Financial Management Services and the rise of a new brand of insourcing

The past decade has been the heyday of the outsourcing model. Big corporates have been scrambling to find the best – and cheapest – way to manage non-core functions, and this has often meant enlisting the services of an external IT service provider or a call centre in Asia. The driver behind the outsourcing phenomenon is cost saving. For complex solutions that require expensive backup or technology, it has often made good financial sense to get the job done by “outsiders” rather than undertaking the expense of developing internal capacity.

Unlike highly “outsourceable” functions such as IT, financial management services have remained traditionally in-house. This is due to a number of reasons. First of all, the finance team is traditionally headed by a senior executive in the company, someone who is integrally involved in making decisions for the direction of the business. Financial management services and functions, while not core to the operations of the business, are integral to its ongoing health and functioning. High level financial information is also often viewed as sensitive, and executives are wary of allowing access and decision-making capabilities to those external to the business. And lastly, chief executives need to maintain a high level of control over financial management services, and keeping finance executives close helps them to do that.

Nevertheless, there remain compelling reasons for companies to consider bringing on external help, even in areas such as financial management services. Consider the following scenarios:

–          Your company is unable to justify employing a full time financial executive from a cost perspective but still needs the insights that such an executive offers on a regular basis.

–          A key financial executive has resigned and replacing them before the end of their notice period is almost impossible.

–          Your company is considering a new acquisition. You need to determine the long term financial health and viability of the venture you’re embarking on.

–          Your company is considering opening up a new branch in another country in sub-Saharan Africa. You need someone with the expertise and contacts in your intended destination to help negotiate contracts with suppliers and leases for office space.

In these and other scenarios, a trained financial expert would stand your company in good stead even if they aren’t a permanent employee — just as an external call centre might perfectly serve another set of needs your company has. But how do you strike the balance between getting the help you need and maintaining the levels of professionalism and confidentiality you seek?

Insourcing – the new outsourcing?

The answer is increasingly coming in the form of part-time finance executives. Corporates are tapping into a growing group of highly qualified and experienced financial professionals who are choosing to take on part-time, interim or consulting type roles rather than occupy fulltime senior positions.

Companies bring these executives on for ad hoc projects or on an ongoing, yet part-time basis. The executives are not seen as fulltime employees but have sufficient buy-in and depth of understanding of the business to function efficiently.

It’s part of a new trend identified near the end of 2012 by Deloitte referred to as “insourcing”. Apart from the obvious application of the word – where insourcing implies bringing in-house what was previously outsourced – it also speaks to the phenomenon of bringing a third party ‘outsourcer’ to work inside the company, such as the approach proposed for financial management services.

Insourcing ‘drivers’

According to Deloitte, there are three main drivers behind the movement. The first is an effort to improve customer service, the second is to gain greater control over functions that were previously outsourced, and the third is to reduce costs where outsourcing costs were higher than expected.

The part-time executive phenomenon responds to these needs as pertaining to financial management services. The company is able to keep a close watch on the finance executive by having them function in-house. Costs are simultaneously contained because the person is only paid for the time they spend at the company, rather than a fulltime senior executive salary.

Despite what may appear to be its initial counter-intuitiveness, the direction of current trends and existing business needs mean that the future of financial management services could well lie in the rising phenomenon of the so-called super-temp.

If you are looking for someone to fill such a role in your business, The Finance Team has a network of experienced finance professionals who can determine flexible solutions to help you meet such needs.