The scale and speed of change that the global COVID-19 pandemic inflicted upon enterprise organizations is unprecedented. And in its aftermath, the way we work will never be the same.
Consumer behavior changed virtually overnight, causing organizations to suffer record losses as old business models fell apart. Pandemic lockdowns forced an abrupt switch to remote work – and Gartner reports that 74% of companies plan to make it a permanent part of some operations. Automation that can ensure resiliency is also in high demand, reducing reliance on manual, paper processes difficult to complete from home.
Even before COVID, modern challenges were pressing finance teams to evolve, driven by the need to manage costs, deliver value, attract and retain talent, comply with new regulations, and make efficient use of disruptive technology. But as enterprises scramble to adjust to business and social conditions that seemed unthinkable just months ago, prospering in the “new normal” will require a proactive, high-performance finance team that can react swiftly to sudden challenges.
In the post-coronavirus economy, the need for CFOs to build Modern Finance Organizations is more critical than ever, shedding the department’s traditional number-crunching role to provide insight-driven strategies that drive growth.
In this first installment of our two-part series on “Reconsidering Finance Outsourcing in a Post-COVID World,” we’ll explain why nearshoring non-strategic finance and accounting functions delivers the sustainable competitive edge organizations need to thrive in today’s fast-changing business environment. Stay tuned for Part 2, where we will debunk common misconceptions about finance outsourcing – and reveal the key to mitigating risk.
Even before COVID reinforced the need for nimble organizations, forward-thinking CFOs had turned to outsourcing to change their operating model. Outsourcing back office functions to a reputable BPO provider enables in-house teams to focus on core competencies, reduces operating costs, and improves scalability without sacrificing the quality of customer service. A 2017 KPMG survey found that 83% of participating CFOs had shifted finance and accounting functions to a shared services or outsourcing model – and nearly 60% planned to increase their commitment.
But COVID disruptions have accelerated the need for Finance to offload the mundane, repetitive tasks that generally consume 75% or more of its time, and stop it from becoming a strategic partner to an organization. To survive a crisis, companies need CFOs who can look forward instead of back - providing clarity amidst uncertainty with real-time data and facts, and helping executive teams thoroughly consider the short- and long-term consequences of strategy decisions.
Cutting costs is another key driver behind finance BPO in the post-pandemic economy. Gartner states that cash flow, macroeconomic uncertainties, and revenue loss currently top CFOs’ list of concerns.
Extreme cost-cutting is the norm, with 81% of CFOs implementing cost-containment initiatives.
Outsourcing not only reduces labor costs but provides the flexibility to scale resources up and down as business evolves. Nearshoring operations to Costa Rica, for example, typically cuts labor costs by 30-50%, compared to hiring similar skills in the U.S. Outsourcing also gives businesses a unique opportunity to decrease expenses by realigning the span of control in organizations that had grown top-heavy over time, compared to industry best practices.
Of course, the benefits of outsourcing extend beyond cost savings – it can also be a force for innovation and change in the new business environment. Nearly 80% of CEOs say their organization’s growth is tied to the ability to challenge and disrupt business norms, according to a KPMG report.
Top-tier BPO partners use best practices, digital transformation tools, and innovation to drive continuous process improvement. For instance, automating business processes with Robotic Process Automation (RPA) on average reduces the cost of existing manual operations by 40% and enables 41% productivity gains. These savings (and the resources that comprise them) can be applied to the bottom line or reallocated to more strategic priorities that drive business performance and help organizations maintain a sustainable competitive advantage.
The pandemic is also fueling the popularity of nearshore outsourcing models. High local unemployment and cheap labor costs made offshoring to Asian locations an attractive solution starting in the early-to-mid 2000s. But nearshoring to Latin America gained traction as Western companies realized that focusing on the lowest cost came with a high price, including challenging language barriers, unforeseen cultural differences, high employee turnover, low innovation, and the difficulty of doing business across distant time zones.
Additionally, the current pandemic has exposed the shaky infrastructure, poor healthcare, and substandard living conditions that exist in many parts of Asian locations like India and the Philippines. From NPR to the Wall Street Journal, news reports reveal stories of offshore providers struggling to maintain consistent, quality service with employees working from home. Nearshoring to Costa Rica, on the other hand, mitigates pandemic risk through a modern infrastructure and world-class coronavirus management that earned United Nations recognition.
While India once commanded 70% of the world’s outsourcing market, that number had declined to 44% by 2014. And its share continues to drop as the nearshore outsourcing market expands at a rate of 10.5%, compared to 4% offshore growth.
Outsourcing non-strategic, transactional tasks gives finance teams the agility to adapt quickly to today’s fast-changing business environment. For many, the ability of BPO to easily increase or decrease the size of back office teams has proved essential to meeting pandemic challenges head-on. For others, it was quick access to technology that enabled the organization to manage the crisis without a prolonged digital transformation.
Strong, strategic leadership from the finance organization is critical to helping businesses successfully navigate the post-COVID world. Reconsidering outsourcing that modernizes the back office provides the tools CFOs need to lead their organization through the current crisis – and beyond.
Don’t miss Part 2 of our series on finance outsourcing in the post-COVID world, where we will debunk common misconceptions CFOs hold about BPO – and reveal the secret to mitigating risk.