The Finance and Accounting Outsourcing Annual Report 2011, published by Everest Group states that Finance and Accounting Outsourcing market is expected to grow 15-20 percent and top $4B in annual contract value in 2011.
Analyses of the report encapsulate multi-process FAO contracts with a minimum of two F&A contracts with a minimum of two F&A processes, over $1M in annualized contract value (ACV), and a minimum contract term of three years. As per the press release on the report from Everest, the FAO vendor landscape features Accenture, IBM, Genpact, Capgemini, Infosys BPO and HP as leading service providers. Other service providers in the analysis include TCS, Wipro, WNS, ACS-Xerox, Steria, Vengroff Williams & Associates (VWA), Outsource Partners International, Cognizant, EXL Services and Intelenet. Also included in the report are emerging providers: iGate-Patni, Minacs, HCL and KPIT Cummins Infosystems.
According to the study, in 2010, ACV grew almost 15 percent in comparison to about 10 percent growth during 2009, and total contract values (TCV) of new engagements reached $5 B. The FAO market reached $3.5 B in ACV in 2010, representing about $28.5B in total FAO spending.
“Last year saw a strong rebound in multi-process FAO adoption, which we expect to continue this year as buyers look to reduce costs and optimize processes. However, buyers remain cautious and adopt a more phased approach rather than going in for big-bang solutions,” articulated Gaurav Gupta, managing partner, Everest Group.
“Increasing competitive intensity among service providers is driving innovation. Beyond cost arbitrage, the FAO value proposition will expand this year to include best-in-class process optimization and, as contracts mature, we’ll see more demand for business and strategic impact. This also will be a testing year for platform and SaaS-based offerings,” added Gupta.
The report highlights that F&A sourcing represents a $150-200B opportunity split equally across third-party service providers and captives/shared services. Current penetration of the third-party sourcing market represents only 5-10 percent of the overall potential, implying a significant value creation opportunity.
In addition to an increase in new FAO contracts last year over 2009, the market also reached an all-time high in contract extensions that along with contract expansions, represented nearly 55 percent of ACV growth in 2010. The study predicts organic growth to continue as contracts valued $6.2B or more are up for extension within the next three years.
Shantanu Ghosh, senior vice president and global head of practices, solutions and transitions, Genpact shared his strategy for addressing the market in 2011. He said, “2011 plan is not different from a 2010 plan which is that we will beat the market, we will be ahead of the market in terms of growth, our penetrations in the market share will improve, and our client acquisitions will continue to be very aggressive in terms of both new logos as well as expanding our footprints with our existing logos.
Genpact’s strategy is strengthened by technology platforms that enable processes in different functions and industries. Said Ghosh, “New markets like India which has got lot of small and medium is seeing traction. We will start addressing the small and medium business segment market through a combination of our traditional service model and our business process as a service.”.
Further, from a competency prospective, couple of areas like statutory accounting for European landscape is very tough to do from one centralized location. Here Genpact has the strategy to do it through partners.
Second Vendor aggressively contesting to gain market share
Second tier vendors are aggressively contesting to gain market share and are creating differentiated offerings to distinguish themselves in the crowded FAO market. Gupta highlighted their areas of focus:
a) Innovative value propositions – process maturity models, industry-specific solutions, end-to-end processes solutions, specialized process offerings, bundled FAO-PO offerings.
b) Strategic alliances between pure-play FAO service providers and technology providers to offer platform/SaaS-based offerings.
c) Increasing presence and foray into emerging locations such as Africa, Latin America, and Tier-2/Tier-3 cities in mature destinations such as India. Also, focusing on mid-market and small-market buyer.
1.FAO market growth continues to see strong adoption across most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting for 70-75 percent of total FAO spending in 2010.
2.The United States accounted for over half of total FAO spending in 2010 while Asia-Pacific witnessed the fastest growth.
3.Large buyers accounted for 55 percent of contracts signed in 2010. Mid-market companies, which have revenues of US$1-5 billion annually, revived adoption of FAO last year.
4.Outsourcing of accounts payable, accounts receivable and general ledger continue to be the most outsourced processes whereas outsourcing of financial planning and analysis is an emerging trend.
5.An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach. More than 50 percent of the new contracts in 2010 had end-to-end scope (Procure-to-Pay, Order-to-Cash, Record-to-Report).
6.Nearly 95 percent of FAO contracts had an offshore component with maximum offshore growth occurring in Indian tier-2 locations, Central and South America as well as Southeast Asia. Several new locations entered the FAO delivery location map including South Africa and Morocco.
7.In 2010, technology augmentation emerged as the new “normal” – nearly 50 percent of the new contracts included add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals/dashboards.
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