Proactive, progressive finance functions, not only react to events, but tend to be in a state of continuous development – transforming their businesses on an ongoing basis in order to be optimal and effective, responsive and adaptive.
The move towards outsourcing
Central to this continued transformation can be the decision to make changes in-house or to outsource or co-source using external service providers. Often that decision is driven purely from a business improvement perspective – but there can be also a cultural preference toward outsourcing or doing things in a different way but still in-house.
The decision to outsource might also be temporary, where clients ask service providers to build and operate the function for a period of time and then transfer it back to them – the “build-operate-transfer” (BOT) model.
As highlighted in the 2020 EY Tax and Finance Operate survey, the amount of pace and change affecting tax and finance operations is relentless. In response to this challenge, 73% of respondents to the survey said they are more likely than not to co-source some critical activities in the next 24 months in order to add value, reduce risk and decrease cost.
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While the benefits of outsourcing are largely well understood, it is worth considering some aspects with specific regard to building resilience.
The flexibility to scale a particular operation up or down depending on changes to the environment is significant. The need to bring people in when the workload increases and to downsize a team when required is considerably easier when outsourced, as there typically aren’t issues around onboarding or making redundancies. Aligned with this is the expertise that the people bring – having the right people in place at the right time, as and when needed.
Likewise, as the finance function is increasingly driven by technology, there are benefits to be had from utilizing a service provider that can not only provide the required technology now but who can tailor it to meet a specific finance function’s requirements, as well as upgrading it to meet any changes. This can be a more substantial challenge when building the technology internally.
For countries operating across borders, when launching new ventures or projects the decision may be made to outsource the finance function in a given jurisdiction. The reasons for this can vary significantly – the project may be temporary, for instance – but there are distinct benefits to be had from local knowledge and relationships that external providers have already established with the tax authorities and financial regulators.
While these reasons are by no means exhaustive, they are particularly pertinent when dealing with unforeseen issues or when swift changes are required.
Outsourcing through a COVID-19 lens
When viewing the above in light of the COVID-19 pandemic, and other external events, it is easy to see the benefits of outsourcing. The ability to increase or decrease the size of teams has been pivotal to many finance functions meeting the crisis head-on. Having the technology at their fingertips to navigate the crisis has also been critical.
And notably, as governments in jurisdictions around the world imposed different restrictions at different times and are now, subsequently, easing lockdown at varying speeds, that local knowledge will be absolutely fundamental in ensuring compliance with regulations and enabling flexibility as the circumstances change.
Significantly, if working with an outsourcer who has both a global and local presence, the finance function has more visibility across operations at both an international and domestic level. And businesses don’t have to concern themselves with whether their teams are in place and have the right infrastructure, because all of that is taken care of.
And the ability to do all of this at speed has been absolutely critical in navigating the crisis as effectively as possible.
Building a resilient finance function
The COVID-19 pandemic has created an unprecedented shock to global business, but it has also presented finance functions with the opportunity to learn lessons and build for the future. It is vital that finance leaders gain the insight to know what changes to implement and make sure they find whatever positives they can. This is equally true of any future external or internal change that the function undergoes.
In its simplest form, this will include an analysis of which areas of the finance function operated efficiently and those where there was friction – what worked and what didn’t. It is this analysis that will inform effective and continuous transformation.
The COVID-19 pandemic has created an unprecedented shock to global business, but it has also presented finance functions with the opportunity to learn lessons and build for the future.
More significantly, when making decisions in response to an event or change, it can be tempting to take the short-term view and simply resolve the matter at hand. But, where possible, any changes to the finance function should be made with a long-term view, so that what is implemented now doesn’t have to be reinvented further down the line. And with people working remotely both at home and in terms of global mobility, the digital dimension will be central to future change.
It has always been key to flex the structure of the finance function against the ever-changing legislative, digital and talent landscape and to balance insourcing and outsourcing. This is going to be truer than ever going forward.
Summary
The COVID-19 pandemic has highlighted the need for finance functions to be proactive in their transformation, and take the long-term view when choosing to do this with external partners or in-house. Taking such a dynamic, future-facing approach will lead to business resilience and continuity.
