Companies Need Digital-Ready Contracts That Not Only Deliver Cost Reduction But Also Focus on Business Value Creation and Innovation

A new Hackett Value Matrix^™ analysis of 15 leading finance and accounting outsourcing (FAO) service providers by The Hackett Group, Inc. (NASDAQ: HCKT) finds that the market contains many mature and well-established service providers that deliver comparable levels of value realization and breadth of capabilities. The research recommends that companies seek assistance from expert advisors in the selection process to help them identify the partner(s) that best address their specific needs, and to shape and secure a digital-ready contract that is fully aligned to their business objectives.

In the past, most finance and accounting business process outsourcing (BPO) contracts focused heavily on cost optimization and labor arbitrage. Digital-ready contracts are specifically designed to move beyond this and add a focus on innovation and value creation, accommodating the deployment of digital technologies to automate and streamline a wide range of finance-related tasks. The goal is to deliver enhanced business value while also managing critical dependencies and mitigating key risks associated with their use. These contracts typically feature more complex definitions, incentive structures, governance mechanisms and commercial models that focus on supporting and/or enabling each organization’s unique digital transformational journey.

The Hackett Group’s research found that nearly 53% of customer respondents listed cost reduction as their original objective for the current BPO contract, with only 28% focused originally on transformation capability. This reflects the legacy or pre-digital nature of the underlying contracts, as the average age of the customer-vendor relationship among research participants was between six and seven years.

The research also found that given the many qualified service providers, differentiating factors will likely include alignment of capabilities and characteristics for the prospective partners with each client's unique business objectives and needs. Prospective clients should carefully consider elements such as geographic and process scope, industry sector, anticipated value realization, existing partner relationships (client-provider), level of maturity, investment appetite and cultural fit as they make their selection.

The recent study by The Hackett Group^® also found that more than 70% of respondents expect their FAO service provider to help their company drive greater value through implementation of the latest technology (e.g., advanced analytics (AA), robotic process automation (RPA), machine learning (ML) and artificial intelligence (AI). However careful crafting of contract terms was found to be critical for clients getting more of what they wanted from these long-term partnerships (e.g., cost savings, business value creation or innovation).

Digital World Class^® FAO service providers were found to enable companies to achieve dramatically higher value creation than typical companies, including:

• 99% greater ability to collect receivables within terms
• 41% faster financial reporting and improved closing cycle
• 47% lower overall cost, translating into a $48-million annual cost advantage (for a typical $10-billion enterprise)

Seven service providers achieved “Digital World Class” status in the Hackett Value Matrix: Accenture, Capgemini, Genpact, IBM, Infosys, TATA Consultancy Services (TCS) and Wipro. Five others were classified as “Challengers”: Cognizant, Conduent, ExlService, HCL Technologies and WNS. Three service providers were classified as “Emerging”: Datamatics Global Services, Exela Technologies and Sutherland Global Services.

“Our research found that nearly all companies that contract with an FAO solution provider see cost savings. But the landscape has shifted in the past few years, and today most companies also want these relationships to drive greater value and innovation through the implementation of technology. FAO solution providers have the capability to deliver this, but it requires a very different contract,” said The Hackett Group Associate Principal John Sheridan.

“This market is also dominated by mature, well-established providers,” Sheridan continued. “The future leaders will be those that invest to take advantage of the latest digital possibilities. To drive maximum value, companies are advised to focus on defining and cementing a strong partnership with mutually beneficial terms of engagement. They should select a solution provider that has capabilities and technology partnerships most relevant to their specific operating environments and needs. This is also a market where you will only get what you have contracted for, so it is critical to clearly reflect the desires for both cost savings and innovation contractually.”

According to The Hackett Group Chairman and CEO Ted A. Fernandez, “The FAO market is maturing quickly, from its origins in labor arbitrage to a focus on automation and digitization, cognitive automation and the delivery of cognitive insights. BPO relationships are becoming a key part of digital transformation journeys, and companies are expecting their BPO providers to help them improve competitiveness, agility, resilience and effectiveness, while still providing stable and high-quality operational services.”

The FAO service provider Hackett Value Matrix and related research are products of The Hackett Group’s Market Intelligence Service. The service is designed to evaluate software and service providers’ abilities to deliver quantifiable results from specialized, differentiated capabilities.

The Hackett Group analyzed solution providers from the FAO services market across the following three areas: Transactional, control and risk management, and financial planning and analysis. In transactional work, the research examined the following four sub-areas: Purchase-to-pay, order-to-cash, record-to-report, and consolidation and regulatory reporting. In control and risk management, the following four areas were examined: Tax management, cash management, capital and risk management, and compliance management. Finally, in financial planning and analysis, the research looked at business performance reporting and analytics, and business analysis.

The Hackett Group defines Digital World Class, in the context of the Hackett Value Matrix, as the attainment of top-quartile performance for both operational excellence and value realization. The Hackett Group observed and verified that these service providers have deployed Digital World Class capabilities for multiple clients. Furthermore, the providers have the abilities to deploy this level of capability with new customers. For the FAO market, this also means that providers need the right environments, partnerships and contracts with their customers to achieve these levels of performance.

The FAO Hackett Value Matrix is part of The Hackett Group’s full 76-page research report. This research is available now to service providers, and research advisory and consulting clients through a new FAO Market Intelligence Program that provides a concierge level of insights into the FAO service provider market. The FAO Hackett Value Matrix should be read in the context of the entire report. An 18m-page summary report is also available on a complimentary basis, with registration, at https://www.thehackettgroup.com/insights/fao-solution-providers-2312/. Inquiries regarding purchase of the full research report can be made at https://www.thehackettgroup.com/insights/fao-solution-providers-2312-fullreport/, or by visiting the web page for our Market Intelligence Service at https://www.thehackettgroup.com/market-intelligence.

The Hackett Group does not endorse any participant, vendor, product or service depicted in its research. This research should not be considered as advice that a company considering FAO select only those participants based on their ranking or position on the FAO Hackett Value Matrix. The Hackett Group’s research publications consist of the opinions of its research organization and should not be interpreted as factual statements. The Hackett Group disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

About The Hackett Group

The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class performance.

Drawing upon our unparalleled intellectual property from more than 25,000 benchmark studies and our Hackett-Certified^® best practices repository from the world’s leading businesses, including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100, captured through our leading benchmarking platform Quantum Leap^® and our Digital Transformation Platform (DTP), we accelerate digital transformations, including enterprise cloud implementations.

For more information on The Hackett Group, visit https://www.thehackettgroup.com, email info@thehackettgroup.com or call (770) 225-3600.

The Hackett Group, Hackett-Certified, quadrant logo, World Class Defined and Enabled, Quantum Leap, Digital World Class and Hackett Value Matrix are registered marks of The Hackett Group.

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