Entrusting partners with processes such as Finance and Accounting is a viable way for high-tech companies to reap cost benefits and seize innovation opportunities.
How High-Tech Firms Benefit from Finance & Accounting Outsourcing
Contributed by Paul Nowacki, Imran Masood
For high-tech firms, moving routine activities to a specialist frees internal experts to reduce costs, optimize processes and develop hot new products.
Companies in the high-tech and consumer electronics industries are under intense time and cost pressures. They must produce innovative products with short life cycles while continuously reducing costs and optimizing their supply chains. Outsourcing finance and accounting (F&A) functions frees key managers and subject matter experts to fine-tune processes, control costs, improve controls and develop products that will delight customers.
Five trends are transforming the high tech market.
- Tablets and smartphones are moving from the consumer realm to the enterprise. This creates a major opportunity for companies that provide security technology and services to secure the data and applications accessed by these devices.
- The growing role of the cloud is influencing technology companies to devote cash and management attention to moving their products and services to the cloud.
- More companies are using social networks to collaborate with prospects, customers and interested parties, and to understand both consumer trends and employee behavior. This evolution will provide a great opportunity for companies offering both business-to-business and business-to-consumer collaboration solutions.
- The use of real-time predictive data to improve business results lets companies use current information to forecast everything from market trends to component pricing.
- Using video for everything from product marketing to showcasing executives is becoming a key component of both internal and external communications.This is especially true in an era of social media, and for companies competing in the consumer market.
The most innovative and leading technology companies are turning to partners to focus their spending and management effort on adapting to such trends, rather than on routine operational areas such as F&A. Using service providers also allows high-tech companies to create flexible business models that can survive ever-changing market conditions, and shield them from talent shortages by accessing high-quality talent offshore.
Role of Outsourced F&A
A growing number of technology companies are leveraging third-party service delivery, with the number of global services agreements rising from 20 per year to 50 a year over the last ten years. Accounts payable (AP), accounts receivable (AR), fixed asset accounting (FA) and general ledger (GL) constitute the majority of F&A outsourcing (FAO) services. However, technology firms have also started sourcing tax, regulatory reporting, internal audit and other more complex activities from third parties.
Among the outsourcing models we have seen as effective:
Commoditize procure-to-pay (P2P). These processes (such as purchasing, accounts payable and
travel and entertainment) are typically highly manual, with few controls and no end-to-end process
view. State-of-the-art tools can be used to eliminate most, if not all, manual P2P work.
“Verticalize” order to cash (O2C). These processes (including order management, invoicing, dispute management, collections and AR tend to have industry-specific requirements. Using service providers with industry domain knowledge and expertise can maximize time and cost savings.
Automate record-to-report (R2R). Automating steps that do not add value, such as manual journal processing and reconciliations, minimize manual processing and improve process predictability and visibility.
Delivering Cost Savings and Innovation
Beyond improving management focus on core activities, outsourcing F&A can deliver immediate cost savings by performing work at a lower cost location which provides economies of scale. An outside provider can often deliver higher-quality services because of it use of more experienced personnel, supported by a larger investment in best practice research and technology. For example, we recently helped a prominent online search company assess and reengineer its F&A processes, identifying potential savings of more than $20 million per year. Finally, outsourcing can improve controls through improved separation of duties, better documentation of processes and performance levels, and higher levels of automation.
For more insights, please read the full white paper How High-Technology Companies Will Benefit from F&A Business Process Outsourcing Services (PDF) and about Cognizant's finance and accounting solutions.