DALLAS--(BUSINESS WIRE)--The multi-process Finance and Accounting Outsourcing (FAO) market is projected to grow 15-20 percent and top US$4 billion in annual contract value (ACV) in 2011, according to the Finance & Accounting Outsourcing Annual Report 2011 published by Everest Group, an advisory and research firm on global services. In 2010, ACV grew almost 15 percent compared to about 10 percent growth during 2009, and total contract values (TCV) of new engagements reached a market-high of nearly US$5 billion, according to the study. The FAO market reached US$3.5 billion in ACV in 2010, representing about US$28.5 billion in total FAO spending.
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.
In addition to an increase in new FAO contracts last year over 2009, the market also reached an all-time high in contract extensions that, along with contract expansions, represented nearly 55 percent of ACV growth in 2010. The study predicts organic growth to continue as contracts valued US$6.2 billion or more are up for extension within the next three years.
“Last year saw a strong rebound in multi-process FAO adoption, which we expect to continue this year as buyers look to reduce costs and optimize processes,” said Saurabh Gupta, vice president, Research. “However, buyers continue to remain cautious and adopt a more phased approach rather than big-bang solutions.”
Other report findings include:
- FAO market growth continues to see strong adoption across most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting for 70-75 percent of total FAO spending in 2010.
- The United States accounted for over half of total FAO spending in 2010 while Asia-Pacific witnessed the fastest growth.
- Large buyers accounted for 55 percent of contracts signed in 2010. Mid-market companies, which have revenues of US$1-5 billion annually, revived adoption of FAO last year.
- Outsourcing of accounts payable, accounts receivable and general ledger continue to be the most outsourced processes whereas outsourcing of financial planning and analysis is an emerging trend.
- An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach. More than 50 percent of the new contracts in 2010 had end-to-end scope (Procure-to-Pay, Order-to-Cash, Record-to-Report).
- Nearly 95 percent of FAO contracts had an offshore component with maximum offshore growth occurring in Indian tier-2 locations, Central and South America as well as Southeast Asia. Several new locations entered the FAO delivery location map including South Africa and Morocco.
- In 2010, technology augmentation emerged as the new “normal” – nearly 50 percent of the new contracts included add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals/dashboards.
In Everest Group’s Performance/Experience/Ability/Knowledge (PEAK) matrix, leading service providers were Accenture, IBM, Genpact, Capgemini, Infosys BPO and HP. Other service providers in the analysis include TCS, Wipro, WNS, ACS-Xerox, Steria, Vengroff Williams & Associates (VWA), Outsource Partners International, Cognizant, EXL Services and Intelenet. Also included in the report are emerging providers: iGate-Patni, Minacs, HCL and KPIT Cummins Infosystems.
Everest Group also highlighted five service providers as 2010 FAO Market Star Performers: Accenture, Genpact, IBM, TCS and WNS. Last year, these service providers demonstrated the strongest movement forward across the following two dimensions:
- Market success in 2010 based on ACV growth, number of contract signings and value of contract signings last year
- Capability advancements in 2010 based on expansion of scale, scope, delivery footprint and technology investments
The Star Performers designation relates to year-on-year performance for a given service provider and does not reflect on overall market leadership positions. Those identified as the 2010 Star Performers include both leading service providers and major contenders.
“Increasing competitive intensity among service providers is driving innovation,” said Gupta. “Beyond cost arbitrage, the FAO value proposition will expand this year to include best-in-class process optimization and, as contracts mature, we’ll see more demand for business and strategic impact. This also will be a testing year for platform and SaaS-based offerings.”
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 580 FAO contracts within this scope signed as of 2010.
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About Everest Group
Everest Group is an advisor to business leaders on 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 internal transformations, shared services, outsourcing and blended model strategies. 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 www.everestgrp.com and www.everestresearchinstitute.com.