparation. It does everything else in-house, including paperless billing. It did consider outsourcing a few months ago for more transactionalfinance functions, but decided that there was no one company that it wanted to work with. With only 25people in accounts payable and receivable, the current leadership is not interested in using an offshoreprovider. Management would rather have the expertise remain in the U.S.

Nevertheless, the company does look at various ways to reduce costs. For example, it is consideringmoving some of the more routine finance functions to more cost-effective locations. And the company hasused staff augmentation in the IT area, for special projects.

Company OCompany O, a telecommunications company, has about 60,000 employees worldwide.

The company uses a shared-services center for its financial operations. Ten percent of its financefunction is in China, where its shared-services center is located. The center performs activities such asaccounts payable processing, fixed-asset capitalization processing, inter-company activity processing,and travel and expense reporting.

Overall, Company O doesnt do much outsourcing, but it does outsource certain human resources and ITsupport functions.

Company PCompany P is a media company with approximately 8,000 overhead employees (excluding productionpersonnel). Of those employees, approximately 900 are in finance/accounting or related areas, and abouthalf (approximately 450) of those are based in North America.

The company has several areas that work as a type of shared service, including accounts payable, MIS,and human resources. It is contemplating the costs and benefits of doing more, and is discreetly exploringall kinds of alternative sourcing models (e.g., shared services, outsourcing, etc.) The company is lookingfor benefits such as lower total costs, improved efficiency, continuous improvement, betterstandardization, and improved service.


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Company QCompany Q is in the business services industry. It has 18,000 employees, of which about 70 percent arebased in the U.S.

The company has two shared-services centers, one in North America and one in the United Kingdom. Ituses co-sourcing in both locations as short-term backfill for departing employees as well as for projectsthat require special expertise.

Company RCompany R is a financial-services company based in Europe.

The company started its shared-services centers two years ago. These centers now employ people withcomparable skills to those in North America or Europe at less cost. As the company shifts work to theseshared-services centers, it uses co-sourcing services to help with the transition.

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About the AuthorsWilliam M. Sinnett is director of research at Financial Executives Research Foundation, Inc. He receiveda masters of business administration from the University of Pittsburgh. Prior to joining FERF, he heldpositions in financial management with Mellon Bank and Carnegie-Mellon University. Bill can be reachedat [email protected] and (973) 765-1004.

Rhona L. Ferling is currently a research associate at Financial Executives Research Foundation, Inc. Shewas formerly the publications manager at FERF and the senior editor at Financial Executivemagazine.Rhona was also a senior developmental editor at Bloomberg Press.

About the Sponsor, The S iegfried Group, LLPEstablished in 1988, The Siegfried Group helps clients who experience periodic surges in criticalaccounting and finance work to strategically extend and enhance their internal workforce. The SiegfriedGroup is the nation's only CPA firm dedicated exclusively to providing Fortune1000 companies and othermajor organizations with ready access to consultant-quality accounting and finance professionals. Thesefull-time, career-focused Siegfried employees are highly motivated and committed to executing client

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By allowing clients to maintain complete project control, Siegfried's accounting resource services modelminimizes project risk, accelerates delivery time and results in cost efficiencies. The Siegfried Group'smore than 500 full-time professionals operate out of 20 offices nationwide, with the ability to serviceclients throughout the U.S. and globally.

For more information about The Siegfried Group, visit the company Web site at www.siegfriedgroup.com.

About CFITFEIs Committee on Finance and Information Technology (CFIT) is a national FEI technical committeethat addresses the needs and interests of financial executives as strategic leaders, as they strive torealize measurable and sustainable performance improvements, while maintaining financial control. Thecommittees priorities will be driven by the key trends in information technologies it identifies, and its toppriorities for the coming year will be:

Corporate performance management (CPM),

Emerging technologies (including XBRL),

Governance (incIuding IT and system controls), and

Sourcing (including BPO).

For more information about CFIT, visit its Web page on the FEI Web site:

http://www.financialexecutives.org
http://www.financialexecutives.org/http://www.financialexecutives.org/http://www.financialexecutives.org/


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About Financial Executives Research Foundation, Inc.Financial Executives Research Foundation, Inc. (FERF) is the non-profit 501(c)3 research affiliate ofFinancial Executives International (FEI). FERF researchers identify key financial issues and developimpartial, timely research reports for FEI members and nonmembers alike, in a variety of publicationformats. The foundation relies primarily on voluntary tax-deductible contributions from corporations and

individuals.

The views set forth in this publication are those of the authors and do not necessarily represent those ofthe Financial Executives Research Foundation Board as a whole, individual trustees, employees, or themembers of the Advisory Committee. Financial Executives Research Foundation shall be held harmlessagainst any claims, demands, suits, damages, injuries, costs, or expenses of any kind or naturewhatsoever, except such liabilities as may result solely from misconduct or improper performance by thefoundation or any of its representatives.

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Financial Executives Research Foundation, Inc.would l ike to acknowledge the following for their support and generosity:

Fiscal Year 2008MAJOR GIFT DONOR:$50,000Exxon Mobil Corporation

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