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.’