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An outsourced business financing partner

THE OUTSOURCING of finance functions is not a new phenomenon. But can providers take on an even greater role which goes beyond what FDs would traditionally consider could be taken off-site: the one responsible for business financing?

The ICAEW report Finance business partnering: a guide suggests that when the demand is there for finance to have a greater role in the overall business, there is the potential for outsourcing companies to take on traditional business partnering responsibilities, such as involvement in strategy formulation, commercial decision making and negotiations and business analysis, and being a facilitator of productive business discussions.

For Oliver Colling, director and UK CFO services lead at North Highland, there are benefits to such an approach.

He says: “The traditional outsourcing relationship is that we provide a service and you pay for it, and it is typically something that is high-volume, where they can make economies of scale and do it for less.

“But on the other side, there is a huge amount of talent and knowledge among the outsource providers. This is a fantastic arrangement. Outsourcing companies have people who are MBA-qualified analysts, who are sat out there doing business analysis.”

They also have expertise across whole sectors, says Ed Ainsworth, managing director of 4C Associates: “It is definitely here today. The outsourcing industry has the capability to offer [business partnering] as a service. Most large outsourcers specialise by industry and have in-depth understanding.”

He does have a caveat, however: outsourcing cannot be done offshore. And there are deeper issues. For the majority of experts, this is where the real problem with outsourcing business partnering comes in: not only can it not be done offshore, but it must be done in-house.

Chris Tiernan, managing partner of Grosvenor Consultancy Services, says companies are looking at bringing outsourced services back in-house “so those services can be closer to the business”.

He cites the example of a “major retailer” where “the CEO said that this was the main reason for cancelling the contract that was worth over £1bn”.

And business partnering, perhaps more than other functions, has to be as close to the business as possible. Stephen Ibbotson, head of ICAEW’S finance and management faculty and former FD at Avon, who helped devise the report, cites the example of Unilever.

He says: “I know of global multinationals that put all their business partners in a centre of excellence, and even that was difficult as they are away from the business and cannot interact with those people on a day-to-day basis. They do not build up the relationship or build up their understanding.”

With this in mind, any attempt by outsourcing companies to try to take on business partnering roles will fail at the most obvious hurdle – that of cost. As Tiernan puts it: “For somebody to properly understand a business, they have to be in there on a day-to-day basis. If you multiply consultancy rates by the number of days in the year, and compare that with how much it costs per year to employ your own staff of similar calibre, you will probably find that the consultants cost themselves out of a job.”

Intermediary role
This is not to say that outsourcing firms cannot help FDs in their business partnering responsibilities, however. One way is through providing business analysis services.
The ICAEW report states that “outsource providers can sometimes provide specialist expertise in areas such as analytics where an individual organisation could not justify full-time resources”.

Colling says that “outsource providers are one of the biggest pools of untapped talent out there”. He tells the tale of a CFO of a pharmaceutical company, which has an outsourced analytics team that sits in India. He says: “Every time somebody from the business presents a business case, they send it overnight to the people in India, who do the analysis and come back with the questions – all of the analysis he needs to have an informed discussion with the business.”

The second way of using outsourcing companies to aid FDs in business partnering is as an intermediary. Tiernan explains: “If part of the services the consultants provide is helping to set up better relationships between the business and finance, as a facilitating role, providing training or expert knowledge, I can understand how they have a role in those activities.”

This might also involve “some sort of ongoing involvement to help steer the ship, but not to row the oars” – thereby not incurring the huge consultancy fees.

The final way of using outsourcing providers to help with business partnering responsibilities is the most common one: removing day-to-day functions, which will free up time for FDs to work on the business partnering.

This is the approach Ibbotson took: “From my career experience, with most traditional finance transformations, you use outsourcing to snip off your transactional activities and then you apply the savings you have made for business partnering. It does not always work like that, but that is the best use of outsourcing.”

While it looks as though outsourcing providers will not be fully involved in business partnering services any time soon, finance directors should not ignore the help they can provide. ?

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