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Creating an HR evolution - when HR really matters

1. outsourcing of finance and accounting (FAO) is big , its taking off and the case for it is widely recognized by leading firms. 2. FAO is a key plank in transforming finance functions. 3. FAO is been driven by Finance costs, labor arbitrage, process improvement and shareholder value 4. The Rhetoric around business process outsourcing (BPO) failure needs to be interrogated closely. Fact and fiction as well as myths and reality need to be separated 5. Mid market and owner managed businesses BPO has been talked about for years. There are some examples but we're in the early stages 6. Others have looked at this but the model only works if you go after a particular vertical and you offshore the labor intensive aspects What is BPO --- BPO or Business Process Outsourcing refers to the increasing trend of relocating entire business functions to either self owned (captive or shared service) or third party service providers, sometimes in low cost locations (offshoring). These functions could include HR, finance, procurement or IT and is currently popular with all industries and governments. The outsourcing of accounting functions otherwise known as FAO is not as well established (in terms of new thought) as outsourcing and shared services in the human resources space. After all, finance generally and CFOs in particular have always been assumed to be more closely aligned to the business (how many "chief human resources officers" do you know). I think this is strange and was discussing it with a senior member of IBM's BPO team last week. We came to the conclusion that the inherent conservatism of internal accountants mitigates against rapid and substantial change. Certainly they can see the benefits of creating a shared operation, thereby reducing employee numbers and costs - and improving reporting, compliance and standards. But, making the leap in thought that has been occurring routinely in the HR space over at least the last five years, seems to be beyond them. What we do know is the drivers for change. In a recent survey carried out by the shared service and BPO association, the responses from 170 companies came down to cost reduction, improving services, improving productivity, improving service and data quality - in larger firms this is because of Sarbanes Oxley compliance and "building a world class finance function" whatever that might be. The corollary to these are the barriers to finance transformation. These included: a shortage of appropriate skills, lack of support from management, risk and complexity of the transformation, employee buy in and technology. The benefits from shared services and outsourcing in the survey 80% saw shared services as offering a much more efficient and effective level of service. and a full 88% said that transformation had the benefit of avoiding duplication and reworking. The conclusions are clear - finance transformation is becoming an essential element in maintaining the competitiveness of organisations, driving down costs and improving service quality. Now for the good bit --- There is no company in the UK that is as well positioned to capitalise on these desires in the owner managed business (OMB) market than Tenon. Think of any large provider of finance outsourcing, from the giants like Accenture and IBM to smaller companies like Rebus and Liberata, all of them have looked at developing solutions for the OMB market and all of them have found that the cost of sale is too high. Tenon has the advantage as an accounting aggregation firm of already having established relationships with this target market. Indeed, the strength and depth of those relationships is the envy of many large companies and is able, through networking, to be rolled-out to other clients and prospective clients very quickly. The IDC has predicted that the IT outsourcing market will continue to have a compound annual growth rate of 8.1 per cent. But for BPO including finance that figure is 17.3 per cent. Now for the best bit --- Outsourcing the finance function is profitable for the outsourcer. Outsourcing in the OMB market is even more profitable. In fact much more profitable than normal accounting services. This means that far from outsourcing being perceived as a threat to existing business lines, it is actually preferential. Now assuming that we think outsourcing is here to stay and that Tenon is strongly placed to capitalise on growth in the market, the question remains - how can we sell it? Outsourcing can be called upon to provide planning and management accounting, accounts receivable, accounts payable, general accounting and reporting, fixed asset accounting and financial reporting. The key, I believe is to marry value with efficiency, to demonstrate a strategic return on investment (both for clients and internally) and to integrate process design with process execution. After all, as you increase the size of the outsourcing operation, economies of scale and increases in efficiency will be easier to measure and to gain. There are really three tennents that help in building a successful outsourcing business within the structure of a partner-based or commercial accounting operation. All of the big four, five or six had to go with these (although they called them something different). They are: belief, faith and public relations. Belief is essential in project leaders and executive sponsors. You MUST believe that outsourcing is the right solution, do not do it just because it is fashionable. You must know in your hearts that it is better than alternatives. Faith is needed because your controllers and partners will need reassurances. They will have doubts and concerns. When you're starting, sometimes there is very little empirical evidence and no proven track record. You must display confidence and trust in the outsourcing team and in the success of the project. If you don't then resistance will be very strong. Public relations is needed because understanding that outsourcing is the way to go, does not necessarily mean acceptance that it will happen. News of early problems will spread quickly, bolstering the naysayers - you will need to counter this with regular positive communication, celebrating successes and publishing tangible and hidden benefits. Here are four questions that you will have to answer if you wish to dominate in this market in the UK - which I think you can. 1. What value will an investment in outsourcing generate and can we measure that return? 2. Do our processes currently support the existing business model and are they flexible enough to support future challenges? 3. Do we have executive sponsorship internally? 4. Do we have the skills to sell the proposition and if not, can we get them? If you can answer these questions in an honest and open way, I believe that Tenon could see dramatic growth which of course benefits clients, shareholders and the whole company.