ISG Provider Lens™ Finance and Accounting Outsourcing (FAO) Services - Financial Planning and Analysis - Global 2024

With comprehensive solutions at the forefront, FAO providers go beyond conventional outsourcing

The FAO industry is experiencing a significant transformation, marked by an increasing emphasis on specialized capabilities to meet clients’ evolving needs. This reflects an increasing demand for  comprehensive solutions that extend beyond traditional outsourcing, encompassing technology, advanced analytics, strategic consulting  and industry-specific expertise. In response, FAO providers are developing diverse capabilities to enhance their service offerings. This strategic shift not only streamlines financial processes but also offers tailored solutions to address client’s specific challenges. By integrating specialized expertise and advanced tools, FAO providers are positioning themselves as essential partners in their clients’ journey toward operational excellence and strategic growth. This comprehensive approach ensures that providers can deliver value-added services, helping clients navigate complex financial landscapes and achieve their business objectives.

End-to-end digital transformation in finance and accounting (F&A) is crucial for optimizing processes and improving data accuracy. FAO providers are advancing this transformation by leveraging intellectual property and collaborating with platform providers and hyperscalers. They are also building orchestration platforms integrating AI, automation and advanced analytics, providing comprehensive, scalable and integrated 
solutions. These platforms provide a unified user experience, real-time insights and datadriven strategies, enhancing operational efficiency and strategic decision-making. This holistic approach ensures seamless service delivery across financial functions and their extended value chain.

Advanced technology integration in FAO is driving significant transformations by integrating AI, ML, robotic process automation (RPA) and cloud computing. Service providers increasingly adopt an AI-first or machine-first approach to streamline financial processes. These technologies enhance efficiency and accuracy, providing real-time data analytics for strategic decision-making. GenAI holds particular promise in improving data analysis and planning capabilities. However, despite significant investment from platform and
service providers, most GenAI applications in F&A remain in the proof-of-concept (POC) phase, with only a few providers successfully implementing viable solutions.

The primary challenge is the lack of collaboration among different stakeholders, including finance platform providers, SaaS providers and FAO service providers. Strategic partnerships among these players could
maximize the potential of GenAI investments. By collaborating, they could develop more integrated and efficient solutions, enhancing the value delivered to clients. Such partnerships would allow for better  utilization of data and technology, leading to more innovative and effective financial solutions. The success of
GenAI and other advanced technologies in FAO will largely depend on overcoming these collaborative barriers and fostering a more cohesive ecosystem.

Global delivery models in FAO are evolving, with providers using different strategies to improve service delivery. One significant trend is the strategic utilization of nearshore and offshore centers to boost efficiency and client engagement. Some providers are reducing their offshore operations due to technological advancements that enhance process efficiency and reduce the need for language-specific skills. Technologies such as AI and automation make these changes possible by streamlining processes and eliminating language barriers.

Conversely, other providers are expanding their nearshore operations to better serve existing markets and enter new ones. This expansion offers clients more options, allowing them to choose between nearshore and offshore solutions based on their specific needs. This dual approach caters to diverse client preferences for cost-efficiency, regulatory compliance and proximity. For instance, while some providers are consolidating their operations to centralize expertise and leverage technological advancements, others are setting up new centers closer to their clients to provide localized services and improve responsiveness. Ultimately, the choice of delivery model reflects each provider’s strategic focus, balancing technological capabilities with market demands and client preferences. This variety in strategy highlights the importance of adaptability in FAO, where providers must align their delivery models with changing technological landscapes and client needs.

Consulting and advisory services in FAO have evolved significantly, driven by market maturity and increasing demands for transformation. As companies embrace new technologies such as ERP systems and cloud solutions, FAO providers enhance their consulting capabilities. They offer strategic insights, risk management and compliance solutions to help clients optimize processes and achieve strategic goals.  Consulting is integrated into the onboarding process and throughout the client journey, involving maturity assessments and the development of technology advancement road maps that align with clients’ strategic objectives. Furthermore, consulting opportunities lead to engagements with global capability centers (GCCs), either as standalone consulting projects or with the potential for providers to take over GCC operations. This
trend is fueled by the need for specialized expertise and operational efficiency, making consulting a critical component in driving value and innovation in the FAO industry.

Industry-specific solutions have become a critical focus for providers aiming to address the distinct needs of diverse sectors. FAO providers are increasingly building specialized teams with deep industry expertise to deliver tailored solutions that meet specific regulatory, operational and strategic requirements. Providers can demonstrate a strong understanding of clients’ unique challenges and nuances by involving industry experts from the outset of client engagements. This approach not only instills confidence but also serves as a key factor in securing contracts.

These experts bring valuable insights, including industry best practices, compliance issues and market  trends, enabling providers to offer highly customized and effective solutions. This approach enables the providers to differentiate themselves in a competitive market by showcasing their ability to deliver value beyond standard outsourcing services. The investment in industry-specific capabilities reflects a broader trend toward offering more personalized, client-centric services, ensuring that the solutions are not only efficient but also strategically aligned with clients’ business goals.

Outcome-based models are becoming more prevalent in FAO contracts, where compensation is  increasingly tied to achieving specific business results This trend reflects a growing emphasis on aligning service delivery with client outcomes such as cost savings, process efficiency and compliance. Some FAO providers are even planning to transition entirely to outcome-based models, especially in traditional FAO verticals such as P2P and O2C. This approach incentivizes providers to deliver high-quality services directly contributing to clients’ strategic objectives, fostering a more value-driven partnership.

Advanced functions such as R2R and FP&A are increasingly being outsourced as the FAO market  continues to expand. This shift is driven by the growing complexity of financial processes, the need for accurate forecasting and the demand for strategic insights. Companies are outsourcing these advanced functions to leverage specialized expertise, improve efficiency and focus on core business activities. FAO providers gear up to build capabilities in these areas to meet this demand, investing in advanced analytics and AI technologies. However, challenges such as a shortage of skilled talent remain significant. This  situation presents an opportunity for firms that specialize in these functions at scale or offer boutique  solutions, as they can provide tailored, high-quality services. Such firms are well-positioned to capitalize on the demand for expert knowledge and customized solutions, addressing the nuanced needs of clients in
these complex areas.

ESG and particularly sustainability reporting are becoming key focus areas for FAO providers, who are increasingly building capabilities to cater to these evolving demands. However, the adoption of these practices is slow, often driven by regulatory demands rather than voluntary commitment to sustainability. This cautious pace of adoption indicates that while the infrastructure for ESG is being developed, widespread implementation may largely depend on the evolution of the regulatory landscape. and particularly  sustainability reporting are becoming key focus areas for FAO providers, who are increasingly building capabilities to cater to these evolving demands. However, the adoption of these practices is slow, often driven by regulatory demands rather than voluntary commitment to sustainability. This cautious pace of adoption indicates that while the infrastructure for ESG is being developed, widespread implementation may largely depend on the evolution of the regulatory landscape.

In summary, the FAO industry is experiencing a paradigm shift toward more integrated and specialized service offerings, driven by the need to address complex financial challenges and leverage emerging growth opportunities. By developing intellectual property and forming strategic alliances with key platform vendors,
FAO providers are enhancing their capabilities in areas such as advanced analytics, strategic consulting and industry-specific solutions. These advancements enable them to offer tailored, high-value services that align with clients’ strategic goals. As the industry continues to evolve, the emphasis on delivering customized, efficient and innovative solutions will be crucial for FAO providers to remain competitive and effectively  support their clients’ financial and business objectives. This shift not only enhances the value proposition of FAO services but also solidifies the role of providers as essential partners in their clients’ journeys toward operational excellence and Innovations in technology and automation are rapidly transforming the FAO industry. Providers are integrating advanced analytics, AI and automation, moving beyond traditional services to offer comprehensive solutions that align with clients’ strategic goals, driving efficiency and value.

Access to the full report requires a subscription to ISG Research. Please contact us for subscription inquiries.