Market Overview: An Interview with Cathy Tornbohm, Research VP at Gartner

With the recent publication of Gartner’s Magic Quadrant for Comprehensive Finance and Accounting (F&A) BPO, Global, and a report on the importance of F&A process enhancement technologies for the future of BPO delivery, sharedserviceslink.com spent half an hour with Cathy Tornbohm, Vice President at analyst firm Gartner, to get her thoughts on today’s market.

sharedserviceslink.com (SSL): What are the major themes in F&A BPO at the moment? 

Cathy Tornbohm (CT): The big things we’re writing about are the size of deals and how contracts are getting smaller. The average deal size was about £40m but it has come down to about £20m or less.

We’re also looking at the interest in end-to-end processes, such as purchase to pay and order to cash, and how companies are bringing in more high-value services for record to report.

SSL: How different were the market’s trends a year ago?

CT: Twelve months ago the market was quite quiet, it’s picking up quite strongly at the moment. Also, companies hadn’t introduction many cloud-based or platform-based services.

SSL: Do these trends differ between geographies?

CT: Geography is interesting. The bulk of the work is being bought from the UK and US, while Scandinavia is warming up and there’s some activity in Australia and Brazil. There’s very little coming out of France or Germany. The UK and US still dominate the market.

SSL: Why is that?

CT: It’s due to many things, such as language, trade unions and whether the economies make sense. Why would a Russian oil company, for example, do this? There aren’t people elsewhere on the planet who can speak Russian cheaper. It’s the same for Greece and Italy, and to some extent France.

There are deals in India for Indian companies, and the same for China; several vendors have taken an aggressive in-country view there. Finance and accounting BPO won’t be uniformly adopted across the globe for these reasons. 

SSL: We’ve heard of a number of companies that have taken a hybrid approach to shared services and BPO, is this something you’ve seen?

CT: Yes, to some extent. I predicted this would happen in a conference speech a couple of years ago. Once you’ve set up a shared service centre, it’s mostly about managing the labour. Organisations don't have the same ability as the BPO providers to build better workflows or procurement tools as you can’t spread the investment across a number of clients. I said the first pieces to be hived off would be in accounts payable and this is proving to be the case.

Electronic invoicing is an example. No shared service centre should build its own e-invoicing platform, they’d buy into a service, just like you buy cable TV. We’ve called the collection of enabling tools and services that sit between the providers doing the work and the ERP suite PETS, process-enhancement tools and services (PETS).

SSL: What is driving demand for these tools and services?  

CT: The basic issue is that ERPs don’t deal with getting paper into the system, which is why we have a range of scanning, optical character recognition (OCR) and e-invoicing tools. You may want one standard way of doing things across the globe, especially if you have multiple ERPs. Or you may want best-of-breed tools that are better than your ERP at collections, for example.

ERPs are very good at working inside enterprises but not between them. Companies can slice up their AP processes into about 20 steps and use telecoms expense managers, travel companies like Amex and OCR readers to get the paper in. But breaking AP into so many pieces is a gross waste of a company’s time when you should be able to use a service provider that will facilitate getting the paper into the system for you either manually or electronically.

SSL: As companies bring in technology for each slice of the AP process, what impact is this having on BPO providers?

CT: There are some BPO companies that have their own offerings for accounts payable and are focused on smaller offerings, such as scanning bureaus. But if you’re Infosys, IBM, Accenture, Capgemini, Genpact or Wipro, you’re not interested in one slice; you’re interested in the combined 20 slices to get the right volume of work. However, it doesn’t make sense for BPO companies to do this for organisations that receive only 50 invoices per day.

SSL: Are more mid-sized companies becoming interested in F&A BPO?

CT: Yes, it will be interesting to see if they add in a major element of offshoring. It’s only really worth it if they move a significant amount of work out to a vendor, say more than 15-20 people. Otherwise they can look at how they can automate more instead of outsourcing.

The most exciting mid-sized outsourcing that has been happening for a long time is the NHS Shared Business Services that Steria runs with the Department of Health. It operates onshore in Leeds and also Pune in India, and has 150 mid-sized clients. It is able to give clients access to technology, which I describe as software as a service with cheaper fingers.

SSL: What are companies looking for from F&A BPO outsourcing?

CT: People have always said they want cost savings. They also say that they want innovation and transformation but they haven’t understood what this means. They don’t need service providers to invent a gizmo, which is what the phrase means to me and how they’ve used it. What innovation can mean in this context is e-invoicing. They want to increase the efficiency and effectiveness of these processes.

A lot of early deals didn’t have the budget to identify the process kinks and just wanted to move people somewhere cheaper. But that alone doesn’t give you process efficiencies and value. You have to spend money to put technology in place to improve your processes.

I call this a second-generation deal. A third-generation deal is where you outsource the underlying ERP too, something like the NHS’s work with Steria.

 

Cathy Tornbohm is Research Vice President at Gartner. She is responsible for business process outsourcing (BPO) research globally. She specialises in F&A BPO and also looks at knowledge process outsourcing. She helps vendors improve their approach to market and end users understand how to develop effective sourcing strategies.

Visit the Gartner website for more information on Cathy’s F&A BPO reports.