Outsourcing: a fair share

Outsourcing has long been viewed as an excellent option for companies looking to reduce costs and streamline their finance and accounting operations. However, it’s not for everyone and despite the advent of so-called Software as a Service (SaaS) solutions, it is far from being a popular choice.

According to Mark O’Neil, commercial director of Independent Growth Finance (IGF), small companies have the most to gain from outsourcing, making them the most enthusiastic when it comes to its adoption.

IGF specialises in payroll management and invoice factoring – the two services most commonly outsourced by small and medium companies – with what O’Neil sees as clear and immediate benefits.

‘Outsourcing gives the smaller business access to specialist IT systems and personnel they couldn’t otherwise afford,’ he explains. ‘It also allows them to get on with what they do best – generating sales and running the business – while we apply best practices to the running of their payroll and sales ledger.’

The benefits from outsourcing other finance and accounting (F&A) functions, though, are less clear cut, especially in larger companies.

In a recent survey conducted by analysts Nelson Hall, a third of respondents had outsourced basic processes such as credits and collection, but, despite almost half the finance directors questioned saying they were ‘highly concerned’ about the cost effectiveness of in-house F&A services, few had embarked on more comprehensive outsourcing projects.

Loss of control, together with concerns over data security and compliance, were cited as key reasons for this reluctance. And these concerns are not addressed by the introduction of online solutions, as customers continue to run their finance operations themselves using remotely hosted applications.

Such services are only just starting to appear, but most include other, more traditional outsourcing components. They also tend to be aimed at smaller companies, or at accounting professionals servicing smaller owner-managed clients, as with Online50 for example, and Twinfield.

Indeed, according to the Nelson Hall survey, larger companies are more likely to implement their own shared service centres rather than outsource or sign up to any of the new online products.

Some 60% of the companies surveyed had already opted for the shared services route, or were intending to take this approach. This figure is endorsed by a similar study undertaken by the Hackett Group, which found that 65% of large organisations are happy to go down the shared services route, compared with just 4% prepared to consider other forms of comprehensive F&A outsourcing.

Interestingly, such centres often make use of the same online portals and other web technologies that underpin the SaaS solutions.

An increasing number are also hosted offshore and are often joint ventures, with at least part of the supporting infrastructure outsourced to a specialist partner, as with the NHS Shared Business Services, established in partnership with UK outsourcer Xansa (see case study – Shared services for NHS).

However, the shared services approach is seen as a safe option, addressing concerns relating to both traditional outsourcing solutions and the emerging nature of many of the SaaS technologies. It also enables customers to steer around the marketing hype surrounding the delivery of the newer services, as outlined in a recent Gartner report, Hype cycle for business process outsourcing 2006.

The Gartner report finds that buyers feel subject to ‘consistent and pervasive hype’, making it difficult to decide what is available and who can deliver it, with many of the services currently on offer more than five years away from true market maturity.

Goodman jones plumps for Online tools

Chartered accountancy firm Goodman Jones LLP needed a more efficient way of serving its customer base. Conventional software packages were either too slow or unsatisfactory, so it finally chose Twinfield and its zero-installation, zero-maintenance, online service. ‘We need to connect our people and clients any time, anywhere,’ explains Philip Woodgate, business systems partner. ‘We couldn’t do that with traditional accounting systems.’

The ability to access the service from any internet-enabled PC was key to its decision to use Twinfield. Moreover, it eliminates concerns over version control. ‘With Twinfield, client accounts always reflect the current position because there is only one version of the books,’ says managing partner Larry Philips, who also points to the lack of any need to maintain the supporting hardware or software as a major benefit. ‘Time spent running machines is time we can’t put into direct client work,’ he argues.

Possible future benefits include being able to give clients simple dashboards to monitor key performance indicators identified by Goodman Jones, and delivering real-time data to client staff in the field.

NHS ­ committed to Shared services

Since its launch in April 2005, NHS Shared Business Services has grown rapidly. The public/private partnership enables NHS trusts to outsource their finance and accounting functions to an independent service, part-run by Xansa. Individual trusts aren’t mandated to join NHS Shared Business Services; however, there are huge benefits in doing so.

According to Mike Withy, director of finance and accounting at Xansa ­ the UK’s leading specialist in this field ­ significant economies of scale from a shared infrastructure are one such benefit, along with reliable delivery of standardised best practice. Client trusts can also use the outsourced Oracle database for other applications.

NHS Shared Business Services supply finance and accounting services to 103 organisations in 56 trusts across the UK. It guarantees a minimum 20% saving on existing operational costs, as well as 2% efficiency savings year on year. In the past year it delivered average savings of 34%, a figure it hopes will rise significantly as more trusts join. Former NHS chief executive Sir Nigel Crisp says: ‘My aim is for the NHS to be at the forefront of efficiency, and NHS Shared Business Services gives us a tangible way to demonstrate that commitment.’