Finance and Accounting Outsourcing Trends to Watch in 2023

While outsourcing has been part of company operating models for 20+ years, the latest Finance and Accounting outsourcing trends show a surge in interest. Even businesses that had never before considered outsourcing are now taking the plunge.

Consider these recent statistics: 

The Finance and Accounting outsourcing market was expected to end 2022 with 10% year-on-year growth. That double-digit expansion is forecast to continue over the next several years.

Mature buyers are now open to leveraging third-party support across more complex, judgment-intensive processes, with 65% of successful organizations including outsourcers in their delivery models.

71% of financial service executives outsource one or more services.

70% of organizations plan to outsource more work shortly.

What’s driving the growing demand? Let’s look at more current data:

Finance leaders consider 89% of accounting activities highly automatable.

“Standardization and process efficiency” ranked as the top outsourcing objective in 2021, ahead of cost savings (#2).

61% of organizations said geopolitical world events like COVID accelerated their digital transformation efforts.

Yet while the pandemic contributed to the surge in outsourcing demand, several other factors have also made organizations reconsider their operating models: 

The F&A talent war rages on

Virtually every conversation with business executives about their main challenges starts with, “I can’t hire enough people to get work done.” Three-quarters of CFOs say the talent shortage impacts revenue, while about half indicate it constrains full-capacity operations as well.

Between July 2021 and June 2022, the Finance function saw a 10% turnover rate - and 87% of U.S. employers worry about losing employees to new opportunities. 

Such high turnover impacts planning, as Finance executives worry about having sufficient, knowledgeable staff to execute strategies. According to Robert Half’s most recent Salary Guide, 65% of senior managers were hiring for new positions in 2022 and 33% needed to fill vacated roles.

That’s forcing Finance leaders to rethink their compensation models, with 58% of executives saying they increased compensation and 46% adding signing bonuses. Inflation is certainly a factor, but the salary increases are really about the war for talent.

And the actual increase over the past three years is even higher than company targets. Comparing data from the 2019 and 2022 Robert Half Salary Guides, consider these numbers for “core” F&A roles:

The average cost for these four positions rose 29.3% over the past three years, with staff accountants and financial analysts near or above a 40% higher cost! The situation is even worse in larger markets like New York and Los Angeles, where the average increase for these roles exceeded 40%.

What’s driving these increases? Scarcity of resources to do the work. 

The U.S. Bureau of Labor and Statistics (BLS) reports that April 2021 registered twice as many job “quits” as April 2020, as the term “The Great Resignation” entered our lexicon.

Another BLS datapoint, Labor Force Participation Rate (LFPR), indicates a longer-term impact on the labor supply. The LFPR surpassed 63% before COVID but now hovers around 61.8%. Basically, 2.4 million workers are “missing in action” from the workforce.

Where have F&A workers gone? 

Some “missing” workers can be attributed to the retirement of Baby Boomers, who either aged out of the workforce or left during the pandemic. The F&A industry is seeing 2-3 million people retire early.

Other pandemic-related factors like childcare concerns contributed to the gap as well. The newly established “Gig Economy” is another factor, tempting workers with more flexibility through contract or freelance work.

At the same time, some F&A roles may be experiencing a “branding” problem amongst young adults. The Controllers Council reports that the number of students taking the CPA exam has significantly declined over the past decade. 

Many Millennial workers also consider transactional F&A tasks beneath them, which impacts retention and quality of work.

The path to digital transformation isn’t easy

The “talent challenge” is only one storyline driving Finance and Accounting outsourcing trends. In a recent blog, I highlighted how many organizations saw productivity gains of more than 20% over the past three years, likely due to new digital technologies in F&A operations.

Yet the path to digital success isn’t easy:

70% of complex, large-scale digital transformation efforts fail.

92% of Finance leaders have started introducing digital interventions, but only 11% believe they are at an advanced stage.

Only 22% of Finance organizations can deliver critical data required to generate forecasts and support strategic plans and decisions without significant manual intervention.

49% of business leaders say their biggest impediment to digital success is a shortage of qualified resources.

With companies projected to spend nearly $2.8 trillion annually worldwide by 2025 on digital transformation initiatives, continued failures and delays represent significant waste and frustration.

Outsourcing to the rescue 

Not surprisingly, businesses are turning to outsourcing to overcome talent challenges and accelerate the digital agenda. But the perspective on outsourcing is changing.

Cost reduction is now a “given.” Broader access to talent and the ability to improve productivity and performance are key drivers for considering outsourcing as a whole - and service providers in particular.

By 2025, Gartner expects 60% of F&A organizations won’t renew existing outsourcing contracts because of outdated pricing models that fail to drive digitization and process improvement.

Top-notch Business Process Outsourcing (BPO) providers are more than FTE-based transaction processors. They serve as full lifecycle partners - delivering higher levels of productivity and business insights than their clients’ existing operations.

The best partners are also experts at optimizing business processes through the implementation of digital technologies, removing risk. And they will guarantee outcomes, assuring expected cost savings and ROI.

Nearshoring tops Finance and Accounting outsourcing trends

Unfortunately, the pandemic highlighted operational challenges that plague offshore outsourcing models. Many organizations already struggled with time zone differences, geographic proximity, and language and cultural mismatches that make collaboration and communication difficult.

Then, add telecommunications and power infrastructure to the list of issues many companies experienced when workers shifted from corporate parks to work-from-home (WFH) models in offshore markets.

These regions are also not immune to the talent challenges every other part of the world experiences - driving up attrition and labor costs.

We have seen many new clients seeking nearshore partners, aiming to shift their focus from offshore markets to one that is closer to home. The Latin American market has emerged as a major destination for multinational organizations over the past 10+ years, but the past three saw this trend accelerate.

Global businesses are also increasingly opting for nearshore services for F&A functions at the higher end of the value chain, like Financial Planning & Analysis. When processes are more complex, the easier communication and collaboration of nearshore markets with highly educated populations makes the most sense.

Many Latin American locations also score significantly higher than Asia on Tholons and AT Kearney surveys for business environment, which measures country environment, infrastructure, cultural adaptability, and IP security. For example, Costa Rica had a 38% higher score than India in the most recent Kearney Global Services Location Index.

Businesses are increasingly turning to outsourcing to address their operational challenges. The whole outsourcing paradigm has shifted, and companies are looking for the "right" partner: a firm that can not only provide the talent but also bring the expertise to optimize business operations and speed up their digital transformation journey.

Providing this range of capabilities and offering a nearshore location to solve the complexities of the offshore operating model is the “real Finance and Accounting outsourcing trend” of the year.