New Report – Aligning and Guiding Finance and Accounting Outsourcing (FAO) with User Needs

Bruce Guptill, Jan Erik Aase

What is Happening?

Research and analysis in a new ISG Provider Lens™ report indicate that the Finance and Accounting Outsourcing (FAO) market, though traditional in nature, is emerging as an innovative and technology-driven service segment. We see more and more providers with diversified portfolios and capabilities catering to the expanding and varying needs of different enterprise clients in this space. However, rapidly-changing enterprise client needs make it increasingly difficult for service providers to build expertise and offer services around every aspect of F&A outsourcing.

Our new ISG Provider Lens Report: Finance and Accounting Outsourcing (FAO) Services builds on months of research focused on services, key service providers in this space, and the global range of buyer needs in order to address this. The report summarizes the relative capabilities of FAO services providers and their abilities to address the requirements of four typical, frequently-encountered categories of enterprise user types (“archetypes”). Each archetype represents a unique set of enterprise user business and technological needs and challenges. And the ability to satisfy the needs of these archetypes is what’s going to enable provider success in an increasingly-diverse FAO marketplace. Even then, experienced guidance will be required to optimize the alignment of provider and services with archetype needs.

Why is it Happening?

When we know what users plan to accomplish, how they want to accomplish it, and what capabilities they require to do so, then we can better identify and/or develop suitable and repeatable combinations of IT services, whether as in-house IT resources or as outside IT providers.

However, knowing how to apply and adapt archetypal characteristics will be key to success for both sides. This is due in large part to two core realities regarding the archetypes:

  • The characteristics of each archetype are a moving target over time, because while the core requirements rarely change, the relative importance of different requirements can vary based on business and/or technological environment changes.
  • Multiple archetypes tend to be present in most enterprises, especially in larger firms. As the requirements of each archetype evolve and adapt based on business and technological changes, so too do the presence and value of each archetype.

This gives CFOs, CIOs, IT procurement leaders, and decision makers a shifting series of choices when it comes to FAO services provider selection. Striking and maintaining the proper balance between archetype requirements and service provider capability is a mandate to achieve optimal business value. Within the ever-evolving outsourcing space, it will be hard to standardize client requirements and map them against one particular client archetype without anticipating future needs.

For example: The key characteristics of what we call the “Automation and Transformation-Oriented” archetype appear on the left side of Figure 1. Their core needs today revolve around digitization and optimization of Finance. These clients were once traditional outsourcers, but are now embracing innovation and optimizing processes through transformation. ISG sees them mostly as 3rd generation outsourcers who are looking forward to changing their IT ecosystem and creating a difference with automation and analytics.

On the right side of Figure 1 are what our advisors working with these types of clients see as four key capabilities needed to satisfy client-side requirements. The relative size of the “gears” in Figure 1 represent the relative typical need for each within this client archetype. We use providers’ ability and approaches to delivering these as a key means of evaluating provider and service suitability for this archetype.

 

Figure 1: Mapping Client Needs with Provider Capabilities. Source: ISG Inc.

All that being said, these are depictions of archetypes that do not apply completely and strictly to all clients with similar needs. Adaptation based on experience is required to best gauge and align specific client needs within this or any archetype. And as clients within each archetype progress and mature, their needs will change, and so the relative importance of provider capabilities will also change

Net Impact

Readers of this report will understand better how to strike and maintain the proper balance between their Finance and Accounting requirements and service provider capabilities – and be better able to achieve optimal business value. FAO needs, possibilities, and benefits will be (a) better understood, and (b) more readily accomplished.

Both services providers and enterprise CFOs (and other Finance leaders, as well as outsourcing/services procurement leaders) will be better able to understand each other’s capabilities and requirements, enabling more value for both. Key report findings to enable this include the following:

  • Service providers need to have a complete understanding of the client’s internal technology landscape and outsourcing objectives. They should be able to relate to the client’s existing archetype and their future requirements. This will enable them to design solutions while providing insights, more as a consulting partner.
  • Enterprise clients need to understand their organizational characteristics to lay out an effective outsourcing plan and do a suitability analysis and choose service providers based on their requirement.

This new report is available for immediate download by clients of the ISG Insights Sourcing and Procurement (SPS) research knowledge area. Clients may simply log in and download a PDF of the report. Non-clients may obtain copies of the report by contacting ISG Insights at http://insights.isg-one.com/learn-more/.

Note: This report presents services providers’ known capabilities in the context of user enterprises’ typical project needs (i.e., archetypes). This report is not meant to rank providers or to assert that there is one top provider whose abilities can meet the requirements of all clients who identify themselves with a particular archetype.

See more at: insights.isg-one.com/research/new-report—aligning-and-guiding-finance-and-accounting-outsourcing-(fao)-with-user-needs

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New Research Report: HR Tech Shifts Toward Cloud – But Not All In Just Yet

Alex Bakker, Bruce Guptill Research Alerts

What is Happening?

Based on analysis of data from our latest global web survey on human resource (HR) and human capital management (HCM) technology usage and plans, the HR shift to SaaS is not an “if” but a “when.” We expect more than 50 percent of user enterprises to rely on SaaS and hybrid HR/HCM solutions by the end of 2020.

In large part because leading on-premises HR software vendors have shifted the bulk of their development efforts to the cloud,users of legacy, on-premises solutions have little choice but to plan for a significant shift to Cloud-based HR/HCM in the relatively near term.

While the trend is clear, how to make the shift – and how much to spend in making it – is still a muddied picture. Our newest research report, Industry Trends in Human Resources Technology and Service Delivery Survey, captures the latest thinking from more than 200 enterprise HR organizations, and explains the analysis that leads us to conclude that most enterprises will have to begin making the shift to SaaS within three years.

Why is it Happening?

One particular set of data from the survey provides a snapshot of the overall situation – and the pace of change that enterprises are experiencing. When we asked survey participants to tell us their plans for implementing SaaS/Cloud-based HR/HCM software by category/function, we found an already-strong adoption of – and a steady acceleration toward – SaaS/Cloud through 2019, at which point more than 75 percent of enterprises expect to be using at least some SaaS/Cloud HR/HCM management software in each category/function across their HR organization. The following figure illustrates this.

SaaS-based HR/HCM

Figure: Shift to SaaS-based HR/HCM is Happening Across All Categories Source: ISG Inc., 2016 global Industry Trends in HR Technology and Service Delivery survey; n = 206

The Industry Trends in Human Resources Technology and Service Delivery Survey report digs more deeply into why HR SaaS adoption is growing across categories, and what it means for other factors and trends in Cloud-based HR/HCM management evolution and adoption. Findings include the following:

  • In a variance from past survey results, this year’s survey found software and process management cost is now the primary benefit expected from HR SaaS. A wide range of enterprise-wide digital-business-related influences – including scalability of solutions, global reach, employee-user experience and access to innovative capabilities on an ongoing and automatic basis – are helping to accelerate adoption.
  • While there is a shift underway, the data suggest that not everything is going wholly to Cloud right away. While 75% or more indicate at least some HR SaaS expected in place through 2020, only about one-third of survey participants indicate a wholly-SaaS-based model as their primary HR approach in the same timeframe.
  • While HR organizations are still working to master analytics, the improved and ubiquitous analytic capabilities (and security features) of leading SaaS solutions and platforms will help increase HR analytics use. This is a trend that we predict will drive more adoption, and adaptation, of Cloud-based HR/HCM capabilities. Better data analytics enables better management of the organization’s human capital.

Net Impact

We see the move to SaaS as possibly the single biggest opportunity to transform HR service delivery in the enterprise, with benefits that range from improved talent targeting and employee engagement to increased data accuracy and compliance. Given the key trends revealed in the survey, enterprises that lag in deploying and integrating SaaS-based capabilities risk falling significantly behind in their ability to attract, develop and retain the talent necessary to compete in a rapidly evolving talent market.

Of course, such strategic shifts require strategic planning – and an enterprise-wide willingness and ability to execute. Organizations needs to develop and staff three- to five-year transition strategies as soon as possible. And these plans need to be based on relevant and supportable financial factors. Important considerations include support costs, transition vs. license renewal costs, IT and HR skills training, application rationalization and vendor selection. Administrative savings and added business value from improved HR capability should not be overlooked.

Finally, migration to SaaS/Cloud is not a once-and-done activity. Rather, it is an ongoing series of transformations. Plan for continuous and expanding change not only in solutions and providers, but also in how solutions are utilized in-house. Expect provider revisions and updates two to four times a year. And be aware of the kinds of changes that your chosen providers are likely to make and how they may affect the management of HR specific to your enterprise. Given the current and emerging trend toward digital business transformation in all markets, aligning provider business, solution change and enterprise business requirements will require ongoing, dedicated resources.

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Half of Incumbent Providers Losing Everything in Competitive Negotiations

Stanton Jones Research Alerts

What is Happening?

The IT and business services market is an extraordinarily competitive and unforgiving marketplace for incumbent providers that are not meeting client expectations. According to ISG research, two out of every three ISG-advised contract renegotiations over the past two years resulted in the enterprise buyer inviting new service providers to compete with the incumbent provider, and, in nearly half of these cases, the incumbent lost all the scope. One-third of the time, the incumbent lost some scope to another provider. Only 14 percent of renegotiations resulted in the incumbent retaining the entire scope, and only 7 percent of the time the incumbent saw an increase in scope.

Why is it Happening?

When analyzing this trend at an individual deal level, price, performance and relationship appear to be the three primary drivers for the increase in competitive renegotiations:

  • Price. In response to the massive competitive pressure to explore digital solutions across the business, enterprises are looking to take cost out of non-strategic areas and re-invest those savings into digital initiatives. Enterprises are looking to reduce costs by 20, 30 and 40 percent, even those in existing generation-one and two outsourcing deals.
  • Performance. A general lack of performance (or the perception thereof) is a key driver for enterprises that decide they want to bring in fresh thinking. Outsourcing buyers that can measure or even simply perceive a lack of innovation, a lack of understanding of their core business, or too much focus on day-to-day problem resolution from a service provider that doesn’t understand or resolve underlying root causes increasingly are interested in the idea of a competitive renegotiation.
  • Relationship. Complacency in the relationship was a key theme for incumbents. Providers that do not understand underlying client messages, are insensitive to concerns, don’t proactively build relationships with key leaders or don’t have a proactive relationship plan are driving buyers to re-evaluate existing relationships.

While it’s no surprise that enterprise buyers want more competition in contract renegotiations, what is even more interesting is the fact that the risk of change is not a primary deterrent for a client to move to another service provider. Figure 1 below shows that, in more than 60 percent of deals in which the incumbent lost some or all of the scope, the client viewed the risk of changing providers as either moderate or high.

Renegotiations

Figure: Risk is not a Significant Deterrent to Changing Providers Source: ISG Research.

Net Impact

This willingness to take on provider switching risk may be a leading indicator of an even broader trend occurring in the market: the global economy is changing at a pace where it is now riskier not to take a risk. Digital Business is transforming entire industries in a matter of months – not years – which means that enterprises need to adapt faster than ever before. Therefore, one could argue that at a more strategic level, enterprises buyers are willing to take on a high level of switching risk in order to avoid the even greater risk of business stagnation.

Of course price, performance and relationship are important. But what we may be seeing here is a view that these areas are simply table stakes – services commodities. Further exacerbating this challenge for providers is the fact they themselves have matured their transition capabilities to a point where the cost, time and risk of switching seems acceptable to enterprise buyers, as compared to the risk of not changing their business to adapt to Digital Business opportunities.

This is a sobering assessment for large Western and Indian Heritage firms that are also under siege from hyper-scale clouds, innovative SaaS companies, smaller platform-based managed services companies and niche providers offering digital solutions that augment the work of humans. But fact remains: if a client is unhappy with your services, it’s highly likely they will invite new providers to bid on the work. When (and not if) this occurs, you have a 50/50 chance of losing all of the scope you own today to another provider.

So while focusing on price, performance and relationship are critical to keeping clients happy, it is continuous innovation that we believe will help service providers win and retain clients in the future. Continuous innovation focuses on helping clients adapt to rapid business change today, rather than solving to what an RFP indicated months or even years ago. However, this is much easier said than done, because continuous innovation is a two-way street. Providers will need to invest ahead of the curve in differentiated, vertical-specific IP, and buyers will need to standardize processes and leverage shared systems. Meeting somewhere in the middle is where the risk, and the opportunity, reside for both providers and buyers.

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