F&A Services is a Buyer’s Market – Choose Your Destination Wisely

Insights from the F&A Blueprint Research

The F&A  business process services outsourcing and operations market today is like being in a “choose your own adventure” story. The market has matured to a point where there are a number of service providers with experience, mixes of new and legacy technology, and consulting talent and global delivery networks – all options for designing touchless, agile, insighful and collaborative finance operations. On one hand, we still hear service buyers talk about labor arbitrage or today’s alternative – “RPA arbitrage”. Then, on the other hand,  we increasingly hear of impatience or excitement about what these options can do to blend talent and technology – platforms, robotic process automation, and artificial intelligence – to deliver business outcomes in a “OneOffice” scenario. There is more discussion about how to manage strategic versus tactical partnerships, how to contract and govern the increasing use of technology, realize the “talk” about innovation, and balance on-site/on-shore/off-shore resourcing. Is F&A outsourcing a commodity or is it being reimagined?  It’s really the buyer’s choice.

This POV pulls insight from the over 50 interviews conducted during the HfS Blueprint: F&A As-a-Service 2017 research process. Exhibit 1 represent the participant demograhics. We spoke with executive and middle management from multinational enteprises, mid-market, and small companies across industries. What we found is that F&A Services is a market in transition as service buyers, stakeholders, and service providers move to “finance of the future” in which finance is an integral and integrated business partner.

Exhibit 1: Demographics from the F&A Blueprint

Source: HfS Research, 2017

RPA becomes mainstream, AI will get there soon

Last year many of the finance and operations leads we spoke to for this study, when asked about robotic process automation (RPA), were, with few exceptions, in one of two camps: had heard of RPA or hadn’t. This year, every client is familiar with RPA and has some kind of status to share, ranging from “discussion” of how and where to use it, working on a business case, or already using it either in-house or with service provider partners. It’s driving change in how the industry thinks about operating models, contracts, governance, partnerships, talent development, and change management. Earlier adopters in the business are realizing that automation for the sake of using the technology or in trial/pilot is not as impactful as when there is a business case for change in partnership with IT to achieve a targeted outcome for a process, e.g., touchless invoicing.

Using the software to simply to replace a human task can be useful, but it not transformational and will not drive an impactful return on investment. Bringing in RPA shouldn’t be considered a new layer or “arbitrage” but should be the starting point of a bigger change effort that is strategic and transformational. We heard from clients comments that indicated their service provider was simply trying to get RPA in the conversation but “ the proposal not well through or including real examples from our portfolio of business.” And, we also heard clients question, “how do we get our company to realize the value and provide access to the systems and applications” and note that “the biggest hindrance is our company allowing access to the data and apps but we have seen the capability in their delivery centers, working for other clients.”

Many service providers have developed centers of excellence or task forces that will help clients from the time of identifying “where to start” and creating the business case for finance transformation, and map in the use of RPA, using their own proprietary and / or third party software providers. As a starting point in F&A, RPA is most frequently mentioned for accounts payable and invoice processing followed by data-consolidation intensive activities in reporting and collections; and this year we heard an uptick in use of RPA for reconciliation. New F&A outsourcing discussions now, as default, include consideration of RPA and how to create more leverage from the use of it. Service providers have been “tinkering” with automation and RPA for a few years now, and can bring this capability to client that want or need a partner in this effort. However, resources are strained and it takes time to realize value. Using RPA is as much about change management as a labor arbitrage value proposition was in the early days of F&A outsourcing.

Another key point that has come up during these last few months is the recognition that RPA and cognitive computing or artificial intelligence cannot be addressed the same way and are not on a “continuum.” The approach For instance, a global international insurance organization serving more than 90 million customers in more than 100 countries, used RPA and AI in the following:

• Accrual Engine leveraging natural language processing (NLP) technology to automate manual journal accounting
• Robotics to automate manual processes across intercompany
• AI reporting leveraging natural language generation (NLG) technology and analytics for FP&A and controllership
• Results: 40%-50% productivity in global operations, increasing controllership with improved accounting, and delivering $4.6 million annualized cost reduction benefits.

The “Triple-A Trifecta” of Robotic Automation, Smart Analytics, and Artificial Intelligence is taking shape in F&A Services where transformation is not a linear progression. Enterprises can start anywhere across the Trifecta. It is not necessary to start with basic automation and then advance to AI-based automation. However, it is critical to understand the business problem that you are trying to solve and then apply the relevant value lever or a combination of value levers.

Despite the emergence of new value levers and capabilities, the Watermelon still exists

A focus on customer engagement and relationship is increasingly having an impact on the longevity and impact of service buyer and service provider engagements in F&A. Where RPA and collaboration are both rated high by service buyer executives we interviewed, the value of the engagement is rated higher for value over time. It’s the watermelon effect – even when SLAs show that performance is on target, if there is not a feeling of partnership and a visible effort to continually raise the bar (e.g., with use of RPA these days!), then the engagement is not of value long term. What is making a difference now, per the collective feedback from references in this study, is capability, context, and communication. This combination is powerful – when it is brokered across organizations. As one finance executive said, ”we appreciate the ability of our service provider to work with us to sort through issues that could arise from our side or their team.”

Exhibit 2: Ranking – High to Low – of Scoring Criteria Based on Client Satisfaction

1 – Quality of Account Management
2 – Pricing, contracting, and investments by the service provider in the account
3 – Value of engagement over time
4 – Industry specific services
5 – Service delivery quality
6 – Service provider investment in future capability
7 – Workforce management and talent development
8 – RPA – AI usefulness and quality of capability and experience
9 – Analytics – accessible and actionable data; dashboards for operations; analytics “as-a-service” or embedded in operations
10 – Innovation

Source: F&A Blueprint Interviews, n=50

As we went through some of the common challenges and solutions in F&A outsourcing, we created a summary view that is seen in Exhibit 3.

Exhibit 3: Typical challenges and solutions that are  “work in progress”

Now’s the time to choose your team for Finance of the Future

Our recommendations for partnering for F&A As-a-Service include:

• Make Your Match: What’s your strategy for achieving the performance and experience outcomes you want in finance operations? Service providers are moving at different levels of maturity and sophistication when it comes to combining talent and technology and in approaches to innovation. How fast do you and your organization want to further embrace digital technology, and how much help do you need with your business case, coordination with IT and other business leaders, skilled resources, etc? These are all considerations (and advisors and consultants can help) for your BPS portfolio strategy.
• Move Faster and Deeper to As-a-Service Offerings: Keep pushing your service provider(s) to move to an As-a-Service model that goes beyond labor arbitrage to include and offer you a broader set of choices for what solutions you adopt and how they interact with your own retained organization. Don’t settle for a long-term fixed model of solution delivery for finance services, but push your service provider(s) to be flexible and agile so that future services offerings better align to your own potential future needs.
• Adopt Design Thinking: Using the design thinking method to define and shape problems and test solutions that impact experience and outcomes is now proven to work. The opportunities to sit down with your service provider(s) to better understand the business context in which your current processes operate and what can be done to realign or reimagine these processes to achieve different and/or better results is always an exercise worth undertaking.
• Increase the Trust: Challenge your service provider(s) to be more collaborative, more visionary, more inclusive and to share with you. Change the agenda and tone of your quarterly business review, if you haven’t, and allow time for exploring problems and ideas. Realize that achieving new levels of quality, productivity, and engagement is easier in a close partnership than in a closed-off zero-sum mindset relationship. So, work with your service provider(s) in a manner that facilitates long-term success as well, and ask for it in return.

Bottom-line: F&A is a buyer’s market but “with great power comes great responsibility”

The HfS Research market sizing and growth report (add link) shows that the market is slowing down – from 15-20% to 5-7%% CAGR spanning 2017 to 2021. So in addition to targeting “greenfield” clients that are new to outsourcing, service providers are focused on (a) being strategic partners and adding value to current client base through platform-based solutions with shared outcomes or (b) winning away clients from each other by making a tactical cost play or an innovative forward thinking offer. For real value over the long term, decide your strategy for partnering for F&A – what role do you want finance to play in your business? How do you want to be perceived? And then decide if you want to invest in a strategic partnership to achieve it, if you want a tactical partnership that will “keep the lights on,” or if you want a blend through multiple partnerships by tower. Service providers are making investments in talent and technology and eager to be in your portfolio –it’s a buyer’s market for F&A now.

HfS Premium Subscribers can access the 2017 HfS Blueprint report on F&A As-a-Service here.