Looking forward, we expect to see buyers continue to focus on cost plus value proposition solutions that are comprehensive, industry-specific, and end-to-end process driven.
Dallas, TX (PRWEB) May 01, 2012
The multi-process Finance and Accounting Outsourcing (FAO) market is projected to rebound by 10-15 percent and top US$4 to $4.5 billion in annual contract value (ACV) in 2012, according to the Finance & Accounting Outsourcing Annual Report 2012 published by Everest Group, an advisory and research firm on global services. In 2011, ACV grew 11 percent compared to 18 percent growth in 2010, and total contract values (TCV) of new engagements also dropped last year compared to 2010, according to the study. The FAO market reached US$3.8 billion in ACV in 2011, representing about US$32 billion in total FAO spending.
“Although the market witnessed slower than expected growth levels last year, we nevertheless saw strong growth with nearly 200 contracts for new, extended and renewed contracts,” said Saurabh Gupta, vice president, Everest Group. “Along with fewer new contracts signed and some terminations, we also saw a drop in size of multi-process contracts largely due to cautious buyers opting for risk-averse phased approaches. Looking forward, we expect to see buyers continue to focus on cost plus value proposition solutions that are comprehensive, industry-specific, and end-to-end process driven.”
According to the report, F&A sourcing represents a US$150-200 billion opportunity split equally across third-party service providers and captives/shared services. Current penetration of the third-party sourcing market represents only 5-10 percent of the overall potential, implying a significant value creation opportunity.
Last year saw the market reach an all-time high in contract extensions that, along with contract expansions, represented 70 percent of ACV growth in 2011. The study predicts organic growth to continue as contracts valued US$7.3 billion or more are up for extension within the next three years.
Other report findings include:
- FAO market growth continues to see strong adoption across most industries with manufacturing, financial services, high tech and telecom, and professional services accounting for about 60 percent of all FAO contracts in 2011.
- The United States accounted for over half of total FAO contracts in 2011, while Asia-Pacific emerged as an aggressive adopter and Europe witnessed a slowdown.
- Last year saw 60 percent of new FAO contracts signed by organizations with less than US$5 billion in revenues compared to less than 40 percent in 2008-2010. Adoption rates in 2011 for the SMB segment, defined as organizations with less than US$1 billion in revenues, were double over the previous year.
- Buyers continue to focus on an end-to-end process-driven approach to FAO, as opposed to a traditional functional and piecemeal approach. Nearly 50 percent of the new contracts in 2011 had elements of end-to-end scope (Procure-to-Pay, Order-to-Cash, Record-to-Report).
- The market saw a shift from an offshore-centric to a balanced onshore-nearshore-offshore model. While nearly 90 percent of the FAO FTE mix continues to be offshore-/nearshore-centric, 2011 witnessed a significant increase in onshore delivery centers.
- In 2010, technology augmentation emerged as the new “normal,” a trend that continued in 2011 as nearly 45 percent of the new contracts signed in 2010-2011 included service provider add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals/dashboards.
Accenture, IBM and Genpact together account for 50 percent of the FAO market in terms of ACV. In 2011, Accenture, Capgemini and Infosys BPO signed the highest number of new contracts. Accenture, TCS, and IBM accounted for about 50 percent of total contract value signed in 2011, including new contracts, renewals and extensions.
“Competition in the FAO market is gaining intensity,” said Gupta. “The market share of the top three providers has reduced from 65 percent to 50 percent over the last five years. Over the past two years, providers have continued to build up scale and invest significantly across various F&A capability dimensions, most notably around technology. However, service providers’ ability to understand the client context continues to be a significant credibility gap.”
Other service providers’ performances analyzed in the report include Cognizant, Datamatics, EXL, HP, HCL, Intelenet, IQ BackOffice, iGate-Patni, Aditya Birla Minacs, Serco, Steria, Sutherland Global Services, Tech Mahindra, WNS, Wipro, Xchanging and Xerox.
Everest Group’s analysis includes multi-process FAO contracts with a minimum of two F&A processes, over US$1 million in ACV and a minimum contract term of three years. The report includes more than 680 multi-process FAO contracts within this scope signed as of 2011.
For more information or to purchase the report, Finance & Accounting Outsourcing Annual Report 2012: The FAO Market – Signaling Towards Maturity, or other FAO research services, please visit research.everestgrp.com, email info (at) everestgrp (dot) com or call +1-214-451-3110.
About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations and private equity firms, in six continents across all industry categories. For more information, please visit http://www.everestgrp.com and research.everestgrp.com.