Preview Deck | Finance and Accounting Outsourcing (FAO) Annual Report

The FAO Market: Signaling Towards Maturity

Finance and Accounting Outsourcing (FAO)
Annual Report: April 2012 – Preview Deck

Copyright © 2012, Everest Global, Inc.
EGR-2012-1-PD-0680

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Background and methodology of the research

Background of the research
The global multi-process FAO market continues to grow at a healthy rate of 11%. However, the growth was slower
when compared to 2010. This is the not a sign of worry but a sign of movement towards the maturity of the FAO
market. As the FAO market matures, the value proposition expands beyond cost and consequently, the FAO solution
elements change too. FAO adoption is now not restricted to traditional markets but extended to under-penetrated
markets as well. In 2012, Everest Group expects the FAO market to continue strong activity, resulting in a YoY growth
of 10-15% in terms of ACV

In this research study, we review the global multi-process FAO market in 2011 and provide guidance on the market’s
direction in 2012. We focus on:
 Market size and buyer adoption trends
 FAO value proposition
 Contract characteristics across process scope, technology, global sourcing, and pricing structures
 FAO service provider landscape covering service provider’s market shares and areas of investments

The scope and methodology of this report includes:
 Third-party FAO deals; it does not include shared services or captives
 680+ multi-process FAO deals signed as of 2011 with a minimum of two F&A processes, over US$1 million in ACV,
and a minimum contract term of three years
 Coverage across 20+ FAO service providers with multi-process capability including Aditya Birla Minacs, Accenture,
Capgemini, Cognizant, Datamatics, EXL Services, Genpact, HCL, HP, IBM, iGATE Patni, Infosys BPO, IQ
BackOffice, Mahindra IT & Business Services, Serco, Steria, Sutherland Global Services, TCS, Wipro, WNS,
Xchanging, and Xerox
 Ongoing buyer surveys and interactions such as Vertical Industry Strategies in Shared Services & Outsourcing
(VISSSO), Best-in-class BPO buyer survey, Executive-level buyer interviews

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Table of contents (page 1 of 2)

Topic Page no.
Section I: Introduction and overview 6
 Research methodology 7
 Multi-process FAO definition 12
 F&A sourcing market potential and penetration 14

Section II: Key insights 16
 Market size and buyer adoption 17
 Value proposition and contract characteristics 18
 Service provider landscape 19

Section III: Market size and buyer adoption 20
 Summary 21
 Market size and growth 23
 Contract extensions/renewals 29
 Buyer adoption 33

Section IV: Value proposition and contract characteristics 36
 Summary 37
 Value proposition 39
 Process scope 42
 Global sourcing 48
 Role of technology 51
 Pricing structures 53

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Table of contents (page 2 of 2)

Topic Page no.
Section V: Service provider landscape 54
 Summary 55
 Market share 56
 Areas of investments 59

Section VI: Outlook for 2012 62
 Market size and buyer adoption 63
 Value proposition and contract characteristics 63
 Service provider landscape 64

Appendix 65
 Publicly announced FAO contracts in 2011 66
 Glossary of terms 69
 FAO research agenda 73
 References 77

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Overview and abbreviated summary of key messages
(page 1 of 2)

This report will assist key stakeholders (buyers, service providers, technology providers) understand the
changing dynamics of the FAO market and help them identify the trends and outlook for 2012. In this backdrop,
this report provides comprehensive coverage of the global FAO market including detailed analysis on market
size and growth, buyer adoption trends, FAO value proposition, contract characteristics, and service provider
landscape. Some of the findings in this report, among others, are:

Some of the findings in this report, among others, are:

Market size and  The global multi-process FAO market reached to US$3,8 billion in terms of ACV in
buyer adoption 2011 and overall spending (TCV) reached to ~US$32 billion
 2011 witnessed signings of 72 new contracts and 126 extensions/renewals
 The multi-process FAO market is still growing but at a slower rate when compared
to 2010
 The average contract size reduced in 2011 driven by the risk-averse and phased
approach of new buyers and increased adoption by mid-market and SMB
 Organic growth accounted for approximately 70% of the ACV growth in 2011
 FAO buyer adoption continues to diversify across industries, geographies, and size
of organizations

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Overview and abbreviated summary of key messages
(page 2 of 2)

Value proposition  Cost reduction is an important but no longer the only driver for FAO. Process
and contract excellence, standardization, access to technology and expertise, and greater focus
characteristics on core activities are other important drivers
 As the FAO market moves towards embracing a cost+ value proposition, solution
elements are changing too
 Beyond transaction-intensive processes (AP, AR, and GL), judgment-intensive
processes such as FP&A were increasingly included in FAO contracts
 The trend towards end-to-end solutions (P2P, O2C, R2R) continued to gain
momentum as opposed to a traditional piecemeal solution
 A more global delivery model is quickly becoming commonplace, expanding beyond
the traditional offshore/nearshore model
 While platform-based solutions witnessed significant increase, the technology
augmentation model is the prevalent approach

Service provider  Accenture, IBM, and Genpact together account for 50% of the FAO market (in terms
landscape of ACV)
 However, competition in the FAO market is intensifying. The market share of the top
three providers has reduced from 65% to 50% in the last five years
 Several FAO service providers had a strong 2011 performance
 As the competitive intensity increases in the FAO market, the need to create
differentiated offerings is extremely high
 2011 saw increased M&A activity from service providers

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Everest Group’s research is guided by a framework that
distinguishes multi-process FAO from single process finance
and accounting (F&A) transactional services
Strategy
Judgment-intensive
Transaction-intensive
F&A
strategy

Capital budgeting
Internal audit
Budgeting/forecasting
Treasury & risk management
FAO Management reporting & analysis
(multi-process) Regulatory reporting & compliance
Tax
F&A transactional
Fixed assets
services
General accounting
(single process)
Accounts receivable
Payroll Accounts payable and T&E1

 Everest Group’s analyses include multi-process FAO contracts with a minimum of two F&A processes,
over US$1 million in Annualized Contract Value (ACV), and a minimum contract term of three years
 Everest Group’s analyses include all FAO contracts signed as of 2011. The current sample set for the
report includes over 680 multi-process FAO contracts
Source: Everest Group (2012)

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This study offers three distinct chapters providing a deep dive
into key aspects of the FAO market; below are four charts to
illustrate the depth of the report
Components of FAO ACV growth in 2011 XX% YoY
Key drivers to outsource F&A
US$ billion growth Less important Moderately important Important Critical

Cost reduction
XX
Process
excellence
Consolidation/
standardization
Nearly 4% of Access to
Organic Inorganic
the contract technology
growth growth
value that Access to
contributed contributed
completed expertise
~70% to the ~30% to the
their term in
ACV growth ACV growth Ability to focus on
2011 was
in 2011 in 2011 core business
terminated
Competitive
advantage
2010 ACV Terminations Extension/renewals New contracts 2011 ACV

Offshoring/neashoring is a key component in F&A service Market share of top three FAO service providers over time
delivery strategy New contracts Extensions

Service provider A Service provider A
100% = 123,000 FTEs
Service provider B Service provider B
North America Western Europe

Central and Service provider C Service provider C
South America
Central and Service provider D Service provider D
Eastern
India Service provider E Service provider E
Europe
Tier-1
Southeast Asia
Service provider F Service provider F
India (Tier-1)

India (Tier-2)

South America
China

Southeast
Asia

North
America

Western
America
Eastern Europe

Central &
Central &

China
India Tier-2 Service provider G Service provider G

Service provider H Service provider H

Offshore/nearshore Onshore
Service provider I Service provider I

Source: Everest Group (year)

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FAO research agenda (page 1 of 4)

Published Current Upcoming

Topic Goals of the research Release date

The New Frontiers: Beyond the established locations that feature in most leading FAO service September-2011
Emerging Locations in providers’ global delivery network, newer locations are making their presence
the FAO Landscape felt on the FAO delivery map. This study evaluates the top five from such
locations and highlights the market state therein

Webinar Deck: Emerging Everest Group hosted a webinar, Emerging Locations in the FAO Delivery September-2011
Locations in the FAO Landscape – The New Frontiers. This report is the deck used during the
Delivery Landscape – webinar and discusses key findings from Everest Group’s latest study around
The New Frontiers emerging locations in the FAO delivery location landscape

2012 Market Predictions Everest Group's analysts have released their complimentary 2102 predictions December-2011
for key outsourcing and offshoring markets

Process Innovation in The increasing maturity of the global FAO market is driving innovation across January-2012
FAO – Emergence of multiple dimensions. These dimensions include changing value-lever mix,
"World-Class Lift-Shift- creating differentiated service offerings, targeting new market segments, and
and-Fix" Offerings evolving contractual design. Developing process innovation models and
frameworks to drive best-in-class performance emerged as one of the key
focus areas for most service providers in recent years. In this research study,
we analyze process innovation models and frameworks

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Industry-specific FAO While FAO is largely considered a horizontal BPO offering, in recent years, February-2012
and Deep Dive into the service providers have increasingly shifted their focus to specific industries,
U.S. Healthcare both in terms of service offerings and sales strategy, to drive greater
Providers penetration. This report investigates some such instances visible in the FAO
market and takes an in-depth look at one of the key industry segments –
healthcare providers

Achieving Best-in-Class As Business Process Outsourcing (BPO) matures, companies and service March-2012
BPO – Secrets Unveiled providers must look for the next source of value – labor arbitrage is important,
but not sufficient. In particular, the industry is seeking to create value
propositions that achieve cost savings while also delivering other sources of
value. The results show a vivid difference in the approach and mindset of
best-in-class

Making the Right Choice This research aims to compare Total Cost of Ownership (TCO) of Business April-2012
– How to Evaluate BPaaS Process as a Service (BPaaS) solutions with traditional BPO using a
Solutions? comprehensive financial model and create a comprehensive framework to
evaluate BPaaS sourcing

FAO Annual Report Overview of the overall FAO market in 2011 with size and growth of the Q2-2012
market, contract characteristics, value proposition, service provider
landscape, and market outlook for 2012

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Leveraging BPO to Drive Utilities and retail energy providers are facing myriad and rapidly evolving Q2-2012
Success in Utilities and challenges in the marketplace, such as increasing competition, disruptive
Retail Energy Providers technologies, regulatory pressure, rising consumer demands, and global
economic volatility. One of the business areas impacted by these market
forces is Meter-to-cash (M2C). This report examines the benefits of
outsourcing M2C, and the considerations necessary to develop a long-term
and constructive client-service provider partnership

FAO Service Provider In this research study, we analyze the fast-changing global FAO service Q2-2012
Landscape provider landscape and its impact on the FAO market. We focus on providing
a comprehensive analysis of the FAO service provider landscape along
multiple dimensions and assess service providers to position them in the
Everest Group PEAK Matrix

Profile 20+ established FAO service providers across various dimensions Q2-2012
FAO Service Provider
including overall revenues, FTEs strength, key delivery locations, FAO
Compendium
service suite, market positioning, overall FAO delivery capability assessment,
and Everest Group perspective on service provider

Unlocking Value From The BPO market is now in a mature state with a well-established value Q3-2012
End-to-End Process proposition and demonstrated service provider capabilities. As the value
Outsourcing: Focus on proposition expands beyond cost arbitrage to improving business outcomes,
Procure-to-Pay (P2P) buyers are considering an end-to-end approach as opposed to a functional
piecemeal approach. In this study, we investigate the business value and the
market state of an end-to-end Procure-to-Pay (P2P) process

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Unlocking Value From Traditionally, the FAO value proposition has focused on providing direct-cost Q3-2012
End-to-End Process advantage by outsourcing transactional processes like General Accounting.
Outsourcing: Focus on However, buyers are now willing to expand the scope to include end-to-end
Record-to-Report (R2R) processes like Record-to-Report (R2R) that impact metrics related to
business outcomes like efficient close cycle, fixing of bad debts, and
improving compliance. In this study, we investigate the business value and
the market state for outsourcing R2R processes

Unlocking Value From Everest Group analysis suggests that O2C is the single largest segment in Q4-2012
End-to-End Process the global FAO market, accounting for nearly 35% of the market size. O2C
Outsourcing: Focus on BPO services can help clients reduce revenue leakage, accelerate the cash-
Order-to-Cash (O2C) flow cycle, and limit bad debt expense – outcomes that clients are
increasingly demanding in the current economic scenario. In this study, we
investigate the business value and the market state of expanding beyond
Accounts Receivable to an end-to-end Order-to-Cash (O2C) process

Industry-specific FAO While FAO is largely considered a horizontal BPO offering, in recent years, Q4-2012
and a Deep Dive in the service providers have increasingly shifted their focus to specific industries,
Retail Industry both in terms of service offerings and sales strategy, to drive greater
penetration. This report investigates some such instances visible in the FAO
market and takes an in-depth look at one of the key industry segments – retail

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Additional FAO research references

The following documents are recommended for additional insight into the topic covered in this research report. The recommended documents
either provide additional details on the topic or complementary content that may be of interest

1. Industry-specific FAO and Deep Dive into the U.S. Healthcare Providers (EGR-2012-8-1-0650); 2012. In this study, we investigate the rising
industry-specificity in the FAO market. We focus on understanding the need for industry-specific FAO, service provider investment themes, and
industry-specific FAO in the U.S. healthcare provider space

2. The New Frontiers: Emerging Locations in the FAO Landscape (EGR-2011-1-R-0596); 2011. In this study, we analyze the emerging location
trends in F&A outsourcing market. We focus on value proposition of global sourcing in FAO, expanding FAO delivery footprint, and new FAO delivery
locations, with a spotlight on five emerging locations across the globe

3. Global FAO Service Provider Landscape - Competitive Intensity Driving Innovation (ERI-2011-1-R-0550); 2011.In this study, we analyze the
global FAO service provider landscape in 2010. We focus on relative position of 20+ service providers on the Everest Group PEAK Matrix for FAO, the
Star Performers of 2010, implications of increased competitive intensity, and how service providers are innovating to differentiate themselves in an
increasingly globalized FAO market

4. FAO Annual Report 2011 - FAO is Back!! (ERI-2011-1-R-0516); 2011. In this research study, we analyze the global multi process FAO market in
2010. We focus on market size and buyer adoption trends, FAO value proposition, contract characteristics across process scope, technology, global
sourcing, and pricing structures, service provider evaluation and relative position on the Everest PEAK Matrix, and 2010 FAO Market Star Performers
based on performance and capability building in 2010
For more information on this and other research published by the Everest Group, please contact us:

Saurabh Gupta, Vice President: saurabh.gupta@everestgrp.com
Abhishek Menon, Practice Director: abhishek.menon@everestgrp.com
Arpita Bansal, Senior Analyst: arpita.bansal@everestgrp.com
FAO Team: FAOresearch@everestgrp.com

Everest Group
Two Galleria Tower
13455 Noel Road, Suite 2100 Phone: +1-214-451-3110
Dallas, TX 75240 Email: info@everestgrp.com

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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 www.everestgrp.com
and research.everestgrp.com.

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