Shared Services 2.0 – Next Big Wave Of Offshore Financial Operations

Analytics

Outsourcing for improved business outcomes is a model that has been around since at least 1981. Increasingly, global companies have been turning to offshore hubs for their financial needs as well. While the business results of outsourcing have traditionally been mixed, there have also been some blazing successes along the way. The Indian market has often proven to be a feasible destination for offshoring and outsourcing, due to its unbeatable benefits over other regions.

Irrespective of its industry size and domain, every organization is built on a simple transactional process of exchanging money. However, in terms of outsourcing financial processes, high-end risks are usually avoided due to the sensitive nature of data involved and the lack of relative control that offshoring inevitably leads to.

While assessing the risk and complexity of transactions to be considered for outsourcing, they can be classified into three categories – High, Medium and Low. While low-risk and low complexity transactions are usually the processes that are outsourced, this situation is gradually changing and increasingly complex tasks are also being subjected to outsourcing.

Financial processes such as bookkeeping, tax compliance, strategy development and advisory services for clients are now being subjected to the outsourcing model. Offshore financial centers have matured and are collaboratively getting involved with business outcomes, financial planning and market analysis.

So, offshore service providers have started functioning more as finance business partners for their clients. They work closely with the business methodology and target markets of clients by conducting complex transactions that are aided by modern technology. Several big companies involved in offshoring have now moved beyond their initial phase of development and are actively involved in forecasting decisions that require between 2-5 years to understand and specialize in.

A valid example here is of a confectionary provider who wanted to enter a new geographical market. While the material inside its product was to remain the same, there was a tremendous amount of financial planning and analysis which was needed to determine the packaging design, the net weight of the package, and other intricate details. This entire process was subjected to a rigorous cost to revenue ratio analysis, as well as a profitability study led by the client’s offshore financial services team.

How to succeed at financial process outsourcing

Thanks to the history of offshoring financial operations, several tips such as those mentioned below are just as pertinent today as they were when they were first created:

·         Conduct thorough research on service providers

·         Engage providers actively to explore opportunities

·         Ensure that providers fit in perfectly with the organization’s culture

·         Constantly focus on implementation, transformation, and engagement

A key decision for companies to make is whether they should adopt a captive strategy or a third-party strategy. Outsourcing everything to a single organization (as part of a captive strategy) may seem like a counterproductive move at first, but it can reap far more benefits in the long-term if companies adhere to the Shared Services 2.0 model.

Armed with this model, companies and outsourcing service providers can develop long-term partnerships to perform complex financial or non-financial tasks beyond the original scope of work. This is especially relevant and beneficial for companies at times of large-scale transformation or migration. From a business standpoint, outsourced financial analysis and forecasting can thus move far ahead of its traditional roots. It can enable companies to reap benefits such as – a centralized delivery mechanism, a consolidated team reporting structure, optimally utilized resources and a leaner organization.

A hurdle here is the occasional legal or operational restriction on data flow across entities. For instance, social security numbers of US citizens cannot be shared outside the country and this can hamper operations. While technology is available to support, automate and boost security issues, legal loopholes can often be restrictive. Offshore processes can also suffer a loss of control and ownership to some extent, as meeting crunch timelines become harder. However, this can all be resolved as part of the Shared Service 2.0 model. With definitive metrics to measure success in place, a strong governance mechanism can be deployed for effective migration and delivery.   

Looking to a robotics-driven future

While common tools for offshored financial processes have been in place for the last decade or so, modern technologies are making account reconciliation, workflow reporting, data security and financially driven analysis to the next level. Robotic Process Automation (RPA) is playing a vital role here. Companies are devising strategies to justify the high one-time setup costs and recurring maintenance costs. Although RPA implementation in finance offshoring companies is still in its nascent stage, companies are well placed to extract its benefits as these tools augment humans, not replace them to expand their business.