Gartner Predicts by 2025, 60% of Finance and Accounting Outsourcing Contracts Will Not Be Renewed

Finance and accounting (F&A) organizations will not renew 60% of their existing business process outsourcing (BPO) contracts by 2025 because of outdated pricing models that do not drive digitization and process improvement, according to Gartner, Inc.

Gartner analysts discussed today how finance leaders can ensure sustained value from their outsourcing partnerships during the Gartner CFO & Finance Executive Conference, taking place virtually, May 25-26.

“The era of headcount-based BPO, where the cost is calculated based on the number of full time equivalents (FTEs) needed to complete the work, is becoming obsolete in an age when conducting finance processes efficiently is not reliant on large pools of labor,” said Sanjay Champaneri, research director in the Gartner Finance Practice. “Automation efforts have resulted in fewer, or no humans, required to deliver the work.”

BPO providers have invested in capabilities that allow them to reposition themselves from just a delivery model service for transactional activities with partial automation to one that can meet finance buyers’ objective to become digital.

These providers have several advantages when it comes to effecting successful automation initiatives: Economies of scale, large volumes of transactional data and global access to digital talent in the form of software engineers and data scientists. But providers who do not flex their pricing model accordingly will find themselves losing out to those who do (see Figure 1).

Figure 1. Pricing Models for Sourcing Objectives

“Buyers are motivated to remain committed to automation roadmaps implemented by the provider because of the opportunity to move to a volume-based pricing model, which is competitively priced and offers greater transparency on the calculation of costs,” said Mr. Champaneri. “However, buyers who feel they are not reaping the right productivity gains from their automation progress will seek alternative pricing structures from new providers.”

Consolidation

Another large shift that Gartner predicts in this market is that by 2023, 40% of finance organizations will consolidate to a single outsourcing service provider for all F&A operations, up from 24% in 2019.

“2020 was an extremely disruptive year and broadly speaking we saw two outcomes for BPO partnerships,” said Mr. Champaneri. “The BPO providers who relied heavily on processes conducted by headcount passed on their disruption to their clients. The second outcome saw where much of the workflow was automated, and it maintained stability in processing cycle times and productivity.”

Automation was a key differentiator during the pandemic. As F&A clients begin to leverage new technologies that automate complex, dynamic processes requiring human judgement using a combination of automation tools, they will aspire to a state that Gartner calls “hyperautomation” and the ability to enable this will be a key differentiator among BPO providers in the contract selection process.

“There is a network effect with automation, and the more disparate F&A processes that can be consolidated into a single interconnected automation initiative, the greater the potential gains are,” said Mr. Champaneri.

Gartner clients can read more in: Market Guide for Finance and Accounting Business Process Outsourcing.

Non clients can learn more here: Digital Future of Finance.

CFOs and finance leaders can participate in Gartner research and get complementary access by joining the Gartner Research Circle.