2010 Gartner FEI Technology Study: Planned Shared Services and Outsourcing to Increase

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1 Research Publication Date: 20 April 2010 ID Number: G Gartner FEI Technology Study: Planned Shared Services and Outsourcing to Increase John E. Van Decker, Cathy Tornbohm This Gartner Financial Executives International (FEI) Technology Study investigated the perspectives of senior financial executives on adopting shared services and outsourcing. The study shows a movement from local provisioning to shared services and outsourcing models for future deployments. Key Findings Customer-facing services have the largest local provisioning, including order management (80%), customer service (79%), billing and invoicing (72%), and credit and collections (72%). Local provisioning is expected to decrease 19% over current levels during the next three to five years. Shared services deployments are expected to grow 23% over current levels during the next three to five years. Outsourcing is projected to increase 25% over current levels during the next three to five years. Recommendations IT and business area professionals must build a sourcing strategy to guide and document decision making while considering outsourcing of business processes or IT. Prospective business process outsourcing (BPO) clients need the executive sponsorship team to assign the right individuals from IT, sourcing and the business process to manage and execute the transition, and ensure that they have adequate time, incentives, support and authority available to perform their transition and ongoing duties. BPO and IT outsourcing (ITO) clients should understand the unique roles and responsibilities that they have during the transition. Once the process is outsourced, they should not assume that the vendor has complete transition responsibility, even if it has a line item in its submitted pricing that covers "transition." Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 ANALYSIS The 2010 Gartner FEI Technology Study received 482 responses to approximately 50 questions that covered senior finance managers' views of technology. The survey was open from late October 2009 through January More than 74% of the respondents were senior financial executives. We believe this study provides a consistent picture of the CFO's view of technology, and an important opportunity for firms to benchmark their internal initiatives and perspectives with those of other financial companies. There were questions targeted at how companies provide support for certain services, as shown in percentage adoption, and how they are performed provided locally, through shared services and through outsourcing. This is the second year of the study. For the prior year's results, see "2009 Gartner FEI Technology Study: Outsourcing and Shared Services." The questions we asked the participants concerned how they provision certain services in their organizations. There were three choices: Provided locally each business unit provides its own services within its own organization Shared services many business units or organizations use a central, internally supplied service center that provides business services to multiple business units Outsourced a third party provides the business service (which may or may not include IT), typically from the providers' delivery centers Figure 1 shows the current state of how firms provision accounting, HR and other services (see Note 1). Local provisioning is still the largest delivery method used today (based on 2,309 local responses, versus 873 responses for shared services and 338 responses for outsourcing). Customer-facing services have the largest local provisioning, including order management (80%), customer service (79%), billing and invoicing (72%), and credit and collections (72%). HR (29%), payroll (28%) and accounting functions, such as fixed-asset accounting (29%), GL (28%), and billing and invoicing (26%), are those services that most leverage shared services centers. Outsourcing is mostly used in payroll (46%) and travel planning (26%) today. Publication Date: 20 April 2010/ID Number: G Page 2 of 10

3 Figure 1. Current State of Provisioning for Services Source: Gartner (April 2010) Participants were asked what their plans were for these services in the next three to five years. Figure 2 shows that customer-facing services still have the largest projection of local provisioning, followed by order management (72%, down from 80%), customer service (72%, down from 79%), billing and invoicing (59%, down from 72%), and credit and collections (61%, down from 72%). GL accounting is forecast at 61%, down from 71%. Increased forecasts for the use of shared services are seen in all the services, with accounts payable (40%), fixed assets (39%), GL (36%), and billing and invoicing (35%) leading the pack. Outsourcing will continue to be used mostly in payroll (49%, up from 46%) and travel planning (31%, up from 26%). Publication Date: 20 April 2010/ID Number: G Page 3 of 10

4 Figure 2. Anticipated Provisioning of Services Source: Gartner (April 2010) Local Provisioning Is Expected to Decrease 19% Over Current Levels When comparing the current to planned for providing these financial accounting services in local business units, Figure 3 shows a movement away from providing all these services locally. Comparing all the responses to that specified "provided locally today" versus "planned," there is a 19% decrease in the local provision of these services (based on 2,309 responses for current local provisioning to 1,946 planned local provisioning). Publication Date: 20 April 2010/ID Number: G Page 4 of 10

5 Figure 3. Services Provided Locally Current vs. Planned Source: Gartner (April 2010) According to the study, all these services will move from being provided locally to being provided through shared services and outsourcing. Travel planning and HR each would experience a 13% decrease (the difference between current and planned); travel reimbursement, and GL and accounting would each experience a 12% decrease, followed by decreases in other accounting services fixed assets (11%), accounts payable (11%), billing and invoicing (11%), and credit and collections (10%). Customer services provided locally would expect a 9% reduction, and order management an 8% reduction. Payroll, which is the least locally provided service today, will drop 4%. Shared Services Deployments Are Expected to Grow 23% Over Current Levels The study shows that there is a planned movement from providing these services locally to shared services and outsourcing. Figure 4 shows the change from current shared services usage to planned. Comparing all the responses to those that specified "provided via shared services Publication Date: 20 April 2010/ID Number: G Page 5 of 10

6 centers today" versus "planned," there is a 23% increase in the shared services provision (based on 873 responses to current shared services provisioning compared to 1,129 planned). Travel reimbursement sees the larger increase in the movement to shared services, up 15% (the difference between current and planned). There is an increase of 10% each for fixed assets, billing and invoicing, and customer service; this is followed by credit and collections (8%), GL and accounting (7%), travel planning (7%), order management (6%), HR (4%), accounts payable (3%) and payroll (1%). Figure 4. Services Provided Through Shared Services Current vs. Planned Source: Gartner (April 2010) Many organizations are using financial shared services to reduce the total cost of the finance function. They can also deliver higher-value financial services to internal constituents, improve governance, and reduce audit and compliance costs. Although the benefits are potentially significant, there are challenges to overcome. Political, cultural and system issues can create major barriers to success. Adopting best practices from organizations that have successfully implemented financial shared services will help enterprises overcome these barriers. Publication Date: 20 April 2010/ID Number: G Page 6 of 10

7 Action Item: The key message emerging from internally managed, business-process-focused shared services center case studies that Gartner has conducted is that shared services projects are successful when they're part of a strategic business initiative with clear sponsorship from the CEO, the CFO and the executive management team. These initiatives are unlikely to be successful if they are driven from the bottom up by the IT organization. IT organizations often recognize the potential benefits from financial system standardization and the implementation of shared services, but, without executive support, the IT organization cannot force these changes on the business. CIOs must recognize this and work with CFOs and business area leaders to develop shared services strategies. Outsourcing Is Projected to Increase 25% Over Current Levels Figure 5 shows the proposed changed from current outsourcing to future outsourcing. Most services will undergo an increase in the use of outsourcing for provisioning. Figure 5. Services Provided Through Outsourcing Current vs. Planned Source: Gartner (April 2010) Publication Date: 20 April 2010/ID Number: G Page 7 of 10

8 Comparing all the responses to specific responses for "provided through outsourcing today" versus "planned," there is a 24% increase in the outsourcing provision of these services (based on 338 respondents currently outsourcing to 445 planned). HR will see a 9% increase (the difference between current and planned), followed by accounts payable (8%), travel planning (6%), GL and accounting (5%), credit and collections (3%), payroll (3%), order management (2%), and billing and invoicing (1%). Travel reimbursement will see a 3% decrease as more firms move from outsourcing to on-demand and software-as-a-service (SaaS) solutions. Customer service will see a decrease of 1% in outsourcing. Most services will see an increase in the use of outsourcing for provisioning. HR use will increase 9%, followed by accounts payable (8%), travel planning (6%), GL and accounting (5%), credit and collections (3%), payroll (3%), order management (2%), and billing and invoicing (1%). Travel reimbursement will see a 3% decrease as more firms move from outsourcing to on-demand and SaaS solutions. Customer service will decrease by 1% in outsourcing. During tough economic times, many organizations turn to outsourcing technologies and business processes to reduce costs, improve efficiencies, and possibly reduce head count. This focus on improving the cost base of the organization has led to many finance departments being instrumental in evaluating outsourcing contracts and having a major impact on outsourcing decisions. In this study, payroll and travel planning are the main areas of outsourcing in the enterprise. (For those outsourcing buyers who have previously been reticent, Gartner believes that payroll outsourcing offers a quick way to reduce costs; see "Cost Optimization: Best Business Process Outsourcing Opportunities, 2009.") However, outsourcing is not always the best solution for payroll. For example, the outsourcer must provide a more efficient payroll process than the buyer, and be able to support negotiated labor agreements. The finance and accounting (F&A) domain within BPO is maturing. Savings are possible from this offering, but, often, buyers are not organized enough internally to realize them fully. When considering outsourcing firms, strong interdisciplinary teams need to be established to include senior and operational members from finance and procurement, IT, HR, legal, and internal and external sourcing departments. Buyers have rarely incorporated sufficient IT implications into their initial planning, and have typically underinvested in their internal implementation teams. This can slow initial transition plans from one to three months, and can cause further challenges in the first year. The lack of uniformity in the technical offerings of F&A BPO providers can cloud buyers' abilities to evaluate offerings successfully. Typically, the initial reduction in costs is achieved from labor arbitrage, but, over time, technical improvements will reduce processing costs. Action Items: Organizations must understand where outsourcing can provide economic and/or strategic benefits. The IT organization must ensure that it supports the investigation initiatives so that too much control is not handed to outsourcers, and enough skills are retained in-house to manage the outsourcing activity. Conduct appraisals of internal competency to design and manage successful adoption of BPO. Ensure that all internal parties understand the IT implications of BPO, such as the advantages and disadvantages of various offshore locations for process delivery, continuing to internally manage the application and infrastructure, and the different service providers' approaches to supporting the application interfaces and business workflow tools. RECOMMENDED READING "Sourcing Strategy: Deciding Between Outsourcing or Insourcing Business Process Shared Services" Publication Date: 20 April 2010/ID Number: G Page 8 of 10

9 "Reuters' Finance and Accounting Shared Services Drive Global Efficiency" "Oracle's Financial Systems Consolidation Reduces Costs and Improves Governance" "LogicaCMG's Finance Service Center Streamlines Processes and Delivers Cost Savings" "2009 Gartner FEI Technology Study: Outsourcing and Shared Services" "FEI Study Shows the Impact of the Recession on Technology Budgets" Note 1 Services Order Management customer-facing service requiring multiple steps in a sequential process like capture, validation, fraud check, payment authorization, sourcing, back-order management, and may extend into warehousing areas, such as pick, pack, ship and associated customer communications. Customer Service the provision of service to customers before, during and after a purchase. This may include in-person, as well as phone, support. Billing and Invoicing production of a bill or invoice prepared by a supplier to present for payment for goods or services. An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller according to the payment terms. Credit and Collections includes the evaluation of credit risk of current and potential customers and the terms that they should receive for payment of their debts. The collections process includes the activities to manage interactions required with the customer to obtain outstanding funds. General Ledger (GL) and Accounting providing a balanced GL at the end of an accounting period that reflects the economic activities of the enterprise being managed. Accounts Payable includes receiving bills from suppliers or providers of services to the enterprise, capturing their details in automated systems, including scanning/imaging/optical character recognition, processing these through accounts payable systems and processing, and making settlement with the vendor. Fixed Assets includes the management of the enterprise's existing and new assets. May include tagging and inventory of assets, as well as the processing through fixed asset systems, and managing the depreciation/amortization of assets. Travel Reimbursement includes providing collaborative systems to assign expenses to expense statements, the management of the receipt process (including scanning and document management), payment to employees and credit card vendors, and audit/analytics capabilities. HR employee-related services that can be leveraged to manage the employee process from hire to retire. Travel Planning services to manage the travel procurement processes. Payroll services to provide paychecks and reimbursement to employees. This research is part of a set of related research pieces. See "2010 Gartner FEI Technology Study Research Collection" for an overview. Publication Date: 20 April 2010/ID Number: G Page 9 of 10

10 REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 20 April 2010/ID Number: G Page 10 of 10