ISG Provider Lens™ Finance & Accounting (F&A) Digital Outsourcing Services Archetype Report 2020
With evolving buyers’ needs, finance and accounting outsourcing (FAO) services are maturing. As the expectations of buyers are rapidly increasing, the nature of engagements is evolving from a transactional type to a strategic function. Enterprises are moving away from the piecemeal approach and are embracing a holistic view towards outsourcing. Gaining visibility into a finance organization and making data-driven decisions are top priorities of enterprise CFOs.
The F&A domain has extensively adopted the use of various technologies such as bots, automation platforms and solutions to automate finance functions. Artificial intelligence (AI) and machine learning (ML) have made inroads into finance functions and transformed traditional operating processes. Analytics is a significant value addition and brings in highly valuable insights that benefit CFOs.
Traditionally, enterprises were in the practice of outsourcing non-critical finance functions. As service providers began expanding their portfolio of services at a rapid pace, enterprises became more comfortable with outsourcing complex finance functions. To serve these clients, service providers are investing heavily in developing their capabilities, onboarding skilled employees and expanding partnerships with the likes of the Big 4.
As the nature of engagements are becoming more strategic, ISG believes that technology, people and skills, domain and vertical expertise, open communication and collaboration will play a critical role in ensuring a successful engagement. The following are some key trends that are shaping the industry:
Outsourcing of complex finance functions primed for growth
Conventional outsourcing typically sees more of order-to-cash (O2C) or procure-to-pay (P2C) functions, and only about half of record-to-report (R2R) functions, that are being outsourced. As service providers continue to exhibit and build on their finance and accounting (F&A) capabilities, clients are leaning on them to outsource complex finance functions that were traditionally not outsourced. From bookkeeping needs to budgeting, forecasting, cash flow modeling, decision support, management reporting, tax and compliance support, and audit support among other functions, enterprises are increasingly relying on their sourcing partners to support these activities and provide CFOs with better insights.
To offer these services to clients, providers are investing in hiring skilled resources or reskilling their existing employees to handle complex queries. Some are establishing partnerships with major firms to deliver these services.
Consulting services take center stage as enterprises boldly embrace transformation
As the complexity of engagement is increasing with the evolving technological needs, expectations from service providers are changing. While moving away from lift-and-shift models to complex functions and technology roadmaps, enterprises are keen to transform finance functions and are ready to embrace technology to make their processes more efficient. They are already under pressure to transform their finance functions but are unsure where to begin the journey. To address this challenge, they lean on the expertise and capabilities of service providers to develop and design the transformation roadmap. Correspondingly, the supply side of the industry is making heavy investments in growing its consulting practice either organically or inorganically. Design thinking, partnerships, transformation frameworks and reskilling are some of the various investment areas that service providers are focusing on.
Research and development is one of the critical investment areas for service providers. Establishing a framework based on enterprise client needs, building a best practices framework modeled on use cases, and staying abreast of market and industry trends are becoming more pertinent for developing successful consulting services.
Verticalization becomes pivotal
As engagements are embracing a holistic approach, a deeper understanding of the vertical nuances in the F&A space is important for enterprises and service providers to demonstrate their knowledge and skillsets in helping clients reap the benefits of outsourcing. Claims management in the insurance sector, revenue assurance in telecom, fuel accounting in energy and airline billing management are some of the industryspecific finance functions that should be managed by experienced and skilled resources.
Leveraging such talent would be also beneficial for developing industry specific bolt-on solutions, especially for digital-native companies that are ready to plug and play from day one.
Automation deployments is at its peak
Back-office functions are expecting to scale robotic process automation (RPA) significantly because F&A processes are ripe for a large number of bot deployments. According to ISG Research, 83 percent – a significant number of enterprises with mature automation practices – lead the way with RPA deployments in the F&A space. These enterprises have adopted the technology at scale and have automated two or more functions. Those that are beginning to explore opportunities are gradually catching up in terms of deployment but are keen to adopt as accuracy and higher efficiencies are critical.
Figure 1.
As the industry is seeing more of such use cases and enterprises expectations are increasing around automation, service providers are making heavy investments to grow their capabilities in RPA through homegrown solutions or expansive partnerships. Many mid-size service providers are building and bringing in extensive automation capabilities and are moving ahead aggressively with an outcome-based pricing model.
Adoption of AI/ML is gaining traction
Nearly 95 percent of enterprises are either experimenting with or have deployed ML in F&A processes. The increased adoption of image processing, natural language processing (NLP), robo advisors on the front end, most finance processes such as accounts payables have become touchless processes with minimal human interaction. AI and ML are being extensively leveraged across billing and collections, email classification, fraud detection, invoice processing of unstructured data and industry specific processes such as insurance claims processing.
Organizational change management continue to play an important role
As more enterprises are keen to embrace technology and with the rapid adoption of automation, organizational change management plays a critical role in helping employees to adapt to technological changes. Enterprises should reskill or upskill their employees in order to move their resources to adjacent or higher up roles to handle complex processes. Some service providers such as Infosys and TCS have developed elaborate learning platforms to help enterprise clients in reskilling their employees. Infosys Wingspan and TCS iON offers elaborate online content about the latest technologies and an on-the-go learning experience for employees.
Figure 2.
Analytics takes center stage in FAO
With the changing role of CFOs, analytics is a critical enabler for CFO organization. Providing a real-time view of a finance organization will drive data-driven decisions quickly and effectively help them to be more proactive than reactive. For example, collections is one of the biggest focus areas for most organizations. Having visibility into cash flow is a highly valuable measure for a CFO. With the emergence of technology, rapid AI adoption and mature processes, obtaining insights from data, identifying the pain points or deciding on the next action item are not farfetched. Analytics spans across finance and accounting value chain and is the biggest value addition for enterprise clients in a sourcing engagement.
As the nature of client engagements become less transactional and more strategic, service providers are expected to deliver valuable insights for enterprises. A mature engagement does not limit the provider in giving insights but recommends the next action item to help drive business outcomes.
Figure 3.
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