ISG Provider Lens report finds many companies focused on more holistic partnerships with digital FAO providers
CFOs under pressure to deliver cost efficiencies and enable organizational growth are turning to providers of digital finance and accounting outsourcing (FAO) services to help meet their goals, according to a new report published today by Information Services Group, a leading global technology research and advisory firm.
“Second-generation outsourcers are beginning to engage with service providers more holistically.”
The ISG Provider Lens™ Digital Finance and Accounting Outsourcing Services Archetype Report finds many enterprise CFOs around the world looking to FAO service providers that leverage data analytics to deliver real-time insights and meaningful information to make faster business decisions.
While digital FAO providers have traditionally given enterprises the ability to offshore non-strategic finance functions, the market has changed considerably, the report says.
“FAO service providers are adapting to meet the increasing expectations of enterprise clients,” said Scott Furlong, partner, Global Business Operations, for ISG. “Second-generation outsourcers are beginning to engage with service providers more holistically.”
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Many second- and third-generation outsourcers are moving more F&A functions to providers, the report says. High-end and judgment-intensive F&A processes, including budgeting, forecasting, regulatory compliance, tax and treasury, that were formerly retained in house are now being outsourced. For these processes, companies prefer onshore and nearshore providers with strong domain expertise and a sound understanding of local and regional financial issues, tax norms, regulations and statutory requirements.
Finance and accounting operations were early adopters of robotic process automation, the report says. While RPA has been successful in automating rules-based and high-volume repetitive tasks such as supplier invoice and receipt tallying, exemptions limit the ability of RPA bots to complete certain activities. In such cases, enterprises are leveraging intelligent FAO solutions that combine RPA with artificial intelligence, natural language processing and machine learning capabilities.
According to ISG research, only 14 percent of companies have reached Bot 3.0, the most mature state of enterprise automation capability, with automation in multiple functional areas and cognitive solutions in production, the report notes.
The report also finds the COVID-19 pandemic drove greater adoption of FAO services. Finance leaders worldwide have been prioritizing digital transformation agendas to modernize their finance functions. They see automation, advanced analytics and AI as key ways to reduce costs, improve accuracy, increase workforce productivity and enhance customer experience.
Companies also are seeking providers that offer vertical-specific FAO services such as actuarial accounting and claims bill payment in insurance; royalty management in media, entertainment and publishing, and revenue recovery in the airline industry, the report notes.
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The ISG Provider Lens™ Digital Finance and Accounting Outsourcing Services Archetype Report examines four different types of clients, or archetypes, that are looking for digital finance and accounting services. The report evaluates the capabilities of 24 digital finance and accounting service providers to deliver services to these four archetypes:
Transactional Services Buyers: These are typically first-generation outsourcers seeking to outsource less complex, repetitive and transactional finance functions. The most frequently outsourced functions include order-to-cash, procure-to-pay and some components of record-to-report transactions. These buyers seek point solutions and are not inclined to outsource other critical finance functions. They mainly focus on reducing the cost of processing transactions by utilizing offshore labor arbitrage.
Automation Implementers: These buyers want to leverage automation extensively, and their outsourcing objective is not limited to cost savings. Companies in this archetype are more mature and consider outsourcing finance functions that go beyond transactional processes, including critical functions. The objective is to reap the benefits of technology to gain deeper insights for supporting decision making. Automation in this category is not limited to rules-based processes, but instead blends artificial intelligence into finance operations.
Transformation-Oriented Buyers: Clients in this category seek to transform their finance and accounting operations to be ahead of the curve, improve the customer experience and optimize the use of technology to their advantage. Embracing the chain of digital technologies is of prime importance for these buyers. Their outsourcing objective is not limited to transactional processes. Analytics is one of the key areas, as CFOs increasingly focus on the core business and use technology for real-time insights and quick decision making that enable their finance departments to function more effectively.
Holistic Partner Buyers: Clients in this archetype seek to outsource end-to-end finance and accounting functions to focus on their core business activity. Their objective goes beyond technology, which continues to be a priority. These buyers seek a strategic partner that can understand their business and its related processes and offer solutions that meet their business objectives. Leveraging technology to accelerate time to market is a critical initiative in this type of engagement.
Among the providers ISG evaluated, Accenture, Capgemini, Cognizant, EXL, Genpact, IBM, Infosys, TCS and WNS were named Leaders across all four archetypes. Wipro was named a Leader in three, and HCL was named a Leader in two. The report names Datamatics, Hexaware and Tech Mahindra as Leaders in one archetype.
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