1. September 17, 2014 Presented by: Alpesh Kadakia & Bill Shirk PwC HP
Big D Treasury Conference Finance & Accounting Business Process Outsourcing 101 or “Everything You Wanted To Know About F&A Outsourcing* *(and were afraid to ask!)
September 17, 2014
Presented by:
Alpesh Kadakia & Bill Shirk
PwC HP

2. 1 2 3 4 5 6 7 8 F& A BPO Trivia!! F& A BPO Trivia!! F& A BPO Trivia!!
What is the size of the Global Finance Outsourcing Market ?
$5 Billion
$10 Billion
$25 Billion
What percentage of Fortune 100 companies have placed at least one process with a 3rd party or in a shared services environment?
What is the most common finance process to be outsourced?
F& A BPO Trivia!! 4
Which Fortune 500 company is largely credited for the establishment of Finance Outsourcing and Global Delivery? 5
In the SS&O world, what is GBS?
Gigabytes per Second
Global Business Services
Google Branding Session 6
Who is 3rd Party Service provider with the largest share of the F&A outsourcing market?
Accenture HP
IBM
F& A BPO Trivia!! 7 8
What is the top emerging F&A destination for 3rd party service providers and Shared Service Centers in EMEA?
In the SS&O world, what does BPO stand for?
A) Business Process Outsourcing
B) Benzoyl Peroxide
C) Banker’s Pay Order
F& A BPO Trivia!!

3. Definition of Outsourcing
Outsourcing is the transfer of a process from the buyer to the supplier
Implications:
Supplier now owns the process
Responsible & accountable
Buyer only influences the process
Provide Inputs
Define desired Outputs
Outsourcing Offshoring

4. Comparison of Outsourcing vs Shared Services vs GBS
Dimension
Shared Services
Outsourcing
Global Business Services
Objective
Cost savings, improved efficiencies and occasionally compliance
Typically cost savings driven
Cost savings, efficiencies, compliance, service focus, agility, scalability, and innovation
Scope
Typically 1-2 non-core processes
Can include business critical processes
Typically 1-2 non-core process
1 or more providers
Typically business critical processes not outsourced
2 or more processes, often including the less obvious choices
Includes business critical processes
Process are considered for GBS unless core to the business
Chooses best solution (i.e. shared services vs. outsourcing)
Scalability
Scalability typically limited to initial scope
Highly scalable
Highly scalable by design
Efficiency
Leading practice is focused on driving reduced cost and process efficiency
Ability to achieve greater efficiencies across processes (e.g. handoffs)
Effectiveness
Standardized processes but limited to processes those n scope
Ability to drive improved effectiveness depends on the provider
Highly focused on driving cross-process effectiveness
Highly standardized processes
Cost Savings
Cost savings of 20-50% typically achieved on the processes in scope
Cost savings are optimized across all processes in scope often resulting in enhanced savings
Agility
Agile as it relates to in-scope processes
Limited by the scope of the contract with provider
Agility is high because coordinated centrally
Innovation
Very limited
Leverages provider capabilities to drive process innovation but is typically siiloed
Focus on cross-process innovation drives benefits
Has a focus on developing new services
Transition
Internally managed transition processes
Managed internally and by providers
Managed internally and by providers if applicable
Leverages leading practices/lessons learned

5. Outsourcing vs Shared Services vs GBS (cont’d)
Dimension
Shared Services
Outsourcing
Global Business Services
Transition
Internally managed transition processes
Managed internally and by providers
Managed internally and by providers if applicable
Leverages leading practices/lessons learned
Performance Management
Leading practice is SLA-driven
Tends to create siloed approach
SLA-driven
Tends to be siloed
Cross-process and integrated
Scorecard, SLA- driven
Relationship Management
Tends to be arms length
Arms length with third party
Strategic partner with the business
Governance
Variety of approaches ranging from siloed to coordinated
Frequently managed as separate contracts within functions
Centralized and coordinated
Degree of Change from Decentralized Operations
Moderate
Significant
Transformational
Culture
Practice is to establish a service-focused culture
Typically approached as managing a third party contract
Service-focused culture is fundamental
Work as a single team regardless of whether shared services or outsourced
Transformational change
Integration
Typically depends on number of shared services location
Varies depending on size of service provider portfolio
Highly integrated sourcing strategy and execution across processes, leveraging leading practices and lessons learned
Information Technology
Alignment with IT depends on whether IT is in shared services
Limited opportunity to achieve alignment even if IT is part of contract
Strong coordination between IT and processes
Becomes a provider of solutions, not technology
Leverage common IT platform (not necessarily single ERP)
Impact on M&A Activity
Can provide some synergies depending on level of maturity
Challenging to bring processes back in-house
Opportunity to leverage existing contract
Very high degree of synergies can be achieved
Speed of integration is improved significantly

6. How is outsourcing different from contracting?
Buyer retains ownership over process & results
Buyer retains overall control and cost for investments
Project based services - e.g. limited time and scope of work
Limited involvement of buyer in process
No tools, processes, or methods
Process ownership is transferred to supplier
Supplier owns responsibility for results (accountable-SLs/penalties)
Contracts are long-term in nature (3-7 years)
Supplier sells “solution”
Investment required by either/both parties
Buyer benefits from supplier tools, processes, & methods
Transfer of employees and/or assets
Large economies of scale

7. Why outsource Finance and Accounting processes?–
Finance organizations still face many of the fundamental challenges with people, processes and technology
Disparate ERP systems and versions through inorganic growth
Managers who perform transactional activities, with 1-3 direct reports
Poor process controls
Highly compensated staff who perform transatcional activities with 8-12 years of tenure
Routine and costly maintenance
Inconsistent job classifications and responsibilities across business units
Homegrown legacy applications
50-60% of processes with manual intervention or touch-points
Limited to no process standardization
No clear demarcation between processes
Costly legacy infrastructure platforms
Lack of training to ensure cross coverage of services
A lack of KPIs and SLAs across functional organizations
No documentation or desktop procedures
Unclear career paths for all staff and manager levels
Lengthy implementation and upgrade cycles
Process
People
Technology

8. What are the advantages & risks in outsourcing?
Reduce and control operating costs
Improve focus on business
Gain access to world-class capabilities
Free [up] internal resources for other purposes
Access to resources & skills not available internally
Accelerate reengineering benefits
Increase process standardization
Make capital funds available
Shared risk of investments
Buyer locked in uncompetitive price structure
Supplier over commits, but unable to deliver
Benefits diminished due to treatment as contract over relationship
Inflexibility in contract leads to dysfunctional behavior & over-charging
Disgruntled employees => or reward - cultural change in buyer environment

9. F&A Business Process Outsourcing
Common F&A Processes Outsourced

10. Finance and Accounting Value Chain
Record to Report
Financial Planning & Analysis (FP&A)
P2P
O2C
Performance Mgt/Decision Support
Capital Platform Mgt
Cash &
Disbursements
(A/P / T&E)
Revenue Cycle
(Order to Cash)
General
Accounting
Project & Cost
Accounting
Financial /
External
Reporting
Business
Performance
Management
Planning
Budgeting
Forecasting
Cash Mgt, Treasury Mgt, Risk Mgt, Tax Planning & Compliance
Transaction processing
Procedure Process maintenance
Business Process maintenance
90%
Accounts Payable
Travel & Expenses
VAT Reconciliation
80%
Retained activities
70%
70%
70%
50%
Order Capture
Credit & Collections
Billing / Invoicing
Disputes / Deductions
Accounts Receivable
Revenue Acctg
General Ledger
Accounting Policies
Account Reconciliations
Fixed Assets
Tax Accounting
Project Accounting
Cost Accounting
Inventory Accounting
40%
Financial Consolidations
BU Financial Statements
Statement Prep
SEC Filings
30%
Cost Management
Customer/ Product Profitability
New Product Eval
Life Cycle Costing
Performance Management
Cont. Improvement
Periodic Budget Prep
Periodic Forecast Prep
Cash Mgmt
Compliance Mgmt
Tax Mgmt
Sourced vs. Retained functions
Centralized activities
20%
Investor Relations
Budget Policies/ Procedures
Strategic Planning
Corp. Dev.
Bank Relations
Financial / Invest Risk Mgmt
Fundraising
Debt Mgmt
Tax Advisory & Planning
10%
30%
30%
20%
30%
Policy management
Strategy development
Decision making
Acceptance /Approval
50%
60%
70%

11. Tax Value Chain Policy and Execution Regulatory Compliance
Tax Accounting
Transaction Management and Controls
Risk and Dispute Management
Tax Business Planning
Policy Documentation
R&D Credits
Payroll Tax
Withholding Taxes
Maintain Tax systems and tools
Tax reserve
Foreign Tax Capacity workings
Sec 988 database working
Federal Tax Returns
State Tax Returns
Reporting for indirect tax
Regulatory Documentation
Compliance management
Data conversions
Book to Tax walk
Exemption certificates
Tax Accounting & provisioning
Tax Reconciliations
Non- US Tax Accounting & provisioning
Estimated Tax Payments
Reducing attribution errors
Payment and remittance
Manage, monitor and report on controls function
Manage tax plans and transactions
Valuation Allowance
Deferred Tax Analysis
Analysis, monitoring and tracking of disputes
SOX Testing
Control Documentation
Refunds
Incorporate tax and legal entity reporting needs into ERP system configuration
ETR Analysis and reporting
Preparation of K 1s
M&A Tax Due Diligence
M&A Tax Modeling
Transfer Pricing calculations
Centralized activities
Establish tax policy and align with corporate vision and strategy
Implement and manage tax policies and procedures
Post Transaction Integration
Choose Tax systems and tools
Provision of compliance information to regulators
Develop tax and compliance policies
Advance Pricing Agreements
Personal Income Tax Returns
Tax accounting and reporting under domestic regulations and international financial reporting standards
Design internal controls
Dealing with Tax Authorities
Resolve classification
Other disputes and issues with the authorities
Cross Border Taxation
ETR Planning
State Strategic Tax Review
Tax Valuations
Impact of Transfer Pricing Policies
Retained activities

12. Treasury Value Chain Treasury Policy & Governance
Planning & Forecasting
Funding Management (Debt & Equity)
Surplus Management (Asset)
Cash Management (Working Capital)
Risk Management
Ensure accurate valuation of financial instruments
Ensure accurate accounting of Treasury transactions
Ensure accurate transaction history and audit trail
Intercompany settlements & netting
Cash flow forecasting
Risk forecasting
Operate Treasury systems
Ensure quality standards of service providers
Tax planning
Pensions planning
Reporting
Repay funds
Interest Management
Ensure adequate liquidity to support business and obligations
Investing surplus cash
Manage long term investments
Trading
Cash concentration
Debt factoring
Internal banking
Confirmation and reconciliation of receipts
Disbursement of payments
New vendor approval
Check Management
Cash Collateral Mgmt.
Vendor payments
Interest Rate risk management
Pension risk management
Scenario planning, analysis and stress testing
FX & Commodity risk management
Counterparty risk management
Credit risk management
Liquidity risk management
Centralized activities
Establish treasury policy and align with corporate vision and strategy
Provision of covenant tests and info to investors
Provision of compliance info to regulators
Work with internal & external auditors
Co-operate with Board on strategic development
Investment appraisal
Choose Treasury systems
Negotiate, analyze and manage the fee’s and margins of service providers
Set funding requirements
Raise funds
Manage group finance structure
Equity repatriation
Manage short term investments
Manual check management
Petty cash applications
Bank relationship
Open/close accounts
Seek natural hedges and offsets within the business
Involvement in business insurance
Retained activities

13. F&A Business Process Outsourcing
The Benefits

14. Many do it for cost, but that is table stakes….–
By deploying an alternative service delivery model, $1-5B organizations typically save % of G&A costs
Function
Typical client situations
Leading practices
Finance
Decentralized process with high volumes
Lack of automation
Non-standard processes
Excessive rework and cycle times
Data intensive reporting process, complicated by complex consolidation environment
Disparate AR and payroll groups
Consolidate number of collection agencies, AP and AR centers
Centralize statutory & compliance activities
Standardize inputs and automate manual accounting transactions
Centralize functions at COE and/or outsource to 3rd party IT
Data quality & access
Insufficient or manual analytical tools
Continued portfolio rationalization.
Robust vendor management
Adoption of ITIL framework (Plan, Build, Run).
Remote delivery of Application Development & Maintenance.
Assist with driving adoption rate of standardized reporting.
Procurement
Lack of standardized processes
Excessive number of vendors
Redundant approvals and rework
High volumes and manually intensive
Ineffective use of time savings features within systems.
Standardize processes and policies
Automate by leveraging standard ERP features.
Reduce manual activities
Monitor compliance and KPIs
User training HR
Majority of resources reside in Regions and Areas/Field
Issues with adoption rate of mobile time entry
Sufficiency of process measures
Multiple benefit platforms
Increase adoption rate of mobile time entry, self-service functionality and the service center
Balance temporary and full-time labor
Improve management of international staff costs
Streamline benefit plans

15. Operating cost savings
… Although 50-65% savings coupled with other strategic benefits makes this model highly compelling for many
Economic Benefits
Strategic and Other Benefits
Comparison of US Onshore and BPO Services
(US$000s / FTE / Annum)
Access to comparable or better quality talent
Ability to build or enhance critical capabilities (e.g., IT, R&D, Marketing)
“Follow the sun” 24 x7 coverage
Tax advantages especially for moving intellectual property creation offshore
Direct and complete control, without relying on immature supplier capabilities
Platform from which to expand presence in emerging markets
Breakthrough innovation and faster time to market
70-80
4-8
4-8
Operating cost savings
50-65%
60-70
Note: Costs for US corresponds to Tier 2 cities, whereas, costs for India correspond to Tier 1 cities
Source: Booz & Company GIC Experience, Booz Allen Hamilton and Duke Offshoring Research , Outsourcing-Center

16. F&A Business Process Outsourcing
Trends & Pushing Beyond F&A BPO

17. The Survey Says….Finance BPO is a clear priority
Typical Cost Impact
Implement Business Process Outsourcing & Shared Services
20-30%
Outsourcing
Shared Services
Centralization
Cloud services
Based on 358 electronic survey respondents and 10 in- depth interviews with senior finance executives across broad range of industries
Standardize Technology / ERP
15-20%
Reduce the number of applications and instances of financial systems
Implement accounting hub technology to increase flexibility
Eliminate offline spreadsheets
Reduce Business Complexity
10-15%
Dramatically reduce business complexity:
Reduce methods of doing business within company, methods of paying a invoice, number of legal entities, management entities, bank accounts, etc.
Simplify the Organization
5-10%
Simplify the organizational structure through de-layering and increase span-of-control
Rationalize roles/titles, review grading and look at down/up skill certain activities
Eliminate shadow finance functions
Rationalize Reporting and Data
3-5%
Simplify chart of accounts to support external financial reporting
Rationalize reports to a standard package and enable self-serve reporting, utilize shared services to produce all standard reports
Company Profile
Integrate stewardship and governance type functions & outsource
2-4%
Consolidate risk/integrate, SOX, Internal Audit type functions
Perform integrated assurance with auditor
Outsource tax compliance and statutory account preparation

18. Operating Model Evolution
Businesses adopt alternative service delivery operating models with major shifts in technology architecture… and we are at such an inflection point
Pre-80’s
Mainframe
Late 90’s - Late 90’s
Client / Server. Networking
Late 90’s - Present
E-Business, Internet-enablement
Present – Future
Hybrid. On-premise, cloud, (XaaS)
Global Business Services (GBS)
50+%
BPO/Offshore capture labor arbitrage
20-40%
Multi-functional Integration
(Finance + HR + IT)
Operational benefits
Shared Services In-House
10-20%
Finance, HR, IT
5-10%
Coordinated In-House Practices
Next Generation
Operating Model
Decentralised
Operations,
Monolithic Systems
Traditionally Finance & HR SSC
Increased cost reduction / variable structure, scalability, and agility
Disparate systems and ad-hoc solutions
Replicated corporate & SBU activities
Increasing consolidation and improved efficiency and effectiveness.
Some standardization & increase in service level
Single country with single and multi-center structure
Well defined serviced levels, 24/7 & KPIs
Cost effective technology/bandwidth; Web-enabled workflow
Multi-shore, partnering & single global providers
Global end to end process standardization
Enterprise wide cloud solutions
Non-monolithic, multi-vendor environment (ERP ++)
“Fabric” of multiple low cost locations, emerging + frontier
Self-service models , collaboration/social tools, millennial workforce
Unified, optimized governance

19. Emergence of Global Business Services
Many companies are looking beyond their G&A functions
What is GBS ?
Why GBS ?
An integrated Global Business Services (GBS) strategy will provide your company with the next level of efficiencies.
But many organizations have not yet benefited from combining shared services and outsourcing.
A well executed Global Business Services (GBS) strategy is distinctly different from the narrower focuses of shared services and outsourcing strategies.
GBS identifies corporate objectives and encourages collaboration among internal units and third party providers.
Collaboration can create breakthrough, strategic operational capabilities that drive business outcomes resulting in real marketplace differentiation.
A full life-cycle GBS framework requires enterprises to ensure goal alignment, execution and ongoing governance.
The goal of a GBS strategy is not only to source globally, but also to leverage shared services, outsourcing and third party investments to advance the organization’s objectives.
COGS
Supply Chain
Warranty Management
Logistics
Warehousing
R&D
Design & Development
Build & Test
Data Management
Support
Sales & marketing
Customer Service
Marketing Communications
Inside Sales
G&A
Information Technology
Finance & Accounting
Human Resources
Indirect Procurement
Legal
Tax & Treasury
Facilities
Internal Audit
Source: Hfs Research and the London School of Economics Outsourcing Unit, Sample: 336 Buyers of Outsourcing Service

20. Company Size Influences Operating Model Trends
According to IQPC, “84% of CEOs surveyed now consider operating model reengineering as critical to their business success”
Co. size tends to drive level of aggressiveness
Mid to Large
Large National
Large Multinational
Company Size ($ Revenue)
$0.2 B
$2.5 B
$3.0 B
$12.0 B
$15.0 B
$50+ B
Defining the Operating Model of the Future
Start small, initially with a single function (like Finance)
Global reach to penetrate new markets
Focus on core business functions and hiring
Accelerate path to scale advantage by using outsourcing service providers (if appropriate)
Grow at a reduced cost basis
Strong interest in variable cost models
Optimizing Service Effectiveness & Cost
Most have existing shared service centers and are expanding
Many are pushing into hybrid model – SSC/Outsourcing
More activity in mid-office functions
Beginning the path to Global Business Services models
Further segregation of companies based upon culture and competency
Using the Operating Model to Drive Strategy
Large scale and ability to move operations to emerging markets
Integration of multiple centers and governance become critical
Hybrid delivery models and Enterprise Business Service models are more prevalent
2nd generation outsourcing – experience
Even aggressive cost cutting companies are reaching plateaus and turning to outsourcing

21. F&A Business Process Outsourcing
Considerations

22. Why do outsourcing deals fail?
Lessons learned from our work with clients to remediate outsourcing issues
Deals done without an integrated client team
Requirements don’t translate to contract
SOW’s don’t capture real needs
Change requests overload
One sided scope
Primary focus on outsourced functions
Lack of attention/definition to retained functions
Poor documentation of current state operations
Leads to service provider ‘conservative’ pricing
Operational breaks in the chain
Incomplete or inaccurate view of total cost of ownership
Lack of focus on root causes
Left with wrong supplier or wrong price (or both)
Not separating services from solutions in contracting
Creates disconnect for service delivery
Can be at odds with continuous improvement
Intermingling projects and operational services
Can lead to duplicate costs
Increases possibility of excessive change orders
Potential for resource misallocation4
Unclear definition of business goals
and objectives
Legal
Change management/ communications
Finance HR
Business owners
IT leadership
Define value
goal 1
goal ?
Cheaper isn’t good enough
Moving targets for satisfaction
Marginalized SLA’s
Failure to structure the right deal
Contact term HR
model
Service delivery model
Pricing model

23. Thank you!

24. Appendix

25. Globalization of Operations in full swing as Investment Intentions in both Shared Services and Outsourcing reach record high
Sources: Hfs “2014 State of Outsourcing” Study, n = 312 Buy-side Enterprises, “2013 State of Outsourcing” Study, n = 399 Buy-side Enterprises, “2011 State of Outsourcing” Study, n = 226 Buy-side Enterprises

26. Prolific use of Offshoring Continues
Decreasing
Increasing
Q. How will your level of offshoring change in the next year? (Outsourcing)
31%
29%
28%
26%
21%
18%
17%
-13%
-3%
-5%
-4%
Application Development & Maintenance
Finance and Accounting
IT Infrastructure
Industry -specific Operations
Procurement
Human Resources
Customer Service
Q. How will your level of offshoring change in the next year? (Shared services)
26%
19%
20%
18%
17%
16%
-9%
-2%
-3%
-4%
-7%
-6%
Application Development & Maintenance
Finance and Accounting
IT Infrastructure
Industry -specific Operations
Procurement
Human Resources
Customer Service
Source: HfS “State of Outsourcing” Study, conducted with support from KPMG (Sample 312 Enterprises)

27. Operating Models: Outsourcing forms a Critical Lever for an Integrated Services Model
Over the next 2 years will your company increase / reduce its reliance on the following operating models for your general and administrative functions?
Source: Hfs “2014 State of Industry” Study, May HfS Research in Conjunction with KPMG (Sample 312 Enterprises)