HR and Finance back office outsouricng on the rise

18 June 2015 6 min. read

Companies continue to seek outsourcing partners across most regions of the world, with especially Latin America entering such deals. While mature markets are looking for reliable service at a good price, immature markets are increasingly looking for reliable service that understand their needs. Wherever clients are based, it is the quality of soft-skills that sets suppliers of outsourcing apart, with good communication at the top of the list.

Outsourcing functional areas of an organisation has become the norm for many sectors of the economy. Some of the benefits of such agreements are improvements to efficiency, cost effectiveness and in some instance – better compliance. In a recently released report, Grant Thornton explores whether companies are currently outsourcing back-office processes, for different regions around the globe. For its report, titled ‘Outsourcing: Beyond technical expertise’, the business advisory approached 2,500+ executives and managers in 36 economies around the world through a survey, in a bid to find out what companies look for in their outsourcing relationships.

Outsourced human services
The report first identifies the kinds of back-offices functions and processes outsourced most frequently, by region. For the function of payroll and human resources, Latin America has the largest number of outsourcing agreements, with 49% of those surveyed currently outsourcing, and with a further 12% planning to do so in the future. North America comes in second, with 32% currently outsourcing and a further 9% planning to continue this trend into the future. Africa has the smallest HR-outsourcing propensity, with 10% currently outsourcing and with a further 16% planning to do so in the future.

Outsourced back-office process payroll and human resources

The survey finds that both small and large organsations are engaging in outsourcing and that the search for freeing up local staff to value creation is a key driver for outsourcing relationships. “As productivity becomes more important to companies, and enables their employees to create value rather than execute transactions, outsourcing makes increasing sense,” says Andrew McBean from Grant Thornton Thailand.

Outsourcing finance
Besides the outlier that is Latin America in this section, of companies surveyed around 80% keep finance and accounting services in-house. The mood toward outsourcing is increasing in most regions; with globally 8% of companies looking to outsource in the future, while 19% currently do so. In Latin America however, 55% of organisations have an outsourcing agreement for the finance and accounting functional areas, with a further 8% planning to enter into such an agreement in the future.

Outsourced back-office finance and accounting

The primary reason for Latin America’s high degree of outsourcing in finance and accounting is that new regulatory conditions around tax and growth in inward investment can be major drivers of outsourcing growth. In Argentina and Brazil, tough new compliance requirements – as well as the need for the appropriate technology to adapt to new regulatory requirements, are driving demand. “Brazil based companies increasingly outsource to improve the quality and timeliness of their tax reporting. They now face stiff penalties if they are found not compliant”, comments Pier Atti, advisor at Grant Thornton Brazil.

Services provided
The key drivers for outsourcing vary particularly across the maturity of markets, with 62% of immature markets respondents looking more for service reliability compared to 54% in mature markets. Besides reliability, the demanded condition in market type significantly diverges. Understanding my business is the second most important characteristic of outsourcing partners for immature markets at 49%, while only 29% of developed market respondents rated it. Cost of provider is a significant consideration for mature markets at 48% of respondents marking it, compared to 30% of immature market respondents.

Mature vs immature outsourcing selection criteria

According to the consulting firm, businesses everywhere want to be confident that providers will deliver on time and to the required level of quality. In countries such as Brazil and Argentina, companies’ ability to stay compliant with ever toughening tax reporting rules depends on outsourcing.

Key outsourcing criteria

Soft skills in demand
Companies were also asked to rank their most important features of their relationships with outsourcing providers, with clear communication cited by 88% as a key driver for success, followed by the quality of the relationship at 87%. The experience of providers in the functional area come in at 82% of respondents, while 74% cited resource management. The consultancy notes that ‘intangible assets’, or the soft skills a provider brings to a relationship, are more often the main contributors to a successful outsourcing experience.

Drivers for successful outsourcing

Samantha George, head of outsourcing at Grant Thornton UK, comments: "Companies that outsource expect their providers to have all the specialist skills and IT systems needed to deliver the contracted services. The 'softer' and less quantifiable elements of an outsourced relationship are more often the ones that make the most difference. As in any relationship, trust and communication remain vital to its success.”

George continues: “With outsourcing increasingly on the agenda at international companies, the best providers will have progressed from offering a commoditised service based on price, to truly gaining the confidence of their clients as a strategic partner. Companies are also realising that they gain, rather than lose control when they outsource functions, because they can have their providers report to them on a frequent basis and request information in real-time. This leads to a more open and engaged relationship between both companies and one which is more likely to succeed."

On the rise
Grant Thornton’s forecast that outsourcing is on the rise is overall in line with similar research released recently by other business advisories. A study from OC&C Strategy Consultants revealed that outsourcing in the UK public sector will in the coming years grow by £20 billion to £110 billion, while a study by Quint finds that demand for outsourcing in the Dutch market is picking up.