ISG Provider Lens™ FAO Digital Outsourcing Services Archetype Report 2018
05 Jul 2018
by Namratha Dharshan, Shachi Jain
$3999
Outsourcing services have been broadly impacted by digital technologies in terms of service delivery models, pricing models, contract values and durations, productivity possibilities and expectations, KPIs, innovation and several other factors. The Finance and Accounting (FAO) service line is no exception.
Today, agility is one of the biggest contributing factors to an organization’s success. Business agility requires leaders to have real-time information to make decisions, whether they are in the office or on the go. Finance is the heart of any organization, and to thrive in the market, a company’s finances must be maintained on a timely basis. Finance is a strong determinant of the health of the business, and the CFO is under constant pressure to weigh in on the financial considerations of any decision making. With the CFO role evolving and changing to be a less of a bookkeeper and more of a strategic business leader, CFOs must be empowered with information.
Finance departments must actively contribute to the business. Obviously, digital technologies are a game changer. They have the ability to empower CFOs with meaningful real-time insights that will help them focus on core operations and other business priorities.
While technology adoption is important, the functions of finance itself are subject to change. Companies must be up to date and adhere to tax submission requirements, country-specific regulations, industry-specific regulations and other controls. With ever-changing dynamics of the marketplace, enterprises must focus on many things or they will fall behind the curve. Hence, enterprises are partnering with service providers that can minimize enterprise investment in certain skills by leaving things to the service provider’s experts.
Some of the key trends that are transforming the finance and accounting space are:
Design thinking is becoming important. Transformation is not all about applying technology or automating processes, and it is not limited to just the back office. Transformation must be thought through more holistically. Starting from the end-user perspective to the middle office and back-end processes, everything needs to be transformed to achieve the right business outcome. Customer experience is becoming pivotal for business success and transformation. Applying design thinking principles to the transformation journey to achieve a seamless customer experience is imperative. Point solutions are good for achieving short-term goals, but in the long run, an enterprise needs holistic solutions.
Cloud solutions and their benefits are apparent. Cloud solutions are not new in this space. Most service providers in the market partner with vendors such as NetSuite to offer cloud solutions. Such vendors are compliant with auditing standards and provide off-the-shelf products for many industries. The advantages of getting real-time information and access to data anytime and anywhere are immense. Such access helps make businesses more agile. Real-time and cloud solutions can help enterprises reduce the burden of their legacy systems and even make it cost efficient to replace them. RPA will automate more than 50 percent of the F&A processes by 2020, according to ISG Research. Finance and accounting was an early adopter of robotic process automation. RPA can have a huge impact on order-to-cash (O2C), procure-to-pay (P2P) and record-to-report (R2R) processes and transactions. RPA makes the biggest impact on order-to-cash processes, which require an average 43 percent fewer resources after being automated, according to the ISG Automation Index research. Today automation is an integral part of nearly every contract signed for FAO services. RPA has enabled service providers to talk more confidently to their clients about up-front savings or other benefits. Productivity is surging to 24 to 143 percent compared to historical norms of 5 to 10 percent, according to ISG Research.
Artificial intelligence (AI) is creating noise in the F&A services space. Since the advent of optical character recognition (OCR) technology that enables invoice processing for both paper and digital invoices, artificial intelligence has expanded to use natural language processing (NLP) capabilities to be able to read like humans and take automation to the next level by completing more complex functions. Fraud detection and exception handling are some areas where artificial intelligence is being applied. While enterprise AI adoption is low, we believe it will surge in the next one or two years as companies identify more use cases. On average, 47 percent of enterprise clients are looking to adopt natural language processing, machine learning, RPA, autonomics, virtual customer agents or related technology, according to an ISG survey on automation and artificial intelligence.
Analytics will empower CFOs. Analytics is highly beneficial when it increases visibility of the company’s financial status. CFOs are leaning toward prescriptive analytics to support necessary actions and quick decisions. Some of the ways CFOs are empowered with real-time information to improve decision-making include dashboards that give insightful information for mitigating losses, reducing days sales outstanding or that provide actionoriented insights to improve cash flow. For example, CFOs no longer can wait until the end of the month to get visibility into cash flow, outstanding payables, sales or inventory.
Today, they are relying on analytics to get real-time insights into cash flow processes to gauge the financial strength of business at any time.
Blockchain is a game changer. Although blockchain is in its nascent stages, service providers are investing heavily in it and are identifying use cases. Blockchain is considered a game changer in the F&A space because of the huge potential to apply this technology. Blockchain for FAO is mostly in the proof-of-concept stage, with a handful of implementations happening today. Service providers believe blockchain has a lot to offer their clients in terms of better outcomes and reduced cost. While IBM is a big player in blockchain, other providers including Wipro are making significant investments and see huge potential.
With technology comes confidence. Traditionally, pricing models based on full-time equivalents (FTEs) and fixed fees were most prevalent in the F&A outsourcing market. However, with the advent of technology, and especially automation, FTE-based and fixed-fee pricing is becoming less popular among enterprises. Companies today are leaning toward transaction-based and outcome-based pricing models. For example, with RPA coming into play, providers are more comfortable promising higher productivity and outcomes when negotiating the agreement. Outcome-based pricing is gaining traction, especially with mature client enterprises.
Specialization is not limited to finance. With enterprises outsourcing to leverage technology and domain skills, vertical specialization is an important feature. The service provider’s industry knowledge is also an important factor that contributes to the success of an outsourcing engagement. Industry specialization has its advantages, including enabling relevant benchmarking exercises, understanding revenue models, identifying and applying the right technology, and giving the provider the ability to assess the client’s offerings and suggest process improvements and other nuances for a vertical. This knowledge helps service providers deliver immense added value to their clients.
Today, agility is one of the biggest contributing factors to an organization’s success. Business agility requires leaders to have real-time information to make decisions, whether they are in the office or on the go. Finance is the heart of any organization, and to thrive in the market, a company’s finances must be maintained on a timely basis. Finance is a strong determinant of the health of the business, and the CFO is under constant pressure to weigh in on the financial considerations of any decision making. With the CFO role evolving and changing to be a less of a bookkeeper and more of a strategic business leader, CFOs must be empowered with information.
Finance departments must actively contribute to the business. Obviously, digital technologies are a game changer. They have the ability to empower CFOs with meaningful real-time insights that will help them focus on core operations and other business priorities.
While technology adoption is important, the functions of finance itself are subject to change. Companies must be up to date and adhere to tax submission requirements, country-specific regulations, industry-specific regulations and other controls. With ever-changing dynamics of the marketplace, enterprises must focus on many things or they will fall behind the curve. Hence, enterprises are partnering with service providers that can minimize enterprise investment in certain skills by leaving things to the service provider’s experts.
Some of the key trends that are transforming the finance and accounting space are:
Design thinking is becoming important. Transformation is not all about applying technology or automating processes, and it is not limited to just the back office. Transformation must be thought through more holistically. Starting from the end-user perspective to the middle office and back-end processes, everything needs to be transformed to achieve the right business outcome. Customer experience is becoming pivotal for business success and transformation. Applying design thinking principles to the transformation journey to achieve a seamless customer experience is imperative. Point solutions are good for achieving short-term goals, but in the long run, an enterprise needs holistic solutions.
Cloud solutions and their benefits are apparent. Cloud solutions are not new in this space. Most service providers in the market partner with vendors such as NetSuite to offer cloud solutions. Such vendors are compliant with auditing standards and provide off-the-shelf products for many industries. The advantages of getting real-time information and access to data anytime and anywhere are immense. Such access helps make businesses more agile. Real-time and cloud solutions can help enterprises reduce the burden of their legacy systems and even make it cost efficient to replace them. RPA will automate more than 50 percent of the F&A processes by 2020, according to ISG Research. Finance and accounting was an early adopter of robotic process automation. RPA can have a huge impact on order-to-cash (O2C), procure-to-pay (P2P) and record-to-report (R2R) processes and transactions. RPA makes the biggest impact on order-to-cash processes, which require an average 43 percent fewer resources after being automated, according to the ISG Automation Index research. Today automation is an integral part of nearly every contract signed for FAO services. RPA has enabled service providers to talk more confidently to their clients about up-front savings or other benefits. Productivity is surging to 24 to 143 percent compared to historical norms of 5 to 10 percent, according to ISG Research.
Artificial intelligence (AI) is creating noise in the F&A services space. Since the advent of optical character recognition (OCR) technology that enables invoice processing for both paper and digital invoices, artificial intelligence has expanded to use natural language processing (NLP) capabilities to be able to read like humans and take automation to the next level by completing more complex functions. Fraud detection and exception handling are some areas where artificial intelligence is being applied. While enterprise AI adoption is low, we believe it will surge in the next one or two years as companies identify more use cases. On average, 47 percent of enterprise clients are looking to adopt natural language processing, machine learning, RPA, autonomics, virtual customer agents or related technology, according to an ISG survey on automation and artificial intelligence.
Analytics will empower CFOs. Analytics is highly beneficial when it increases visibility of the company’s financial status. CFOs are leaning toward prescriptive analytics to support necessary actions and quick decisions. Some of the ways CFOs are empowered with real-time information to improve decision-making include dashboards that give insightful information for mitigating losses, reducing days sales outstanding or that provide actionoriented insights to improve cash flow. For example, CFOs no longer can wait until the end of the month to get visibility into cash flow, outstanding payables, sales or inventory.
Today, they are relying on analytics to get real-time insights into cash flow processes to gauge the financial strength of business at any time.
Blockchain is a game changer. Although blockchain is in its nascent stages, service providers are investing heavily in it and are identifying use cases. Blockchain is considered a game changer in the F&A space because of the huge potential to apply this technology. Blockchain for FAO is mostly in the proof-of-concept stage, with a handful of implementations happening today. Service providers believe blockchain has a lot to offer their clients in terms of better outcomes and reduced cost. While IBM is a big player in blockchain, other providers including Wipro are making significant investments and see huge potential.
With technology comes confidence. Traditionally, pricing models based on full-time equivalents (FTEs) and fixed fees were most prevalent in the F&A outsourcing market. However, with the advent of technology, and especially automation, FTE-based and fixed-fee pricing is becoming less popular among enterprises. Companies today are leaning toward transaction-based and outcome-based pricing models. For example, with RPA coming into play, providers are more comfortable promising higher productivity and outcomes when negotiating the agreement. Outcome-based pricing is gaining traction, especially with mature client enterprises.
Specialization is not limited to finance. With enterprises outsourcing to leverage technology and domain skills, vertical specialization is an important feature. The service provider’s industry knowledge is also an important factor that contributes to the success of an outsourcing engagement. Industry specialization has its advantages, including enabling relevant benchmarking exercises, understanding revenue models, identifying and applying the right technology, and giving the provider the ability to assess the client’s offerings and suggest process improvements and other nuances for a vertical. This knowledge helps service providers deliver immense added value to their clients.
Page Count: 69
QUESTIONS?
To purchase this product or for more information, please contact your account manager: