Improved Business Performance: Exploring an Evolved FAO Strategy
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The webinar discusses an evolved Finance and Accounting Outsourcing (FAO) strategy featuring industry experts from PwC, TCS, and Everest Group, focusing on best practices and performance metrics. It highlights the importance of aligning FAO with broader organizational goals, emphasizing value beyond labor arbitrage and advocating a partnership approach between buyers and suppliers. The session aims to inform the outsourcing community about potential transformations in FAO practices to drive long-term business success.
Improved Business Performance: Exploring an Evolved FAO Strategy
- 1. Today’s webinar is brought to you by Outsourcing Center Today’s webinar Improved Business Performance: Exploring an Evolved FAO Strategy Synopsis: Industry experts from Price Waterhouse Coopers, Tata Consultancy Services and Everest Group will discuss best practices for evolved FAO outcomes, how metrics can improve performance as well as examples of engagements that have taken on an evolved FAO strategy. About Outsourcing Center Outsourcing Center is the world’s most prominent internet portal for authoritative information on outsourcing. The Center’s mission is to build the industry by helping people understand how to create value through outsourcing. outsourcing We serve the outsourcing community through: Trusted and objective third-party perspective Database of over 81,000 opt-in subscribers Relevant media including editorials, research, whitepapers, and the annual Outsourcing Excellence Awards For more information, contact Peter Bowes at [email protected] 1 Proprietary & Confidential. © 2010 Outsourcing Center
- 2. Q&A To ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen. This will open the Q&A Panel Be sure to keep the default set to “send to a Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit 2 Proprietary & Confidential. © 2010 Outsourcing Center
- 3. Introduction Katrina Menzigian Vijay Damle Shelly Nichols Vice President – Research Head – Horizontals BPO Director – Finance Everest Group Tata Consultancy Services Price Waterhouse Coopers [email protected] [email protected] [email protected] 3
- 4. Improved Business Performance: Exploring an Evolved FAO Strategy June 8, 2010
- 5. Agenda Evolution of FAO TCS : A PACT t t k your P to take Processes t th FORE to the ectiveness The PWC Experience Effe Efficiency 5 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 6. The FAO market has shown a consistent appeal to CFOs through various economic scenarios and is expected to grow 20%+ annually in 2010 Estimate Snapshot of FAO contracts over time CAGR over the period 2004-2009 Number of new contracts Pioneer phase Rapid growth phase 81 83 82 65 58 9 9 33 26 20 10 9 56 3 2 6 5 1991- 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E1 1996 Snapshot of Active Annual Contract Value (ACV) over time ACV1 in US$ billion 2.8 3.1 0.4 2.3 1.9 1.5 15 0.8 1.0 0.3 0.5 0.1 0.2 0.2 0.3 0.3 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E1 1 Factual data available till November 2009 and figures for December 2009 are based on Everest Research Institute’s estimates Institute s Sample size: 476 contracts signed as of November 2009 Note: Refer to the FAO annual report 2008 (ERI-2008-1-R-0245) for further details Source: Everest Research Institute (2010) 6 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 7. Market maturity is leading to increased focus on broader value creation opportunities from FAO Buyer in early 2000s Key objectives Capture labor arbitrage Ensure price predictability Protect IP Workaround information gaps (e.g. volumetrics, service l ( l ti i levels) l ) Outsourcing approach Limited involvement of end business users Micro-management of suppliers Predominantly lift-and-shift and buyer-driven transformation Use contract to minimize perceived risks 7 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 8. Market maturity is leading to increased focus on broader value creation opportunities from FAO Buyer in early 2000s Buyer in 2009/10 Key objectives Key objectives Reduce Total Cost of Ownership Capture labor arbitrage Create pricing flexibility and variability Ensure price predictability Leverage supplier and industry best- practices Protect IP Create stronger linkage between service levels Workaround information gaps and pricing (e.g. volumetrics, service l ( l ti i levels) l ) Manage complexity of global delivery model Outsourcing approach Outsourcing approach Limited involvement of end Multi-tiered governance structure with greater business users supplier accountability li t bilit Micro-management of suppliers Push towards supplier-led investments for Predominantly lift-and-shift and transformation and continuous improvement buyer-driven transformation Drive leverage through contract Ts and Cs Use contract to minimize Empower business users through g p g greater perceived risks transparency Multiple levers are being applied to drive value, including New operating / delivery models Value beyond arbitrage New pricing models 8 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 9. Value created by FAO can be evaluated at multiple levels Dimensions of Everest’s Total Value Equation (TVE) Strategic impact Process/ business impact Direct-cost impact Source: Everest Research Institute (2010) 9 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 10. Dimensions of Everest’s Total Value Equation (TVE) for FAO: Direct-cost savings Dimensions of Everest’s Total Value Equation (TVE) Illustrative savings profile of a typical Key components of FAO contract1 direct-cost direct cost impact Baseline from FAO Strategic 100 impact Labor arbitrage Ongoing Labor arbitrage 80 improvement One time improvement One-time 60 improvements 40 Process/ Ongoing productivity business impact 20 improvements 0 Year 1 Year 2 Year 3 Year 4 Year 5 Direct-cost FAO typically generates 30-40% net impact on impact operational costs (including transition and governance costs) 1 Illustrative case example for savings in a steady-state offshore operation without considering inflation; it does not include transition and buyer governance costs Source: Everest Research Institute (2010) 10 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 11. Dimensions of Everest’s Total Value Equation (TVE) for FAO: Process / business impact Dimensions of Everest’s Total Value Equation (TVE) Strategic Value derived by aligning process capabilities more closely impact with business needs Measurable business benefits (e.g., DSO1 reduction, faster resolution) Process/ business Improved service l I d i levels l impact Support of variations in demand Achieve b t i class standards and process h A hi best-in l t d d d harmonization i ti Direct-cost impact 1 Defined in Appendix Source: Everest Research Institute (2010) 11 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 12. Dimensions of Everest’s Total Value Equation (TVE) for FAO: Strategic impact Dimensions of Everest’s Total Value Equation (TVE) Value created by impacting business drivers or making long-term investments for competitive advantage Strategic impact Supporting M&A Creating new capability (e.g., analytics) Process/ Customer satisfaction business impact Innovation in business model Creating competitive advantage Direct-cost Access to new pools of talent/skills impact Source: Everest Research Institute (2010) 12 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 13. An advanced FAO value proposition is attracting new buyer segments and is driving new offerings 1 Investments in intellectual property Emerging areas of 2 Differentiated enhanced FAO offerings ff i value proposition 3 New buyer segments 13 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 14. An advanced FAO value proposition is attracting new buyer segments and is driving new offerings 1a Technology-led FAO 1 solutions Investments in intellectual property 1b People and process led FAO solutions Emerging areas of 2 Differentiated enhanced FAO offerings ff i value proposition 3 New buyer segments 14 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 15. An advanced FAO value proposition is attracting new buyer segments and is driving new offerings 1a Technology-led FAO 1 solutions Investments in intellectual property 1b People and process led FAO solutions 2a Industry-specific FAO I d t ifi Emerging areas of 2 2b Differentiated Specialized process enhanced FAO offerings ff i offerings ff i value proposition 2c End-to-end offerings 3 New buyer segments 15 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 16. An advanced FAO value proposition is attracting new buyer segments and is driving new offerings 1a Technology-led FAO 1 solutions Investments in intellectual property 1b People and process led FAO solutions 2a Industry-specific FAO I d t ifi Emerging areas of 2 2b Differentiated Specialized process enhanced FAO offerings ff i offerings ff i value proposition 2c End-to-end offerings 3a Mid-market 3 New buyer segments 3b Emerging buyer E i b geographies 16 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 17. As the FAO value proposition expands, several solution elements are also changing Solution element Prevalent model Emerging model Access to similar Access to scarce + better skills at 1 Skill sets skills at lower costs lower costs 2 Delivery mode Offshoring Global sourcing 3 Technology role “Tie-and-run1” “Tie-and-run1” + augmentation 4 Pricing structure FTE-based fees FTE/Volume based fees + incentive Service levels 5 Diagnostic Diagnostic + business oriented and KPI focus 1 “Tie-and-run” refers to the technology approach wherein the FAO supplier leverages buyer’s existing technology infrastructure and applications to deliver FAO services Source: Everest Research Institute (2008) 17 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 18. Key takeaways FAO solutions may start out focused on achieving short-term gains, but increasingly involve a broad view towards a larger value proposition for the longer-term The movement towards the positioning of the finance organization as a strategic corporate business enabler is taking shape Buyer organizations are adopting FAO as a long-term management model and are making the necessary internal investments to optimize that strategy In order to achieve the full potential of an enhanced FAO value proposition, buyers will need to take a partnership approach that supports success The suppliers of FAO services continue to invest in and evolve their offerings in order to meet the evolving needs of current clients and to compete effectively for new engagements Buyers will need ongoing awareness of the FAO supplier landscape and the differentiated positioning and offerings available 18 Proprietary & Confidential. © 2010, Everest Global, Inc.
- 19. With You Today… 6.3 USD 6 3 B in IT & ITES Revenues 12% from Business Process Servicing 15% Business Processes delivered in Process as a S i M d l P Service Model. • Vijay Damle manages service delivery for F&A, Procurement, SCM and HRO processes in TCS BPO Procurement BPO. • He is responsible for delivering the Certainty Experience to customers globally. • Vijay has held diverse roles over his career – starting as a Finance analyst, and over time has managed Finance, Production Planning, Transitions and Sales / Relationship Management • Email: [email protected] 19 Experience certainty
- 20. forE : Process Maturity Model – Delivery Characteristics 1 2 3 4 F Fragmentedd Fragmented d O i Organize O Organize R ii li Rationalize Rationalize E l Excel Excel • Legacy and disparate • Decentralized modules • ERP enabled customer • Centralized ERP based systems and varying and localized system master maintenance with Customer master Customer p g processes of Customer checks leading to y p system enabled checks at maintenance process. Maintenance i Master maintenance possibilities of unit and regional levels inconsistencies • Periodic audits on Customer Master • Disparate systems for • Order management and • Integrated system from • Integrated billing order management order management customer billing modules Order management till customer billing modules Order management till functionality from Order to functionality from Order to and customer billing interfacing and interacting customer billing and invoice generation at across organization with ERP collections process scheduled intervals Customer Billing • Regional variances in • Regional applications with • Common set of • Enabled month close and processing orders processing orders limited level of integration applications serving limited level of integration applications serving accruals on revenue and accruals on revenue and global locations with supports business decisions minimum regional level in sales and Finance. exceptions • Manual Cash • Scanned electronic • Work flow enabled and • ERP embedded application application using l documents for Manual d f l integrated with ERP and d h d bl d l df enable direct upload from different screens and Cash Application enable online cash bank remittance file Cash Physical Documents application to invoices Application and outstanding items. • Multiple modes of remittances leading to ILLUSTRATIVE : AR additional work load 20 Experience certainty
- 21. forE : Measuring Delivery Certainty ILLUSTRATIVE : AR 1 2 3 4 Sub Process Measures ‐ SLAs, KPIs Fragmented Fragmented Organize Organize Rationalize Rationalize Excel Excel Customer Cycle time for Customer >3 days 2-3 days 23 1-2 days 12 <1 day Maintenance Maintenance % of invoices distributed < 50% 50-70% 71%-90% >90% electronically Customer Billing % of Credit notes raised to >10% 5% - 10% 2% - 5% <2% total invoices % of auto application < 70% 70% - 80% 81% - 90% >90% Cash Application % of unapplied payment to >10% 5% - 10% 2% - 5% <2% total payment total payment % of invoices coming under >30% 21% - 30% 5% - 20% <5% query Customer Service % of queries closed within < 80% 80% - 90% 91% - 99% >99% agreed standard 21 Experience certainty
- 22. With You Today…. • More than 163,000 people in 151 countries help our clients succeed. • Our industry‐focused services in the fields of assurance, tax, human resources, transactions, performance improvement and crisis management have helped address client and stakeholder issues • Shelly Nichols is Director with PwC and has been p g responsible for leading the Finance Business Services organization • Prior to her role in Finance, Shelly spent several y years in PwC's Information Technology organization gy g • She joined PwC after having spent 16 years with MassMutual Life Insurance Company in a variety of business and technology leadership roles. gy p 22 Experience certainty
- 23. PwC & TCS – FAO Engagement Overview Phase 1 : Lift & Phase 2 : Improve Phase 3 : Optimal Shift Performance Services Transaction‐based (T&E; AP; AR, Payroll) Reporting and Allied Processes p g (GL, Procurement, Reporting) Business Finance (Engagement Accounting) ( ) 23 Experience certainty
- 24. Finance & Accounting Journey at PwC F t d Fragmented O i Organize R ti li Rationalize E l Excel Decentralized Internal SSC Outsourced Partnership Information & Insights Exploit p Technology Optimize Processes • Engagement related Optimize Finance Structure & S & • Cost allocation Operations • Standardize Processes, Eliminate • Financial Reporting, Variations • Contract Lifecyle • Consolidate AP, AR, T&E • Leverage Talent Pool / Near management, • Move to Low Cost Location Move to Low Cost Location shore services • Expand Technology Deployment 2006 2009 2010 24 Experience certainty
- 25. PwC– Finance & Accounting Transition Schedule • Transition Cookbook • NA T&E Go Live Stabilize & • Due Diligence Kick‐Off Improve • Infrastructure Build Steady • Pilots for Other Geo. State • Automation & Technology Leverage Pilot Pilot • AP, AR & Payroll: Aug 09 Transition • Firmwide Finance, Accounting, Procurement, BAAR: Dec. 09 • Process Measurement Kickoff • Multi Track Transition • CAA Assessment Building Blocks Dec 2008 Dec 2009 25 Experience certainty
- 26. Driving Excellence : FAO Beyond Arbitrage Unapplied Cash reduced by 60% Engagement Finance on Handhelds ess ctivene 40% improvement in Invoice TAT 40% improvement in Invoice TAT 100 % Roll out of e‐Imaging in Lockbox Effec Cross Functional Understanding of Interconnects Manage Volume Spikes and Dips within same FTE Manage Volume Spikes and Dips within same FTE Process Centric Financial Services Organization Efficiency 26 Experience certainty
- 27. Q&A Attendees will receive an email with a link to download today’s webinar presentation. To access a recorded audio version of this webinar, please contact Mark Williamson, [email protected] For background information on Everest, please visit: www.everestgrp.com www.everestresearchinstitute.com Thank you for attending today To ask a question during the Q&A session Click th Cli k the question mark (Q&A) button located on the floating tool bar in the bottom right of your ti k b tt l t d th fl ti t l b i th b tt i ht f screen. This will open the Q&A Panel Be sure to keep the default set to “send to a Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit 27 Proprietary & Confidential. © 2010 Outsourcing Center