F&A, Outsourcing, Market, Trend

F&A outsourcing market review of 4Q05

06 Jan 2006 | (Survey)

FAO Research, Inc (www.faoresearch.com) has just released its F&A outsourcing market review for the last quarter of 2005. Below is a summary of their findings.

Buyer demand for FAO services remained steady throughout 2005 but showed signs of rising during the last three months of the year. Nearly all FAO demand came from large corporations, primarily in the United States and increasingly from the United Kingdom.

Financial Services was the most active sector demanding FAO (same during 3Q05), followed by potential FAO buyers in the Retail, Utilities, Insurance and Healthcare industries. Most potential FAO contracts would run less than $100M, although many could be worth $100M-$250M over the complete term which averaged 3-5 years with multiple 1-2 year options.

The most widely outsourced F&A functions included: payables, receivables, purchasing/procurement, asset management, billing, internal reporting and order to cash, with some indications that more value-added, high-end processes are under consideration. Numerous multi-tower, or multi-process, outsourcing contracts that include FAO were evaluated by potential buyers. Large, traditional, global outsourcers - like IBM and Accenture - topped the list of bidders on potential FAO contracts during October, November and December 2005.

The biggest challenge for outsourcers by the end of the year was an increased Cost of Sale on potential FAO arrangements. Other challenges that plagued service providers included: client risk adversity; varying degrees of compliance requirements by prospective customers; business cycle timing (end-of-year); and increased competitive market activity resulting from demand for offshore capabilities.

Looking Ahead to 1Q06 (Jan-Mar 2006)

FAO Research, Inc. predicts that the following scenarios could impede the FAO businesses of service providers during the first three months of 2006:

• Increased competitive requirements to capture new FAO customers in a market that is still immature yet growing at a healthy rate worldwide.
• Continued high bid costs to attract and win FAO contracts.
• Greater involvement in multi-tower deals including an F&A component.
• Focus of bidding on the outsourcing of routine F&A functions, with more higher-end process still being explored.
• Chronic need to expand offshore as buyers demand FAO cost savings.
• Greater requirements to educate buyers on risks (perceived and real) of outsourcing and planned solutions as well as routine contract monitoring/adjustments for such.

To see the entire report, click Here

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