Finance and Accounting Seen as Next Area Ripe for Outsourcing
NEW YORK; Feb. 24, 2003 – Two-thirds of U.S. retail and commercial banks with assets of at least $3 billion outsource one or more business functions, according to an Accenture survey of bank executives designed to assess outsourcing preferences and practices.
Of the banks that outsource, 75 percent reported outsourcing credit card processing and 40 percent reported outsourcing mortgage processing – two key service areas in which an outsourcer could potentially interact directly with a bank’s customers.
In terms of the banks’ internal operations, the survey indicates that a number of banks are exploiting outsourcing to improve back-office efficiency. For example, 55 percent of respondents who outsource reported outsourcing some aspect of their human resources function, and 55 percent reported outsourcing some aspect of their information technology.
One objective of the survey was to gauge banks’ attitudes towards outsourcing finance and accounting functions. Nearly half (44 percent) of banks surveyed said they outsource some aspect of accounting, including elements of tax accounting, financial reconciliation, consolidation, monthly/quarterly close, fixed-asset accounting, accounts payable, accounts receivable, and management or legal-entity reporting.
Fewer than one-third (30 percent) of banks surveyed reported measuring or tracking the efficiency of their finance and accounting operations; metrics used to track these operations often include cost per transaction (invoice, check, etc.), number of transactions per accountant, and error rates, among others. As an area of operations that is not aggressively measured for performance, finance and accounting could emerge as a strong candidate for outsourcing.
“The finance and accounting function could be the next cost-reduction frontier for many banks, and outsourcing is an excellent vehicle to help banks rationalize redundancies, improve automation, exploit low-cost location processing, and implement a variable cost structure within their finance and accounting functions,” said John O’Connor, a partner in Accenture’s Financial Services operating group who specializes in finance and performance management. "A well-conceived outsourcing program can also enable scarce finance talent to be re-directed toward more value-added services for the business and away from the large amount of non-differentiated transaction processing that occurs in a typical accounting department.”
Eighty-five percent of the banks that outsource reported that they are either "satisfied" or "very satisfied" with their outsourcing partners, with the average satisfaction rating of all banks surveyed being 4.4 on a five-point scale, where “5” is "very satisfied."
Two-thirds of executives who reported that their banks outsource said they expect outsourcing activity at their companies to remain at current levels over the next 12 months, while 20 percent said they expect to increase the level of outsourcing during that time.
The survey also identified several key attributes that banks look for in an outsourcing partner. These include:
an ability to demonstrate cost savings; a proven track record, with substantial financial services industry knowledge and experience; sensitivity to the bank’s needs and corporate culture; and a willingness to allowing the bank to retain control of some functions, or "drive the process."
Of the one-third of banks surveyed (33 percent) that reported not outsourcing any internal or external functions, 50 percent said they don’t outsource because they have sufficient staff to manage all functions internally, and 40 percent said they don’t outsource because they don’t believe it will be cost-effective. Thirty percent of the banks that reported not outsourcing also said they fear a loss of control over key business functions.
Results are based upon telephone surveys conducted in September 2002 with 30 senior finance professionals (controllers, vice presidents of accounting, vice presidents of finance, CFOs) at 30 banks selected from among the 197 banks in the United States with more than $3 billion in assets.
Accenture is the world’s leading management consulting and technology services company. Committed to delivering innovation, Accenture collaborates with its clients to help them realize their visions and create tangible value. With deep industry expertise, broad global resources and proven experience in consulting and outsourcing, Accenture can mobilize the right people, skills, alliances and technologies. With more than 75,000 people in 47 countries, the company generated net revenues of $11.6 billion for the fiscal year ended August 31, 2002. Its home page is www.accenture.com.