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Chief Financial Officer Survival in the Banking IndustryDelivering Value through Transformation and Business Process Outsourcing
Challenges facing Banking Chief Financial Officers
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The current environment continues to be challenging for banking chief financial officers (CFOs), with survival of their businesses at stake. Many believe that the industry is facing diminished profitability, new regulatory requirements, increased business complexity, a growing demand for analytics capabilities, and greater competition.
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Figure 1: Return on Equity (RoE) for Global Banks.
After the crisis, most global banks have seen their RoEs reduced to single digits.
Source: The Challenge of Regulatory Implementation: A Strategic Approach, 28 February 2012, Accenture
Finance and risk leaders in banks today are facing challenges in a highly uncertain environment that could redefine the industry and the ability of their institutions to survive. In our discussions with executives at many banks, we have seen a number of challenges that keep finance and risk leaders awake at night.
Diminished ProfitabilityPrior to the financial crisis, U.S. and European banks enjoyed very high levels of profitability – with returns bolstered by trading revenues, low risk costs and high leverage. Top performers regularly earned greater than 25 percent return on equity (ROE).1 After 2008, profitability fell to the low single digits1, and with significant economic and regulatory headwinds the sector is not forecast to return above 10 percent ROE on average by 2014, as seen in Figure 1.1 In this environment, many large banks are now targeting profitability in the low teens. The falling ROE can be due
to many market factors, including the impact of a weak economy on asset quality and lending activity, high capital, liquidity and funding costs, and increasing operating costs to support regulatory compliance.
To improve profitability, many banks have resorted to large-scale cost-cutting programs and by now have taken all of the easy and some of the not-so-easy steps to reducing costs.
New Regulatory RequirementsThe overall regulatory framework under which the industry operates has become more demanding, with stringent, prescriptive requirements. Proposed Basel III rules, when implemented will affect banks’ capital, collateral and liquidity management, their finance function and, very likely, their bottom lines.2 Basel Risk Data Aggregation and Reporting Principles, released in early 2013, are requiring
banks to establish tight controls, lineage and governance on risk data similar to those required for published financials. Full implementation of the Dodd-Frank Act will affect revenues, require additional capital obligations and risk management costs, and will change the liquidity of several asset classes.3 Regulators are demanding observation periods, parallel running, and trials to ensure timely implementation.3 With multiple implementation dates over the next several years (as shown in figure 2), compliance management may continue to be complex and costly.
Pre-Crisis Recession Recovery New Normal25%
20%
15%
10%
5%
0%
Post-tax RoE for European and US Global Banks
2010
8.5%
2009
3.9%
2008
1.5%
2007
15%
2006
19.1%
2005
17.7%
2014
9.4%
2013
8.8%
2012
7.5%
2011
5.3%
3
Figure 2: Sample list of forthcoming regulations for banks.
Over the next decade, banks need to respond to an increasing number of regulations with multiple implementation dates.
Increased Complexity in BusinessDespite industry consolidation over many years, many organizations failed to take advantage of integration opportunities in the “good times”, often leading to greater complexity today in such areas as data, processes, people, technology, governance, and organization structure (see figure 3). Bigger banks may have grown through successive acquisitions, but they are struggling with the new profitability norms and feel the weight of regulatory compliance requirements. These acquisitions would generally add another layer of complexity to the existing operating models, and underscore the potential benefits of addressing current operational complexity as well as avoiding such complexity in the future.
Big Data, Little InsightsDriven by recent technological developments and falling cost of data storage, many banks now have access to terabytes of complex data covering a diverse mix of market and customer information, with more coming every day. However, even with such huge data volumes, many bank CFOs struggle to derive actionable business insights that can improve the profitability of the bank. Industry players can benefit from better personalizing their products, services and interactions. Advanced analytics can provide critical solutions to these challenges, but, as the new research on the Looming Global Analytics Talent Mismatch in Banking from the Accenture Institute for High Performance4 demonstrates, when it comes to analytics talent—people with the ability to use statistics, quantitative analysis and
information-modeling techniques to make business decisions—a critical mismatch between supply and demand is imminent. (see figure 4). That same report indicates that there are also significant issues with the quality, consistency and completeness of data that limit its usefulness.4
Increased competition from new entrants The emergence of new technology, especially related to payments, is believed to be contributing to disintermediation of banks. Mobile is fast becoming the preferred interface to the world with developments of eChannels. Non-financial institutions such as Amazon.com are now competing for share of wallet, and financial institutions are forming partnerships with niche tech firms such as iZettle.
Source: The Challenge of Regulatory Implementation: A Strategic Approach, 28 February 2012, Accenture
Regulations have multiple implementation dates over the next decade
Regulators are demanding observation periods, parallel running, and trials to ensure timely implementation
Early implementation of relevant infrastructure is a critical component for success
2012 2013 2014 2015 2016 2017 2018 2019
ICB Ring-fencing
ICB Loss absorbency
Financial Transaction Tax
Recovery & Resolution
Short Selling
Volker rule-Dodd Frank
Swaps Push Out-Dodd Frank
EU Regulation on Credit Rating Agencies
Cross-border debt recovery
ICB\Competition
T2SEMIR PRIP
E�ective dates yet to be confirmed
CCAR
Basel Risk Data Aggregation and Reporting Principles
Market AbuseDirective (MAD II)
Accounting Directive Review
Internal Governance Guidelines
Close Out Netting
Crisis Management
LCR - Base III
NSFR - Base III
Leverage Ratio - Base III
CRDV
FATCA
PD
Audit Policy
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Figure 3: Examples and potential consequences of complexities at major banks
Complexities have been exacerbated by high growth and suboptimal integration of acquisitions
Source: Accenture, 2012
Figure 4: Total shortages and surpluses of analytics talent by country, 2010-2015.
The shortfall of analysts in the US is expected to exceed the surplus expected in India and China combined
Source: The Looming Global Analytics Talent Mismatch in Banking, Jan 2013, Accenture
• Lower e�ciency and poor performance
• Slower decision making
• Missed business opportunities
• High error rates and operational losses
• Increased cost of compliance
• Non-optimal use of capital
Complexity examples from Major Global Banks Consequences
Organizational complexity 7 organizational units involved in a simple credit decision
150 types of loans while 4 types make up 80% of the volume
Product and service complexity
27 di�erent controlling processes globally for a single product
Process complexity
8,000 data feeds from the front o�ce to finance
IT/infrastructure complexity
250,000
200,000
150,000
100,000
50,000
0
-250,000
-300,000
-200,000
-150,000
-100,000
-50,000
US
Brazil
UK JapanSingapore
China
IndiaSurpluses of analytics talent
Shortages of analytics talent
Top Priorities for 2013/2014
Accenture believes that with “survival of the fittest” at stake and a growing list of challenges to overcome, the following objectives have emerged as the top priorities for banking CFOs:
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1. Reduce CostsCost reduction continues to be a top priority for many banking CFOs. However, many banks have already announced and implemented cost cutting programs. That means many CFOs and senior leaders at banks are working overtime to look for new and innovative ways to do much more with much less.
2. Manage Risk and Regulatory ComplianceAs lessons learned from the financial crisis are sinking in, senior leaders at banks want to reduce their chances of mishandling business, operational and regulatory risks. Managing risk can provide more than just the benefits of reducing credit losses and achieving compliance. Many organizations are now focusing on developing new risk management capabilities designed to proactively manage risk and compliance with forward-looking models that provide better insights into capital and liquidity costs, and improve capital allocation decisions.
3. Simplify ProcessesCFOs are asking their teams to challenge the concept of “business as usual”, and look for ways to eliminate complexity while making it easier to do business with their stakeholders. For many, the resurgence in transformation initiatives is aimed at realizing improvements in productivity by expanding process capabilities as well as increasing capacity of highly skilled resources. These generally CFO-sponsored programs are typically designed to drive end-to-end process re-engineering with clear and simple business rules, maximize resources deployed to value add activities, improve quality, reduce cycle time (for activities such as closing the books) and leverage enabling technology platforms to tame complexity.
4. Accelerate Revenue GrowthTo support business growth, many banks are recognizing the need to increase their analytical capabilities to derive more actionable customer and business insights. Many banks have implemented “Big Data” technology solutions to enable analytics, but lack the resource talent to develop and manage the analytics process. With a growing gap emerging between supply and demand of skilled analytics resources, many CFOs are actively planning to address this issue.
5. Leverage Best PeopleMany organizations routinely say that “people are our greatest asset”, implying that success is dependent on attracting, developing and retaining resources. With pressure to realize measurable results against a demanding agenda of priorities, CFOs are finding themselves in a battle for top talent and are turning to external sources to fill gaps while getting the most out of their best people.
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CFOs Leading the Way
Banking CFOs are boldly leading their organizations to address top priorities through a combination of transformation and business process outsourcing (BPO) programs designed to create sustainable, permanent cost reductions and new scalable capabilities.
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Business Case for ChangeFinance organizations in the banking industry have used benchmarking to determine how they measure up to their peers in terms of efficiency and effectiveness. Two popular measures for finance and accounting (F&A) functions are cost as a percentage of revenue, and average salary cost.
According to Accenture’s High Performance Finance research5 the average cost of the finance organization as a percentage of revenue across industries is 1.4 percent, and for the average bank it is 1.7 percent. High Performing finance organizations are now well below one percent of the cost of revenue and the leaders are under 0.6 percent.5 Larger banks often have lower relative cost due to scale, investments in enabling technology, and realization of process improvements, but they continue to seek a new watermark for total cost to serve. Average F&A salaries and benefits (excluding executive compensation) typically fall somewhere between $92,400 and $157,267 (1st and 3rd quartile respectively). Comparing these costs against a blended offshore rate typically below $40,000,5 it is easy to see how banks are realizing significant cost savings by establishing offshore centers. With the maturity of high performing outsourcing services, our results indicate that businesses are also acknowledging qualitative improvements to accuracy, cycle time, and working capital. Depending on the size and scale of the organization, the opportunity cost may be worth millions annually for many financial services institutions.
Integrated Transformation + BPO (1+1=3)CFOs are now turning to programs that incorporate transformation and BPO to address top priorities including cost reduction, risk and regulatory compliance, simplified processes, and expanding analytics capabilities.
Banks that have implemented transformation and outsourcing programs have typically achieved the following results:
• Reduced operating cost (20-30 percent)6
• Improved productivity (15-25 percent)
• Improved quality of work (10-35 percent)
• Sourcing / procurement spend savings ($25-$75 million over five years)
• Rapid deployment (< 6 months for initial phase)
• Improved customer experience
• Greater access to expertise and skills such as analytics
• Re-deployment of highly skilled resources to focus on mission-critical tasks such as regulatory compliance
• Access to advanced technology
According to published comments by CFO Stephen Boyle at TD Bank, transformation is needed to reduce cost and achieve a more efficient flow of information and to improve hand-offs. During the past two years, the bank has grown through acquisitions and new lenders, so it is important to address the complexity in the changing TD environment.
Outsourcing began largely as a way to establish a low-cost labor option for transactional, low complexity work. In the early days of offshoring, banks were slow to adopt outsourcing, and large institutions instead chose to develop their own captive centers offshore. Then banks and their CFOs began to look for greater efficiency, streamlined operations and lower costs from business process outsourcing and their providers. Today they expect more: business insight, innovation, industry expertise, and solutions adapted to individual needs.
The value proposition is focused on delivering strategic business impact, not just operating cost reductions. This is also true for Finance & Accounting (F&A) functions, where bank CFOs are often finding that working with a BPO partner can now go well beyond the traditional cost savings by helping change more than just how companies operate.7 BPO is changing the very way companies are designed. The nature of what an enterprise means, what its boundaries are and how it works is being altered dramatically.
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Getting StartedA good place to start planning the road map to transform finance and risk functions is through an assessment designed to evaluate opportunities for improvement across several dimensions
• Operating Model
• Governance
• Operational Excellence
• Risk and Controls
• Technology
These components (as illustrated in figure 5) can guide banking CFOs and CROs to build a framework for success by defining the current pain points, target outcomes, and enablers to achieve the new vision. Benchmarking can be helpful to quantify the gaps and build a business case for change.
Operating ModelA well-defined operating model should put the right people in the best locations with the appropriate skills. As consolidation occurs in the industry, an effective operating model is critical to provide banks with scalability, flexibility and speed to support growth. An effective operating model also optimizes the structure to reduce the number of management layers while increasing span of control, and is managed through well-defined service level metrics providing both leading and lagging indicators of performance levels.
Before transitioning work to a BPO provider, existing roles may need to be redefined to segregate activities based on the complexity of the work, or to combine activities that enable more of an end-to-end process. Additionally, there may be opportunities for re-engineering and standardizing, especially if the processes have not been viewed at a macro level for some time. Recognizing the synergies of an integrated program, leading CFOs are sponsoring initiatives that leverage transformation and BPO rather than pursuing independent transformation initiatives or taking a “lift and shift” approach to outsourcing.
One CFO found that his bank’s operating model was very expensive due to the high cost of resources in the market where the bank operates. Additionally, the bank had highly skilled and experienced resources, but a good portion of their jobs were focused on low value, transactional activities. To address this issue, the bank built a new “middle office” where the required skills are available at a lower cost. To facilitate knowledge transfer and retention, the bank is encouraging some experienced resources to relocate. In parallel, they have outsourced non-core activities to a “back office” in India. The CFO is actively seeking to optimize the blend of support between the front, middle and back offices to improve the bank’s efficiency ratio while transforming the underlying processes to achieve new performance levels in areas of quality/ accuracy and cycle time.
GovernanceGovernance defines how a bank will manage its finance and risk processes at executive, operational and tactical levels. An effective governance structure typically sets the right culture and “tone at the top”, establishes appropriate executive leadership in strategic decision making, and defines clear, timely decision making and executive oversight designed to help the transformation team resolve issues and barriers.
Effective governance typically includes senior management regularly seeking to optimize the balance between cost, control and quality. As an example, one CFO decided that the best way to control expenditures was to directly manage the approval of all new hires in his organization, capital expenditures, and publication of financial reports. While this approach provided him with improved visibility, it also consumed significant time managing daily operational activities, limiting the time available to focus on strategic initiatives that would help the business grow and improve profitability. To improve the situation, the company re-defined appropriate delegation and authorization levels, clarified and restructured the roles and responsibilities of key stakeholders, and created a new issue escalation process that now drives timely visibility and resolution of issues.
Operational ExcellenceOperational excellence can enable process efficiency and effectiveness, resulting in repeatable, predictable processes. One way to accomplish this is by creating operational rigor and standardization, identifying process owners, defining standard service levels and operational metrics, and automating where appropriate. Operational excellence also can bring focus to activities that are most important to the business, so that priorities and attention can be focused on the right areas. Despite the intuitive nature of this concept, a tremendous amount of time can be spent on non-value-adding activities. Value-adding activities can be the focus of reengineering efforts, while non-value-adding activities can be reduced, and activities that are considered waste (that is, not valuable to anyone) can be eliminated.
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Figure 5: Finance & Risk Transformation + Outsourcing Journey
Important steps to achieving operational rigor can be taken by defining and documenting processes, measuring key metrics to focus on achieving the desired business outcomes, and minimizing process exceptions. An effective approach to define the “to be” process blueprint is to collaborate with a cross-functional team via a workshop setting, and include subject matter experts who can share leading practices and challenge the team to break down historical process limitations and barriers.
With the growing requirements to support new regulations, such as Sarbanes-Oxley Act (SOX) compliance and other considerations such as client data protection, risks and controls are critical to consider when transforming finance processes. Many banks are seeking help from third parties to build structure and rigor into the management of risks and controls. For example, regulatory
requirements and monitoring their compliance is emerging as a process area where lower complexity activities may be outsourced, thus creating a support team for highly skilled onshore resources. With each control there is cost, so there can be benefits from achieving balance between the materiality of the risk, and the related costs. With the right tools to quantify and provide visibility to opportunity areas, it is not unusual for an organization to improve productivity by five to 15 percent through deployment of operational excellence tools and techniques.
TechnologyWith the maturity of the enterprise resource planning (ERP) market and the emergence of cloud computing, there are more choices than ever to evaluate new technologies that can help improve finance and risk processes. Many banks are evaluating and implementing software solutions
like Ariba and Coupa to support Source-to-Pay transformation programs that can transform spend management and release tremendous value. Reconciliations software such as Blackline and Trintech’s ReconNET provide a common platform to collaborate, control and automate account reconciliations. Leading outsourcing providers typically have experience with many of these tools, and offer proprietary tools of their own, such as Accenture’s BPO Navigator for analytics and reporting. Implementation of enabling technology may be funded by savings from an integrated transformation program, so now is an ideal time to evaluate what is new in the market and how these technologies may deliver value.
Source: Accenture, 2013
• Organization structure with right people and activities aligned by Business, Front O�ce, Middle O�ce and Back O�ce• Build for scalability, flexibility and speed• Establish and develop Process Leaders
Operating Model
• Roles and responsibilities at executive, operating and tactical levels• Empowerment and decision making authority• Issue/escalation process for speed to action
Governance
• Streamline value-added activities, minimize non-value add activities, and remove waste• Establish operational rigor by defining/following processes while minimizing exceptions• Design and build end-to-end processes• Align priorities and accountability across stakeholders• Improve communications
Operational Excellence
• Develop inventory and timeline for managing regulatory risks and controls• Establish appropriate authorization levels and delegate• Reduce or eliminate redundant/excessive controls
Risk & Controls
• Support end-to-end processes with enabling tools• Technology blueprint strategy
Technology
Operating Model Governance Operational Excellence Risk & Controls Technology
Components
Transformation Outsourcing Stabilization
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Figure 6: Commonly Offshored Functions in Finance.
Offshoring of Finance & Risk FunctionsWhether it is through a captive (insource) or outsource solution, many financial institutions have successfully offshored 40 -60 percent of their F&A activities, targeting less complex processes that can be standardized and repeated. As shown in figure 6, the activities that have most commonly been offshored are record to report (or general accounting), fixed asset accounting, accounts payable, travel and expense, order to cash, financial systems and data structures, and portions of treasury and cash management such as bank reconciliations.
As the value of offshoring is realized, many banks are expanding their offshoring delivery services to support select activities related to tax, performance reporting and analytics, and planning/forecasting. For example, tax activities to gather required information, prepare calculations and supporting documents, and fill out forms can be completed offshore, while tax strategy and planning, and the review and approval of tax returns are retained onshore.
Risk is also emerging as an area of interest for offshoring, particularly risk data analytics and reporting, risk modeling and model validation. These activities normally retain a higher percentage of resources (about 50 to 70 percent) to support requirements for high executive interaction or strategic planning.
Insource vs. OutsourceDuring the early days of financial services offshoring (pre-2005), some large financial institutions such as Citigroup, UBS, American Express, Barclays, Wells Fargo, and Bank of America established their own offshore delivery centers (or captives) in India and the Philippines to support IT, call centers, data entry/ transaction processing, and low complexity F&A activities such as accounts payable.8 Over time, some have transitioned more complex activities such as risk management and analytics. Many of these services are in English, but some institutions have expanded into Eastern Europe, South America and Asia to support other languages.9 Among the reasons for establishing captives in the financial services industry were maximizing labor arbitrage savings, and a general belief that it would be less risky to execute due to operational control by the parent company and the relative immaturity of the outsourcing market.10
Source: Accenture, 2013
Finance ProcessMost
Frequent Approach
Banks Insurance Companies
1 2 3 4 5 6 7 8
1.1 Manage Finance Organization • • • • • • • • •1.2 Drive Enterprise Wide Change • • • • • • • • •2.1 Record to Report • • • • • • • • • • • •2.2 Fixed Asset Accounting • • • • • • •2.3 Accounts payable • • • • • • • • • •2.4 Travel and expense (T&E) • • • • • • • •2.5 Order to Cash • • • • • • • • • •2.8 Finance Systems and Data Structures • • • • • • •3.1 Strategic Planning/Shareholder Value Targeting • • • • • • • • •3.2 Target Setting • • • • • • • • •3.3 Planning, Resource Allocation and Forecasting • • • • • • • • • •3.4 Performance Reporting and Analysis • • • • • • • • • •4.1 Maintain Internal Controls • • • • •4.2 Investor Relations • • • • • • • •4.3 Treasury and Cash Management • • • • • • • • •4.4 Corporate Tax • • • • • • •5.1 Financial Risk Management • • • •5.2 Non-Financial Risk Management • • • •
Outsource• Captive• In-House• Not Available
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Figure 7: HfS Blueprint Axis – Finance and Accounting BPO, March 2013
According to HfS Research, Accenture is in the “Winner’s Circle” in F&A BPO
Some companies like Citigroup, AXA, AOL, Aviva, Prudential UK and Philips are now putting their captive centers up for sale.11
Initially these captives helped drive cost reductions, but some have struggled with performance, quality issues, and a growing financial commitment due to inflation. Strategically, some companies have come to realize that the direct management of their offshore activities provides no competitive advantage to their business. Under profitability pressures, some companies have divested their captive centers and related operational challenges to outsourcing providers in return for cash.
In recent years, more financial services companies are leapfrogging the captive model and partnering with a BPO provider to build and manage their global delivery centers.12
There are several likely reasons for this:
• Ability to deliver as promised to meet or exceed client’s goals and expectations.
• Strong F&A experience with global capabilities to support more than 40 languages
• Realizing additional value from business outcomes such as working capital improvements, spend savings, or analytical insights
• Scalability to increase or decrease capacity to support business needs
• Attaining new capabilities with process expertise, Lean Six Sigma/ operational excellence initiatives, and tools
• Contractual commitment to fixed cost with defined performance levels
• Quickly establish capabilities and processes for new regulatory requirements
• Improved visibility and control through effective governance and BPO dashboards
• Mitigation of business continuity risk through multi-country and multi-city delivery centers
• Ongoing investments to develop new capabilities and offerings.
While offshored activities are often considered non-core to the financial institution, they are a core capability of leading BPO providers. With a proven track record and a long list of benefits, many banking CFOs are exploring F&A BPO.
Source: HfS Blueprint Report: Finance & Accounting BPO. March 2013.
Execution
Inno
vatio
n
Sutherland
High performers
Winner’s circle
Serco
HP
Accenture
Genpact
XeroxWipro
WNS
TCS
Steria
Cognizant
IBM
Capgemini
Infosys
EXL
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Innovative BPOAs the banking industry seeks ways to expand its customer base and improve profitability, there is a risk that banks may become too aggressive in the pursuit of new product offerings by selling inappropriate offerings to their customers, and worse yet, be held responsible by governing authorities. For example, the big four UK high street banks – a number of Financial Services firms – have agreed with the Financial Services Authority to compensate thousands of customers for mis-selling complex financial products.13 The issue relates primarily to insurance products sold to small businesses over the past 10 years that were supposed to help protect customers against interest rate movements. The negative impact to these banks is expected to be in the billions of pounds.13
Calculating the amount of compensation due to customers is a complex decision. The banks must go back seven to ten years in their research, and must determine whether each customer is considered “non-sophisticated”, meaning they needed professional advice on the products that were sold to them.14
This assessment requires research on each customer’s financial statement strength, whether they do any international business, and considers subjective attributes gathered through customer interviews.
In response, some UK banks have turned to outsourcing service providers to quickly establish a scalable team of highly skilled professionals in the UK and offshore to support their compliance requirements.14 Robust processes were designed with the client to agree on the complex methodology for defining “non-sophisticated customers”, process steps, training plan for support team, and documentation requirements. The plan is to complete all of the customer settlements within twelve months, and then disband the outsourcing team. This is a great example of how banks are partnering with outsourcing service providers to develop innovative, on demand services that can be rapidly scaled with the “right skills in the right place and the right time”.
Future of BPOBusiness Process Outsourcing (BPO) has undergone a profound evolution over the last ten-plus years. While, for much of its history, BPO concentrated on streamlining transactional processes to achieve cost savings, BPO is now advancing much further. Accenture continues to examine market forces and client demand both within and beyond BPO, and apply those insights to shape the future of BPO.
BPO yesterday: Generations 1, 2 and 3 —Cost savings, global delivery and “noise- less” deliveryWe believe that BPO has evolved, and will continue to evolve from its “pioneer days” in the 1990s. For most of that time, one prevailing view has been that BPO is a tactical tool to reduce cost and achieve operational excellence, the hallmarks of second and third generation BPO. Accenture’s experience and research15 shows that BPO can provide significantly more value – cost savings and end-to-end process excellence are just the cost of entry.
Figure 8: Global Market Shares of Current Finance and Accounting BPO Engagements
Accenture is the largest provider of F&A BPO services in the world
Source: HfS Research, 2013; n = 745 live multi-process FAO Contracts; based on live FAO contracts over $1M in TCV with a min. of two core F&A processes bundled
Cognizant: 0.4%TCS Ltd.: 1.3%
Infosys BPO: 2.3%Wipro: 2.5%
Other*: 8.9%
WNS: 3.4%HP: 3.7%
Xerox (ACS): 5.4%
Genpact: 10.2%
Steria: 4.4%
IBM: 14.7%
Capgemini: 10.6%
Accenture: 29.6%
Sample size: 788 current multi-scope F&A BPO contracts (includes two or more core F&A processes bundled), totaling $18.2 billion in TCV; *Other category includes iGate, Intelenet, and Xchanging as the perennial leader of business process outsourcing)
EXL Service: 2.1%
Xchanging: 0.4%
Serco: 0.05%
Sutherland: 0.05%
14
15
Figure 9. Six Generations of BPO.
Accenture currently delivers 4th and 5th Gen BPO Services to the world’s leading companies and organizations.
BPO today: Generations Four and Five—leveraging analytics and on-demand service platformsAs valuable as early-generation BPO benefits were, many executives today believe that outsourcing can add even more value to their businesses, particularly in the form of innovation. Indeed, a mid-2011 survey16 of about 350 outsourcing buyers conducted by HfS Research16 and The Outsourcing Unit at The London School of Economics captured this contrast between achieving successes in cost reduction versus driving innovation on the part of BPO contracts to date. In this survey, respondents rated 46 percent of outsourcing initiatives as very effective in reducing operating costs. They rated 18 percent as very effective in forcing change into a client’s business operations. But only 11 percent were seen by respondents as effective in providing new and creative methods of
achieving business value. Today, in what we call the fourth generation of BPO, the leading service providers are addressing this gap. They are deploying analytics to extract actionable business insights from the immense stores of transactional data they’ve amassed during long-term client engagements. And they are using those insights to generate decidedly new kinds of business outcomes not commonly associated with BPO. These outcomes can range from accelerated speed to market, enhanced innovativeness and stronger customer loyalty to savvier talent management and top-line growth.16
Effective use of analytics in BPO environments (through sophisticated tools and techniques for statistical surveying, root-cause analysis and process optimization), paired with deep industry expertise, can exert a major impact on organizations’ performance today. Providers can use both descriptive and predictive analytics to help C-level executives understand what’s happening now in their businesses as well as what could happen in the future.
One next step is to craft the right strategies, incorporating the vast volumes of transactional data a provider accumulates by virtue of its management of a client’s business processes and the performance of those processes over the long haul.
In addition to analytics, technologies such as software-as-a-service and mobility are catalyzing further evolution of BPO. With these technologies, we see BPO moving into its fifth generation—characterized by on-demand services applied across multiple clients through flexible software platforms and commercial contract structures paired with standardized processes. Fifth-generation BPO is emerging by process as these technologies mature and as more clients embrace standardized processes as a source of further value creation.
Source: Accenture, Achieving high performance in BPO, 2012
Deals
Platforms
Industry and O erings
Client Objectives
5th GenNear Future“On-Demand”
O erings with standard platforms and process
Business outcome-based with technologycomponents
Cost, global, “noiseless”, industry depth, analytical insight, innovation and flexibility
Building standard platforms
4th GenToday“Insight”
All “o ces” with more industry focus
Basis on business outcomes to clients
Cost, global, “noiseless”, industry depth, analytical insight and innovation
Providers adding analytic tools
3rd GenMid-2000s“Opex”
Moving into the “middle o ce”
FTE-based with some gain sharing for innovation
Cost savings, global capability and “noiseless” delivery
Mostly client’s own platforms
2nd GenEarly 2000s“O�shore”
More back o ce and industry processes
FTE-based focused on labor arbitrage
Cost savings and global capability
Client’s own platforms
1st GenLate 1990s“Pioneers”
FS Industry, F&A and HR
Pioneering mega deals with lift and shift focus
Cost savings, transfer people and technology to providers
Intend to use client platforms for 1:many
6th GenFuture“Network”
5th Gen O erings that have scale in clients in delivery
Common and consistent in approach across clients
Cost, global, “noiseless”, industry, insight, innovation, flexibility and community
Providers add collaboration and social media
16
BPO Tomorrow: Generation Six—Building learning communities through social media technologiesWe believe that online social networking technologies will help BPO to evolve into yet another generation in the future. Today, business people are increasingly using such technologies to build networks where members share best and worst practices, discuss how they are surmounting their toughest business challenges and learn from one another. We envision using social networking as an extension to the fifth generation platforms which will build these social learning networks centered on BPO-provided processes. The platforms created in the fifth generation would be supplemented by integrated online networks linking client users and BPO provider staff. Through participation in the network communities, clients could exchange and benefit from each other’s insights about how BPO can help them achieve new business outcomes as well as shape the ongoing evolution of the on-demand platform and standardized processes, as their own needs and requirements change over time.
For more information please visit our Next-Generation BPO site.
High-Performance BPOToday, as companies move up the generations of BPO, they expect more: business insight, innovation, industry expertise, solutions adapted to more individualized needs, a commitment to continuous improvement and more. The BPO industry of today appears to be moving to a value proposition focused on delivering strategic business impact, not just operating cost reductions.
But what exactly is the “plus” in that proposition? What separates the best performing BPO relationships from the rest? Accenture- in conjunction with Everest Group and The Outsourcing Unit at The London School of Economics- undertook a comprehensive research initiative into the characteristics of “high performance BPO”7- a BPO that produces business value for a company that exceeds that of its industry peers in a way that can be sustained over time.
A relatively small number of BPO clients- 20 percent of those participating in the research study- have succeeded in extracting greater business value from their BPO relationships than the majority. These are practitioners of high-performance BPO. These organizations demonstrate successful behaviors in eight areas:7
1. End-to-end approach: A holistic approach to managing the scope of BPO
2. Collaborative BPO governance: Adopting a partnership attitude
3. Making change management a priority: Managing the effects of change during transition and beyond
4. Value beyond cost: Focusing on benefits beyond cost reduction
5. A focus on business outcomes: Targeting strategic outcomes, not just more efficient transactions
6. Domain expertise and analytics: Contextualizing data to create business value
7. Transformation of the retained organization: Enabling the retained organization to perform effectively
8. Technology as a business enabler: Driving operational improvements and business innovation
One of the more promising findings of this research7 is that high-performance BPO is achievable for all organizations of any size. The research makes plain the fact that high-performance BPO is not dependent on geography, tenure or business function involved. It results rather from taking a more strategic and thoughtful approach to the establishment and management of BPO engagements. By adopting the behaviors and practices associated with high-performance BPO, clients can capture significantly greater business value and build new competitive strengths together with their differentiated BPO provider.
For further information about this research and to take a short diagnostic to see how you compare with the high-performance BPO group, please visit www.accenture.com/highperformancebpo
How can Accenture Help?
Our industrialized delivery capabilities—backed by our unparalleled Global Delivery Network spanning over 50 countries—enable us to deliver consistently high levels of performance, at the scale our clients need. Accenture is a steward of the BPO industry, making a real difference to the way our clients operate globally, every day. Our services touch the lives of millions.
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Accenture provides a comprehensive suite of offerings in finance and risk across consulting, technology and business process outsourcing platforms. Leveraging our strengths across all of these three, we bring the best of our capabilities to our clients and help deliver high performance. The fourth-generation BPO services we offer our clients have helped deliver proven business outcomes.
We work with 84 percent of financial services institutions in the Fortune Global 500 to enable transformation through our integrated offering and capabilities. For Banking CFOs, Accenture offers comprehensive finance and risk transformation
consulting and BPO services whose success is rooted in deep experience and knowledge of our clients’ business and industry. We collaborate to help clients define a broader spectrum of performance targets—not just cost efficiencies and operational excellence but measurable business outcomes such as increased sales, better customer satisfaction, increased market share, higher levels of employee engagement and productivity, improved shareholder value and more. We work with our clients to define those goals and then deliver desired results.
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DISCLAIMER: Accenture does not endorse or recommend any of the products or vendors mentioned in this publication. This publication is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this publication and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.
Client speak“We selected Accenture based on our strategic relationship as well as their strong track record of delivering on financial management process changes of this scale...The goal of our work is to improve process consistency and reduce expenses, ultimately resulting in a stronger, more process-oriented finance function – one with new capabilities, a common information platform and better, more efficient ways of working.”Chris Swift, Chief Financial Officer, The Hartford
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Industry Awards and RecognitionA BPO pioneer with more than 21 years’ experience, we know what makes BPO relationships work. We are the acknowledged market leader, honored by organizations like IAOP who has named us the #1 outsourcing provider for six years running.
Accenture Offerings in Finance and Risk
What Analysts say about Accenture in Industry BPO“Over the course of Accenture’s reign at the pinnacle of the F&A market, the firm has consistently been on the forefront of providing services with a genuine vision for the future direction of BPO. Its success winning and extending major marquee enterprise clients as a result of many years cultivating deep relationships has been the cornerstone of its success.”HfS Research. Finance and Accounting BPO Market Landscape, 2013. March 2013.
Winner Best Financial Services Award with Deutsche Bank (2012)
Winner Best Global Services Award with Carillion & Best Business Transformation Award (2011)
Ranked a Leader in F&A, Procurement and HR BPO
IDC MarketScape: Worldwide Business Analytics BPO Services 2012 Vendor Analysis, doc #234937, May 2012.
Named top ITO/BPO provider for six consecutive years in the IAOP Global Outsourcing 100
(2008, 2009, 2010, 2011, 2012, 2013)
2013
®
Named a Leader in F&A, Procurement, and Healthcare BPO
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Case Study 1: F&A Transformation + Outsourcing at a Large Australian Bank
Business ChallengeLeadership launched a multiyear transformation of the company’s finance operations. The bank’s objectives for the transformation program included:
• Enabling the finance organization to work with the business to add value;
• Embedding a solid financial control and governance infrastructure;
• Implementing streamlined processes and systems; and
• Creating a positive culture where skilled, committed people could enjoy fulfilling careers
How Accenture HelpedIn collaboration with the bank, Accenture designed the following:
• A finance operating model that encompassed strategic objectives, measures and a roadmap
• Finance technology implementation to automate processing and create additional reporting capabilities
• Assessment of the end-to-end processes and definition of the parameters and timelines for outsourcing.
Accenture now provides systems, data management, management reporting and analysis services to the bank’s finance infrastructure and information management group, as well as sourcing and procurement services supporting procurement operations, help desk, spot buying and management of supplier Requests For Information (RFIs)
High Performance DeliveredThrough significantly more streamlined systems and processes, Accenture helped the client to:
• Reduce the cost of Finance by 27 percent
• Reduce the time to close their accounts to five days
• Accelerate the launch of a capital raising in advance of their competitors.
• Establish a service oriented integrated finance organization, with clear service offerings, improved service quality leveraging BPO and enhanced report generation and decision-support capabilities.
Case Study 2: Global U.S. Bank achieves high performance in F&A
Business ChallengeA global U.S. bank was very unhappy as they continued to experience challenges with poor quality of service, unsatisfactory communications, and high levels of turnover and attrition in Finance. These issues led to heavy involvement of valuable bank resources to correct errors, train new resources, and help as needed to meet critical deadlines. After a formal evaluation of alternative service providers, the bank chose Accenture to support Finance.
How Accenture HelpedAccenture assembled an experienced team to transition the work while establishing new processes, tools and governance to address the client’s issues. Delivery centers were established in India and the US including onsite with the client. There were concerns that a knowledge transfer process would transfer problems and create knowledge gaps, so the knowledge transfer process was performed primarily through interaction with key client personnel. This process allowed the team to re-engineer some of the processes during the transition. The transition team leveraged cloud-based project management software to manage action items through automated daily reminders and dynamic updates. Accenture implemented a proprietary set of tools including APC, Activity Tracker, and BPO Navigator to increase visibility and control of the processes and key metrics needed to improve the quality of service.
High Performance DeliveredWithin 4 months of planning, the transition was successfully completed, and was stabilized within 60 day from go live. The client has been extremely pleased with the improvements in quality of service already achieved, and looks forward to continued improvements as Accenture and client stakeholders shift their focus to improvement initiatives. The bank established process owners for each functional tower, as well as a Governance Board of C-level executives along with select Accenture senior executives to provide oversight and leadership. The team’s success to date has exceeded the client’s expectations for where we would be at this early stage in our partnership. As a result, we are able to have open, constructive dialogue about how we both can create more value and support growth in emerging markets.
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Case Study 3: Regional U.S. Bank transforms sourcing to realize over $40 million of spend savings
Business ChallengeThe client delivers financial products and services through its branch network throughout the United States.
As part of a continued focus on improving overall operations and reducing costs, the bank began an initiative to minimize the total cost of purchased products and services while improving contract terms, delivery and speed of delivery through the following tactics:
• Closer integration with strategically aligned providers
• Performance-driven relationships
• Leveraged volumes to obtain best pricing
• Emphasis on value-added services and process improvement/demand management
• Stronger, more strategic relationships
• Reduced total cost of ownership (TCO)
How Accenture HelpedAccenture provided the bank with the full range of source-to-pay capabilities, including strategic sourcing and category management, requisition-to purchase-order processing, and invoice processing.
Accenture introduced new purchasing methodologies, implemented a centralized procurement organization and developed enhanced systems and tools that have allowed the bank to strategically source and procure while leveraging its enterprise-wide spend.
High Performance DeliveredThe Accenture team integrated quickly into the bank’s business culture, working jointly with client’s procurement and business unit stakeholders, and achieved the following deliverables:
• Completed more than 300 sourcing initiatives with significant P&L savings achieved.
• Implemented a standard sourcing methodology with consistent processes
• Enabled and standardized RFx via Emptoris Sourcing Portfolio
• Deployed Emptoris Analytics and classified over 4,000 suppliers representing $400 million of total spend
• Managed contract management process to capture and store all bank contracts
• Deployed Ariba Source to Pay invoice processing
• Implemented new travel policies and procedures
About the AuthorsMark M Robertson is a Managing Director in Accenture’s Finance and Risk Business Services. His work focuses on supporting clients in planning and executing large Transformation Projects and BPO delivery in Finance & Accounting, Risk Management, and Sourcing. He has served large clients in Banking, High Technology, Oil & Gas and Telecom. Based in Dallas, he can be reached at [email protected]
Keith E Novek is a Managing Director in Accenture, and leads the Finance & Performance Management group in Financial Services. Keith is responsible for Accenture’s service offering in finance transformation and performance management, and has led enterprise-wide programs for several large banks and other financial institutions. Based in New York, he can be reached at [email protected]
Key References Used 1 The Challenge of Regulatory
Implementation: A Strategic Approach, 28 February 2012, Accenture
2 Accenture, Basel III Handbook, Jan 2012
3 Accenture, Coming to Terms with Dodd-Frank, Jan 2013
4 Accenture Institute for High Performance
5 Accenture’s High Performance Finance research
6 http://www.thehackettgroup.com/it-outsourcing/research
7 Accenture, Achieving High Performance in BPO, 2012
8 Accenture Internal Benchmarking Analysis
9 Times of India – Banks Strengthen India Captive Centres, June 27, 2012
10 Captive of Banks Going the Third Party Way, Feb 2007
11 BPMWatch – Captive Call Centers in India, Dec 2012
12 Computer Weekly – Are Captive Centers Back, Feb 2013
13 The Guardian, High Street banks agree to payouts for mis-selling financial products, June 29, 2012
14 Accenture Internal Subject Matter Experts Analysis, 2013
15 Accenture, Achieving High Performance in BPO, 2012
16 HfS Research, Ltd. State of Outsourcing in 2011. October 2011
About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.
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