Is finance coming home? A mid-market perspective

The advent of technology – the fourth industrial revolution - has serious implications for the future of an organisation’s finance function. Robotic Process Automation (RPA), that enhances the efficiency with which transactions are processed, along with the security afforded by platforms such as Blockchain and the opportunities for cognitive automation through machine learning, are being indelibly etched into the financial landscape. And senior finance personnel acknowledge the focus they need to place on areas such as data management, digital analysis and language processing as a result.

Some observers suggest that this automation-led revolution will force a major reduction in workforce numbers although other surveys point to the parallel with previous industrial revolutions. They argue that artificial intelligence (AI) and RPA will generate more (albeit different) roles than are likely to be lost.

A new finance team?

Plans for new, 'fit-for-purpose' finance teams present a clear demarcation of responsibility between the processing of transactions on the one hand and some form of value-driven, centre of excellence hub on the other, with a focus on the insight and gains to be garnered from the deployment of analytics tools together with other business analysis, change management or process improvement initiatives. 

Such is the thirst for insight at the corporate level from what is called 'knowledge work'5, that data analysis hubs, for example, are gradually shifting their emphasis away from descriptive or diagnostic analytics; what has happened and why - and moving the spotlight onto the predictive and prescriptive variety; what will happen and what are we going to do about it?2

Common sense suggests that these processing and data analysis hubs should be closely aligned. After all, one is a significant supplier to the other. Both should also be well-connected to the different strands of a business, at headquarters and beyond, where those insights can be deployed in the real world. 

A key consideration for the new finance team is the question of sourcing and location of these key components. Should they be resourced internally or is the prospect of leveraging an external service provider’s investment in these new technologies more appealing, especially as the fixed cost of technology deployment accelerates?   

And whether internally or externally sourced, does location really matter anymore?

Geographical ambivalence?

The historically logical decision to access low-cost labour pools – either internal or outsourced – in say, Asia or Latin America is under threat. 'Needing fewer people for routine, transactional, and highly manual tasks has diminished the advantages of establishing lower-cost shared service centres in Asia-Pacific and Latin America' according to a recent report covering over 450 participants.1

A well-invested UK outsourcing service provider for the mid-market

And the level of human intervention in processing transactions and in management reporting – the so-called 'robotic arbitrage'5 - will only continue to diminish; some 89 per cent of general accounting operations are predicted to become 'automatable'3 leaving what has been described rather alarmingly as 'a hybrid workforce'5. As one survey of CFOs noted 'where the work gets done, no longer matters'2. If Manilla, Bangalore or central England have increasingly equal merit, are we therefore closing in on a period of geographical ambivalence?

And as you move up the value-chain to consider where to place the data analysis hub in the new finance model, there is a strong case for its co-location alongside business units where a combination of available analytical skills, together with local business and industry knowledge, can operate in harmony.

Application to a mid-market business

To add further colour to the picture, consider a mid-market, high-growth, UK business starting to expand into international markets. How will they evaluate the future of their own finance function? Certainly, their appetite for all forms of risk at this stage in their evolution will look different to an established multinational. Their centre of gravity is likely to still be in Western-Europe rather than further afield; their focus will be on growth for their business owners and investors rather than necessarily their share price and they will be looking to provide agile decision-making support to their business units.

When they make the 'where' assessment for their finance team, the evidence is starting to point towards 'a domestic location for their shared service operation'1. And it’s not just the advantages of the proximity to the rest of Europe or the use of a common business language. One survey applied a new 'Digital Resonance' index – a measure of the legal, business and workforce investment into digital – to evaluate the optimum shared service location. It placed the UK second globally behind the United States.4 The same report identified the UK as one of the top five locations to harness the corresponding cybersecurity measures needed to underpin a highly automated finance environment.4

A well-invested UK service provider for the mid-market

If the candidates for 'where' are opening up, then the 'who' will be heavily influenced by the level of investment needed to build, support and protect that well-resourced, technology-focussed finance team. This may still prove a little rich for a mid-market business at a time when working capital and cash flow are key to future growth. And, according to an RSM survey, only 18 per cent of mid-market clients felt ready to manage the corresponding risks of digital change. 

A new outsourced finance team?

An external UK service provider may therefore provide the answer – especially a provider that has invested heavily in the capacity to deliver both automated processing efficiencies and broad data analytics. This investment will enable them to deliver efficient, on-shore transaction processing that renders the wage arbitrage of the far-shore centre in Vietnam largely redundant in the medium term. 

For the mid-market client, this shift might also be accelerated by introducing more flexibility into their on-shore UK processes than the heavily standardised models adopted by large far-shore centres. Critically, that successful service provider must continue to invest as the rate of technology advancement accelerates alongside the adoption of a robust cyber security strategy that high automation demands especially considering the data-sharing risks of outsourcing that many clients are not fully aware of.4 

In parallel, as technology drives service providers up the value chain, the service provider will also need to invest in data analytics and in industry specialists working across the spectrum of descriptive through to prescriptive analytics pertinent to a mid-market client base – providing insights into their clients’ performance by geography, by business unit and by industry. The innovative thinking that this requires is seen as the biggest skill deficit by businesses.5

An integrated, partnering solution

And yet a service provider that ticks all the investment boxes above, may still not be able to create competitive advantage for their mid-market client base. An integrated, partnering outsourcing solutionA broader shift in the outsourcing relationship is also required; the era of stand-off between client and distant service provider, wrapped up in endless performance indicators, often does not suit the mid-market which requires greater integration, collaboration and flexibility across day to day activities both in the UK and overseas markets. 

The service provider therefore needs to adopt an adaptive, agile and culturally aligned working partnership with their clients that is facilitated by meaningful face-to-face interactions and which focusses on 'partnering around output objectives'5. And this integration will need to be codified within a best practice relational contracting structure that encourages both parties to work in a spirit of openness, transparency and collaboration necessary for the partnering solution to operate effectively.

Conclusion

Following the current blueprint for the best practice finance function, it is not hard to envisage a global multinational being serviced by a team in Malaysia using state of the art cloud technology and RPA, in turn providing key data points to an Analytics 'Centre of Excellence' hub in Amsterdam. 

But for mid-market organisations - 92 per cent of whom say digital change will have a major to moderate impact over the next five years - diverting precious investment and resource to meet this challenge may still be a step too far. However, partnering with a UK service provider may just offer up the sort of affordable, agile and technology-rich solution that not only manages their risk but which also delivers agility and financial insight into their business decision-making

Time will tell if there is trend for a wholesale relocation of either processing or analysis activities back into the UK, but the writing may be on the wall for mid-market businesses as the volume of automatable finance activities becomes a reality. Finance may not be coming home quite yet but the indicators suggest that the journey has begun. 

Contact Ian Sadler to see how RSM outsourced business services can help your organisation.


References:
1 - “Global Trends in Financial Shared Service Center Locations.” A report from Scottmadden Management Consultants (January 2019).
2 - KPMG: the future of the finance function infographic.
3 - McKinsey: Bots, algorithms and the future of the finance function.
4 - Digital Resonance: The new factor impacting location and attractiveness. The 2019 AT Kearney Global Services Location Index.
5 - State of the Global Shared Services Market 2019: SSON.