Thought Piece
The Transactional Freedom Party
Tongue in cheek a client - a CFO in a quoted company - said to me that he was thinking of starting a political movement, the Transactional Freedom Party. His inspired thought followed an observation of mine about needing to realise the true value of clerical resource - the people who work in finance departments. They are deeply undervalued across this nation, let alone the world.
"clerical resource - the people who work in finance departments. They are deeply undervalued across this nation, let alone the world"
"Behind the not-so-serious idea of a new political movement lies a very serious point"
"So is there an alternative to outsourcing? The answer is yes, as long as the CFO is prepared to work at the present processes"
The argument is that transactional resource possesses a vital capability of working at a detailed level and getting things right first time. By recognising that and investing more in transactional resource, then all the processes that follow are simpler to perform and the information produced can be relied on because of the confidence in the accuracy of the underlying data.
Behind the not-so-serious idea of a new political movement lies a very serious point. The CFO in question was new in his present role and in his first 100 days in post he had been advised on a number of occasions to outsource various aspects of this transactional work because it did not add value. This is in stark contrast to management accounting, which is universally considered to be value-adding. But the outsource advice was not instinctively compelling for the CFO; looking for alternative advice, he kept asking others what they thought.
Another finance director recently told me that they had offshored the purchase ledger and the work was now being done by graduates who were half the cost of the UK-based clerks. But that cost comparison may not be quite as simple as first appears. For a start offshored clerks bring diseconomies of scale by virtue of different time zones and distance. In project management it is an axiom that if you introduce water (in other words, the project team now spans a sea or an ocean) you are adding complexity. And then, of course, you still need to find some method of communication between head office and the outsourced location, because not everything can be done by computer. So while you may have halved the cost of the transactional resource, you have also, by introducing water, time zones and communication difficulties, cubed the complexity of the project management. And such complexity will lead you to save a figure much less than the half you had first anticipated.
So is there an alternative to outsourcing? The answer is yes, as long as the CFO is prepared to work at the present processes so that as many as possible are automated and simplified. Automation presents a one-off project cost similar to outsourcing; once complete, it presents low ongoing cost. Even when a finance department straightens out its processes not everything can be automated, so the next step is to work hard to cut out the queries and to introduce good performance indicators. Experience suggests that, all told, those steps can squeeze out another quarter of cost.
So is there an alternative to outsourcing? The answer is yes, as long as the CFO is prepared to work at the present processes
In the end a reformatted finance department could end up with half the number of people, although they are indeed more expensive than those offshore. But they are also doing more interesting work; the rest has been automated, and the diseconomies and complexity which come with outsourcing have been eliminated. The result will be high degrees of accuracy which will save further cost in the next process up. But management accounting is another story. For now there may not be much mileage in the the Transactional Freedom party but CFOs are right to invest in transactional resource.
Peter Charles