Top 5 myths of F&A Outsourcing exposed!

"Chandan, I am fully convinced that we can benefit significantly by outsourcing our routine accounting and compliances but my biggest apprehension is about confidentiality of our data and information", said Mr. Sharma (CFO at a listed company).

In my experience of last 15+ years since I co-founded Blue Consulting in 2005, I have come across many such apprehensions before a client signed up for our services.

I have been on the both sides of table during my??professional career - availed the outsourcing services as Head of Finance and then providing outsourcing services.

Outsourcing, if done strategically, can be a game changer for any CFO.

However, many CFOs are stopped by taking this courageous step of outsourcing mainly because of some myths or un-addressed apprehensions.?

It would interesting to explore the meaning of myth before we proceed further so that we both are on the same page.

As per dictionary, meaning of myth is - "a?widely held but false belief or idea".

Best examples of two popular myth are:

1. Earth is flat.
2. Sun revolves around the earth

A myth usually gets formed in our mind when we simply believe in something without exploring about it.?

I am sure you would agree with me that once upon a time, online banking was considered very unsafe among corporates but now it's in the mainstream, isn't it?

In this blog, I am making a sincere attempt to expose top 5 myths around outsourcing of Finance & Accounts processes to help future ready CFOs in their decision making.

Let's start!

Loss of control and flexibility

One of the biggest myth related to F&A outsourcing is the false fear of losing control and flexibility in the minds of few CFOs.?

Let's delve deeper into this myth in two parts- A. Loss of control B. Loss of flexibility

A. Loss of control:

In respect of control, it may seems true theoretically because work will be performed at an outside location at service provider's office. In case of in-house team, a CFO is aware who is doing what but how would he be in control for an offsite team?

Now,??let me ask a question!

Is a CFO really required to exercise control on Finance & Accounts Team?

Take few moments and think deeply about it.

These days, role of a CFO have undergone a big change and he has much bigger issues to deal with rather than controlling the F&A team.?

This may not be true for CFOs who are insecure in their job and want to remain distracted by managing the in-house F&A team.

However, as per my experience of working with many CFOs over a period of last 15 years, outsourcing has helped them to have more control over F&A function.?

Not convinced??

Let me tell you how.?

Once routine F&A processes are outsourced, CFOs have following advantages which result in better control:

1. CFO gets a monthly dashboard of transactions executed during the month with agreed SLA’s.
2. Bandwidth of senior resources in F&A gets freed from supervision of routine work which a CFO can direct towards strategic issues.
3. Best practices related to Finance & accounts gets available from service provider which are extremely helpful when company’s operations are scaled up.
4. CFO and the senior resources gets immunity from managing the HR issues of team handling the routine transactions.

I hope you got a new perspective against this myth of loss of control.

oss of flexibility:

In addition to loss of control, there is a myth among few CFOs that once a process is outsourced, they will lose the flexibility of in-house team.

Let me share the major concerns of CFOs regarding loss of flexibility:

• Will a service provider be able to deal with urgent cases of payment matching the speed of in-house team?
• Outsourcing service provider's team will work in a time bound manner which will make it difficult to deal with sudden spikes in requirement??i.e. scrutiny assessment, due diligence, data required for some analysis etc.
• The service provider team may not work on Sunday's or holidays if required.
• Service provider might charge additional fee for any additional scope of work.

I’ll be quite honest here and would agree with CFOs on the above concerns only when the outsourcing service provider is based out of India or the work is being outsourced to an international service provider having their service centre in India as well.

However, if the work is being outsourced to a domestic service provider (like us), the above concerns are unfounded.?

Want to know why and how?

As per my own experience in this field, I can tell you with 100% confidence that a service provider is more flexible than your in-house team.?

The simple reason is that, for service provider, it's their main business and for the in-house team, they are just part of a cost centre with in the company.?

There are clients where we have an agreed SLA of just one day for certain transactions irrespective of any holidays. Our team work late on their own (without being told by client)whenever there is a sudden spike in transactions or any non-recurring events happen.

Even after doing a detailed need analysis exercise to understand the scope of work, we end up agreeing for additional scope of work without any additional fee over a period of 6-12 months from the start of work.

That's the beauty of outsourcing, a CFO get to retain all the benefits of in-house team and all the additional advantages of outsourcing as well.??

ata security may get compromised

The next big myth is the fear of data security if any finance & accounts process is outsourced. The base of this myth is conditioning of mind due to false imposed ideas over a period of time.?

?You would be shocked to know that data security is always weaker with your in-house team.

You may disagree with me on this at the first instance but if you think deeply what's the basis of reliance on your in-house team that data won’t be compromised?

Let me tell you- it's simply the trust factor which is always subjective.?

Now, let's explore what's the real risk in the minds of CFOs when it comes to data security. I keep interacting with CFOs for new work and majority of CFO's have these two fears/risks in mind related to data security:

1. Leakage of data to the competition
2. Hacking of data by any unauthorised elements

Again, if you think logically, these risks remains the same or higher with in-house team whereas outsourcing service provider follow all the latest preventive and detective IT controls when it comes to data security.

For example, some of the measures taken by us to address the data security are:

1. We sign a comprehensive NDA (Non-disclosure agreement) with our clients which binds us legally regarding security and confidentiality of information.?
2. We have?back to back confidentiality of information agreement with our employees which keeps them aware of consequences.
3. Our?team does not interact directly with vendors and?customers of our clients?directly.
4. We have?deployed the latest technology which can prevent and detect the breach of security and confidentiality based on certain parameters.?

To give you a comfort level against this myth, let me pull out one example where data is extremely confidential and most of the companies outsource this process because it's not considered safe with in-house team.?

Can you make a guess?

It's payroll processing!

If you look at the growth of Payroll outsourcing service, one of the major driver behind it’s growth is high level of data confidentiality. When payroll is processed in-house, the chance of information getting leaked out is always high as compared to an outsourced environment where employees doesn’t directly interact with a specific person.?

Another related examples are outsourcing of physical security of your office and development of software's.?

So chill out and don’t be over cautious which might be keeping you away from a good solution.

Need to fire the existing team

Few CFOs gets discouraged from outsourcing just because of this myth- firing of existing team.?

There is?some?grain of truth in this myth but that's after all "some".

I completely get that and relate to the stigma of saying goodbye to people who have worked with the company for some finest years of their working life.?

But it need not to be like this when you decide to outsource.

Let's understand this with an example.?

There is company named ABC Limited which want to outsource the finance and accounts processes where in 18 employees are employed already. Let's see how ABC Limited can easily manage without firing it's employees once it's processes are outsourced:

• As per number of studies and research, there are always 15-20% employees in any team who needs to be fired but they stay there because there is no such opportunity to do so. In this case, we can easily assume that out of 18, there would be at least 3 employees who are either not competent or efficient if apply this range of 15-20%.
• Out of remaining 15 employees, if business of ABC Limited is growing, it can shift 4-5 of them to a better process, may be in different department i.e. Materials, Purchase, Commercial etc.
• Now, we are left with 10 employees. Out of these 10 employees, at least 2 must be retained to work as a co-ordinator between ABC Limited and the Outsourcing service provider.
• Now, you must be thinking what could be the solution for remaining 8 employees, right? Hold on- there is a better solution for them. ABC Limited can shift them to the payroll of your existing service provider which will be a win-win case. ABC Limited need not to fire the employees and the service provider get to retain the knowledge pool which provides stability to the process. I agree that some of the employees may not be willing to join the service provider's company but that's fine because ABC Limited have given them a workable option, isn’t it?

I hope you got some new insights to deal with the myth of firing of existing team.

Outsourcing team will not understand the business dynamics

Again, this is not a complete myth and there is some grain of truth. Understanding of client's business is a pre-requisite to deliver any kind of knowledge or process intensive work.?

It's not something extraordinary which a client expects from a service provider but it's quite a normal and baseline expectation.

In fact, understanding of client's business well enough makes it easier for the service provider to deliver the services as per the expectation of client and at the same time lowering it's cost as well.

You might want to pause here and ask me like how come understanding of client's business lower down the cost of a service provider.?

It's pretty simple- understanding of client's business saves lot of re-work at service provider's end and time saved is money saved, isn't it?

Now, let's explore this belief system of few CFO's that outsourced team usually lacks the understanding of business dynamics and they are too much transaction and process focused.

However, this would vary from one service provider to another but the real question is how to mitigate this risk?

The easiest and quickest way to mitigate this risk is reference check. Yes, just ask the potential service provider to share the name of 4-5 references of it's existing clients. Then, just speak to them at length, specially regarding the understanding of business dynamics by service provider in the context of specific services.?

At Blue Consulting, we invest a good deal of time in understanding the business dynamics of client and we even record them in manner that the same can be used if there is any change in our team going forward.

Outsourcing will solve all problems immediately

This myth is quite interesting and my personal favourite.

When a company is facing issues in its F&A function like not getting reports on time, people having competence issues, employees not being stable etc, they always believe that just by mere outsourcing, all these problems will get sorted immediately.?

Its a myth which causes heartburn in relationship during the initial period of 6 to 12 months.??

Now, let me share why outsourcing can’t solve the existing problems immediately.

Whether you agree or not, even a simple transaction process in finance & accounts involve some kind of learning and application of mind for the person who is doing it for the first time.

Moreover, when a process is outsourced, a detailed study is required at the end of both the parties to avoid any communication gap later on. This is where the real gap is.?

Very few service providers invest their time in documenting the "as-is" situation extensively along with what exactly client wish to achieve through outsourcing.?

Similarly, very few companies invest time and effort to document the process gaps which needs to be rectified before outsourcing.

As per our experience of working with many clients, outsourcing process takes 3-6 months time to reach to a level where the earlier in-house team was functioning for the simple reason that there is always a mandatory learning curve for the new team deputed by the outsourcing service provider.?

Though this team is always well versed with the technical aspects of F&A function but every company has its own unique systems, processes and informal practices in F&A functions which are usually very different from other companies. In the initial 1-2 months, the outsourced team simply understand what is going on and how much is the pendency of work.?

I always make sure to inform to all of our new clients in the proposal stage itself that outsourcing is not an easy journey and it needs to be travelled together to make it successful.?

In fact, in the beginning the outsourcing phase goes slightly downward, then it comes back to the normal level and then start going upward once the benefits of process and systems start pouring in.

So, a healthy and transparent communication is required to avoid the communication gap where a client starts expecting that everything will be alright as it has outsourced to an expert.

I hope you would agree with me that even a best doctor in the country can’t help you unless you are willing to help the doctor by sharing all your symptoms and agree to walk the path of treatment. Same is with outsourcing.?

So, these were the 5 myths which I wanted to address through this post and I hope I have been able to do justice with the issue.?

I am sure you would be having some different thoughts on these myths and it would be good to know your perspective as well.

Please share your experience and opinion on these 5 myths to make it an enriching discussion for everyone who read this post.

In the meantime, if you have any queries related to outsourcing of your finance and accounts function, please feel free to get in touch with me at [email protected] and I would surely try to get back to you as the time permits.?

PS: Blue Consulting Private Limited is an Outsourcing Expert since 2005 when it comes to Finance & Accounts. It??has 2 offices in India and a strong team of 100+ people helping CFOs to save their time and energy.