As a result of the economic downturn, Finance organizations are rethinking the way they structure their service delivery model. Specifically, CFOs are evaluating their cost structure to determine what fixed costs can be transformed into variable costs.
In a growing market a fixed cost structure is popular. A Finance organization with a high fixed cost structure can be very productive, limiting the growth in costs (i.e. adding a few FTEs) as the company grows revenue. However, in a down market, these same fixed costs can quickly eat into the company's profits.
As we've seen all too well, companies can lay off people and they do, but the continuing cycle of hiring and firing is leading CFOs to evaluate new models.
One model is to outsource specific functions to a 3rd party service provider. This provider can be onshore or offshore, but realistically, the cost savings by moving offshore are pretty compelling. As a result, we have seen and will continue to see a growth in the oursourcing of various Finance functions. This is certainly true for transactional activities such as accounts payable, but also extends to more complicated processes such as the monthly accounting close.
Another option that is gaining steam is the outsourcing of almost the entire Finance function, save certain governance-type positions such as Controller. The recent sale of banking giant UBS' captive shared service center to Cognizant is one such example. This was a relatively quick way for UBS to convert their fixed costs into a variable cost.
As CFOs become more comfortable with this type of delivery model, we should look to see it grow even when the economy recovers. Many companies will have learned from this economy that it pays to have a flexible delivery model and a flexible cost structure.
