When you break down business process outsourcing into its individual functions we can start to analyze the impact increased adoption is having on national economies and business infrastructures. With the manufacturing outsourcing of the last few decades, we have been dealing simply with products being made cheaper – be it a Volkswagen or a Christmas-cracker – with the design, innovation remaining with the Western organization. Economies have tackled this by redeploying workers into other industries, or learning to compete by delivering greater quality or value. With ITO, low-cost offshore workers have been able to drive down some of the suffocating costs of application management and development and actually help drive innovation and business’ ability to optimize their technology infrastructures. We are hardly dealing with a surplus of IT workers – it has simply raised the bar in terms of knowledge, quality and innovation. BPO, on the other hand, is having a different impact as we are now looking at entire professions being developed and potentially re-distributed offshore. The first back-office process to become subject to a wave of outsourcing was HR. Fortunately, for most Western HR professionals, companies cannot directly replace them with offshore staff in India, the Philippines or China. Moreover, HRO evaluations resulted in companies discovering the most optimum way to drive down cost and get better HR was to improve (often diabolical) HR technology. For most HR professionals, they are unlikely to find themselves unemployed if they are good at their job.
The areas where BPO is actually threatening development of the entire profession is that of finance, accounting and procurement. FAO (Finance and Accounting Outsourcing) is the ultimate offshore labor-arbitrage play – it is the area of BPO that truly takes advantage of low-cost offshore resources. When you have hundreds of thousands of qualified accountants coming out of the Indian colleges, schooled well in American and British accounting practices, the opportunity for organizations to make immediate cost savings with limited disruption to the business is staring them in the face. Moreover, F&A systems are far more mature that those of HR, making it far less complex for the buyer to move smoothly into an outsourced environment. A 45% increase in new FAO contracts over the last 18 months proves this. SOX also helps FAO, with businesses refining their processes and technology and enabling the opportunity to start outsourcing their F&A processes. The first processes to be outsourced are the “transactional” functions – namely accounts payable, accounts receivable and the general ledger. Other finance functions, for example fixed assets and tax accounting, risk management and payroll, are increasingly getting bundled with the FAO deal. The buyers of FAO are opting to retain in-house their financial strategy and key financial processes, namely capital budgeting, auditing, treasury management and forecasting.
On the surface, FAO looks like the other outsourcing areas – organizations offloading the grunt work to focus on the real value-add functions. However, with accounting, the entire cadetship of the accountant is based on trainees learning the ropes doing the collections, payables, payroll and ledger. With this being outsourced, where are today’s budding Western accountants going to cut their teeth? One option is for the accountancy education institutions to develop their graduates to focus purely on the more strategic and value-added accounting areas from day 1 (including vendor management). However, what about the Indian accountants now cutting their teeth on the transactional processes? Are they going to be happy collecting invoices for Proctor and Gamble, or running payrolls for staff at the BBC? The new Indian worker has proven himself to be hard working and ambitious, and with the Indian accountants now getting the ground-up training, surely they are the ones to start demanding the higher-value work in the future. With the major accounting firms also now offshoring heavily at the transactional level, there is a clear issue of the entire accounting profession moving offshore. This really is a new twist to the world of BPO.
This post was provided by Phil
Fersht. Phil is a Vice President of Everest Research Institute
and can be reached at pfersht@everestgrp.com.
