As speculated during our March recap, the F&A BPO market is bounding on. I can now confirm (and you heard it here first) there were 107 multi-process F&A BPO contracts signed in 2007 – that’s 20% growth over 2006. In addition, the average contract value stabilized at the $33m level. I’ll be delving more into this market in my research in the coming weeks. Strong performances from Accenture, IBM, Genpact, HP, InfosysBPO and Vengroff Williams were the prime catalysts for the record year. The outlook for this year is even stronger.
I have always been a believer in a robust business model for F&A BPO – it balances the benefits of offshore resources with financial workflow solutions, and – in theory – allows finance executives to focus more time on delivering their leadership information they need to base business decisions – and less time overseeing tactical process issues. However, like any solution involving the transition of labour and processes, the success of F&A BPO depends heavily on the buyer’s patience and ability to get the best out of their vendor, and their willingness to re-tool themselves to operate in an outsourced environment.
In any case, it’s going to be a fascinating period ahead for this market with the economic situation. Some companies will aggressively pursue outsourcing strategies, spurred on by the cost-savings, while others will adopt a short-term mindset of "getting through the next quarter", and the upheaval of a multi-year outsourcing engagement will be low on the priority list.
Posted in : Finance and Accounting
Phil;
The great thing about research is that different researchers come to different conclusions. Maybe we should amalgamate the research?
By OUR counting … admittedly using a $25M contract value threshold and only considering commercial deals (no public sector) … we saw only 19 F&A Outsouricng deals awarded in 2007. That was down from 26 in 2006.
Again, with nuances of sampling techniques … we look for true “outsourcing” identified by: defined services + defined prices + defined service performance commitments. Many of the F&A relationships put into play recently have been labor arbitrage in nature with no real “service” orientation.
The other indicator of a difference in our measurement technique is the fact that the 19 deals we counted had an average contract value of almost $120M.
Your $33M average value, if spread over a typical 5-year term, would imply about $6M/year in spend for F&A services.
The nice thing is … we could BOTH be right!
Peter – thanks for the input. The methodology used here is “any two core F&A processes from the following bundled within a single-vendor multi-year services / outsourcing contract” :
Accounts Payable
Travel and Expense
Procurement
Accounts Receivable
General Ledger Accounting
Accounts Reconciliations
Fixed Asset Accounting
Tax Filing
Payroll
Inter Company Accounting
Regulatory / Statutory Reporting
Management Reporting
Risk Management / Treasury Internal Auditing
Financial Planning & Analysis
Business Intelligence
The threshold was also a minumim TCV of $1m, which largely explains the difference in our stats. Having said that, I do count 43 F&A BPO contracts over $25m TCV, so we should connect offline on that one.
I’m focusing on the smaller deals also, as we are seeing large enterprises go for smaller deals – often “testing the water”, and also mid-market firms doing deals under your $25m threshold, which may not fall under the TPI radar. Many of these fall into the methdology I have used here.
PF.
Phil;
If you’ve got the net to capture that level of deals … superb! I agree that the market for F&A is in the very low dollar thresholds!
Peter