• Cognizant 20-20 InsightsHow High Technology Companies WillBenefit from Finance & AccountingBusiness Process Outsourcing ...
Beyond Transactional BPO                             Companies that partner with an F&A specialist                        ...
move onto the cloud model, companies will           5. Video Comes to the Fore. A number of forces   lose the choice to ad...
Economic Growth Returns     Global technology spend growth has already reached pre-recession levels of 5%.     The Q1 2011...
Revenue & Profit Increases; SG&A Remains Lean                 Apple, Google and Intel have performed exceedingly well on n...
into financial reporting, analytics, compliance         •   Automate record-to-report (R2R). Here, the                 act...
About the AuthorsPaul Nowacki, CFA, is a Global Leader in Cognizant’s Finance & Accounting Center of Excellence. Inthis ro...
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How high technology companies will benefit from finance and accounting business process outsourcing services


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Entrusting partners with processes such as F&A is a viable way for high-tech companies to begin reaping cost benefits and seizing innovation opportunities.

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How high technology companies will benefit from finance and accounting business process outsourcing services

  1. 1. • Cognizant 20-20 InsightsHow High Technology Companies WillBenefit from Finance & AccountingBusiness Process Outsourcing Services Executive Summary shaping the industry. The good news is that the industry appears to be recovering from the Few industries in the world move as quickly as global economic downturn. Yet some companies high technology. With so much of the industry are benefiting from the seismic shifts more than dominated by consumer electronics, product others. Entrusting partners with processes such lifecycles are short and the need to innovate, as F&A is a viable way for high-tech companies even dazzle, is intense. As in other fast-paced to begin reaping cost benefits and seizing industries, high-tech companies are under innovation opportunities. extreme pressure to balance costs, better match offerings to customer needs and optimize their Major Technology Trends supply chains. Technology producers need to find ways to continue to be efficient while also Five trends, in particular, are affecting high tech funding the required acceleration of innovation. and will continue to have significant impact on hardware and software vendors and providers — Leading technology companies are discover- and their customers — over the next year to 18 ing that having a third-party provide business months. These trends — tablets, cloud computing, process outsourcing (BPO) services is a profit- social networking, business analytics and video able way to achieve this balance. Using a provid- — are already having a major effect within and er for finance and accounting (F&A) processes, outside the high-technology industry, though they in particular, is often a starting point for technol- affect technology companies disproportionately. ogy companies that would like to explore BPO. High-tech companies need to understand how to supply — as well as use — these capabilities with Partnering with an F&A specialist improves the the available option of partnering with a trusted company’s focus on value-adding activities with service provider to handle processes like F&A. key managers and subject matter experts. BPO frees these individuals from routine activities so 1. Tablets and Smart Phones Become Enter- they can spend more time optimizing processes, prise Devices. Darlings of the consumer world, improving controls, analyzing costs, examining tablets and smart phones will come to redefine business trends and anomalies, and providing the corporate computing space. Employees are information and insight for decision-making. beginning to demand tablets in the workplace, which means IT departments will have to learn The technology industry is undergoing major to support and secure these devices. Despite changes, with a multitude of major trends these obstacles, a majority of business users cognizant 20-20 insights | july 2011
  2. 2. Beyond Transactional BPO Companies that partner with an F&A specialist find that they gain both capacity and improved Technology companies are beginning to seek focus on value-adding activities with their partners not only for transactional processes retained personnel (typically, key managers like invoice processing, but are moving to and subject matter experts). BPO frees these higher value processes as well. For example, individuals from the day-to-day grind so they we are currently working with an online can spend more time understanding how to advertising provider to perform analytics improve processes, improve controls, analyze and non-routine reporting. Sourcing these costs, analyze business trends and anomalies, processes from a third-party specialist not and provide information and insight. only helped the online advertising provider to reduce costs but also reduced its time to Seizing the Innovation Opportunity market, which in turn helped this company The technology industry is at an inflection serve its clients more quickly and efficiently. point, with a multitude of major trends Moreover, this company has also been able reshaping the landscape. Recent data show to make the new analytics available to its that the trends are measurable, real and sig- external clients, thereby gaining a new value- nificant. The good news is that analysis of the added marketplace offering. industry’s financial performance indicates High-tech companies are also partnering with recovery from the Great Recession. Yet third-party specialists on financial process clearly some industry players are benefiting redesign. We recently helped a prominent from the seismic shifts, while others are online search company assess and reengineer lagging. Entrusting partners with processes its F&A processes, including process mapping, such as F&A is a viable way for high-tech value mapping and process analysis. We helped companies to begin reaping cost benefits and the client globalize, standardize and optimize seizing innovation opportunities, enabling processes to improve both efficiency and effec- them to seize the high ground afforded by tiveness. The team identified potential savings rapid changes in technology that are forever of over $20 million per year. altering the way all companies do business. will have them in short order. In 2011 alone, computing will be the norm, according to over 12.5 million — 25% — tablets worldwide our research.3 Over 70% of the enterprises will be bought by enterprises, according to esti- worldwide will have adopted cloud-based IT mates from Deloitte.1 The rise of tablets and services in some capacity. To date, financial smart phones as corporate computing devices services companies have been the early is putting pressure on IT departments, as well movers with over 50% having adopted some as software security providers. According to form of cloud already.4 In three years, cloud numerous published reports, over 50% of com- adoptions will spread across geographies. puting devices sold globally in 2011 will not be Western Europe is forecast to be the second PCs. Over 1.39 billion mobile phones were sold biggest market after the U.S., according to in 2010 and the smartphone market is growing published reports.5 at over 43%.2 The rising popularity of feature- For technology companies, the move towards rich smartphones that are capable of mobile a cloud-enabled world means significant commerce presents a major opportunity for changes. One, there is an urgent need to companies that provide security technol- generate cash and funding, to enable the ogy and services as more corporate data and organizational infrastructure to move onto systems access moves to mobile devices. the cloud. The second, more important, piece2. Cloud Dominates the Delivery of IT Infra- in many cases is to deliver the company’s structure and Services. Cloud is a game product or service via the cloud. For many changer. It has already changed the way companies, this is an imperative, not a choice. companies consume IT infrastructure, applica- The third driver for adoption is to keep up with tions and business processes, and its influence the business ecosystem. As more and more will continue and accelerate. By 2014, cloud partners (customers, suppliers, competitors) cognizant 20-20 insights 2
  3. 3. move onto the cloud model, companies will 5. Video Comes to the Fore. A number of forces lose the choice to adopt or not to adopt cloud are driving video to the fore: everything from — rather, it becomes a question of how soon. digital photography, consumer electron- ics, social networks, mobile computing and3. Social Network Use by Business Will Evolve tablets to Internet-based television, interac- and Grow. Social networks will continue to tive customer support and interactive field rise in their sphere of influence and persua- service. Video, in fact, is taking a front seat sion. Indeed, social platforms are expected to for businesses to deliver product details, to grow by 33% in 2011.6 The next step, social net- showcase executives, and to explain their working analytics, will help businesses better services. Video will become a key component understand consumer trends and employee of corporate communication, both internal and behavior. Enterprises will start integrating external, allowing companies to cut corporate social networking with business applications travel budgets, and the opportunity is huge for as part of a coordinated strategy. They will also players in this space. reinvent their online customer communities to reflect new social media capabilities. Compa- Economic Agenda: Growth nies will use these platforms to engage with prospects, customers and interested parties to According to our research and analysis, growth better understand their needs. Companies will in global technology spending has already increasingly use e-communities as a platform reached pre-recession levels of 5% (see Figure for co-creation and co-invention with their 1). Technology companies’ first-quarter 2011 best customers. E-communities will also serve results have surpassed market expectations as a platform for employee collaboration as comfortably. The combined revenues of the company systems become further integrated top technology companies show 11% growth in with social networking capabilities. This evolu- 2010, compared to -0.4% in 2009.7 For full-year tion will provide a great opportunity for com- 2011 these companies are expected to grow panies offering both business-to-business and at 13%. 8 Innovators with clear competitive business-to-consumer collaboration solutions. advantage are the ones driving growth, rather than the traditional industry heavyweights4. Real-Time Predictive Analysis Will Drive (see Figure 2). Business Results. This is a most exciting time as far as analytics and data-driven decision Coming out of the recession, companies that making are concerned. Never in the history are leaders and innovators are focusing more of human existence has so much data been on top- and bottom-line growth, while spending generated. According to IDC, the amount of on sales, general and administrative (SG&A) data already exceeds the amount of storage. remains lean (see Figure 3). Apple, Google and This fact comes with its own opportunities Intel have performed exceedingly well on net and unique challenges. Decision-making is profit margins, due in part to their ability to fast moving from decisions based on samples manage SG&A expense. The implications are of data (how things happened in the past) to obvious: Technology firms need to find ways decisions based on real-time information (as to continue to manage costs and fund the things are happening today). Businesses will required acceleration of innovation. They need increasingly leverage analytics and social to generate cash to fund R&D and innovation, networking to make better-informed decisions, maximize value extraction from new product in the moment. development, and ensure product development Technology companies are in a pole position speed and efficacy. with regard to real-time data availability. As major technology and economic shift contin- The future of business analytics will turn on ues to unfold, high-tech companies face several companies’ abilities to simulate scenarios and strategic opportunities. To insulate against forecast results using live data, giving rise future downturns, they must create flexible to the ability to act much more quickly and business models. They can shield themselves proactively than before. The digital nature from talent shortages by accessing high- of the high-tech industry gives it access to quality talent and capabilities offshore. These immense amounts of data. Those companies activities will in turn help them cut time to that pioneer ways to incorporate that data market and increase productivity as well as into real-time actionable information will have reduce costs. huge competitive advantages. cognizant 20-20 insights 3
  4. 4. Economic Growth Returns Global technology spend growth has already reached pre-recession levels of 5%. The Q1 2011 results of tech companies have surpassed market expectations comfortably. The combined revenues of the top tech companies show 11% growth in 2010 compared to -0.4% in 2009. In 2011, these companies are expected to grow at 13%. Industry Revenue ($bn) Revenue Growth 800 2011E Overall Technology Hardware Industry 16% 700 Software Industry 8% Industry 600 Internet Industry 13% Hardware Industry 500 2010 400 Software Industry Hardware Industry 12% 300 Software Industry 6% 200 Internet Services Internet Industry 17% 100 Industry 2009 0 Hardware Industry 0.3% Software Industry -5% 05 06 07 08 09 10 E* Internet Industry 11% 20 20 20 20 20 20 11 Combined revenues of the top companies from each industry segment include: 20 Hardware – HP, Dell, Apple, Cisco & Intel. Software – Microsoft, IBM, SAP, Oracle & Symantec. Internet Services – Amazon, Google, eBay & Yahoo. * UBS analyst reportsSource: Company annual reports and 10-K filingsFigure 1Segmenting Tech Industry Growth Early adopters with clear business strategy are the ones driving growth; not the industry heavyweights. 35% Contenders Leaders/ Innovators 30% Microsoft Google $62bn $29bn Net Profit Margin 2010 25% Intel Net Profit Margin 2010 Oracle $44bn Yahoo $6bn eBay $9bn $27bn Apple $65bn 20% Cisco $40bn Laggards 15% Symantec $6bn IBM $100bn SAP $17bn 10% HP $126bn Amazon Dell $34bn 5% $53bn Slow movers Spoilers 0% -20% -10% 0% 10% 20% 30% 40% Revenue Growth 2010Source: Company annual reports and 10-K filingsFigure 2New Platforms for Innovation 30 new deals each year. Today, the technologyand Growth industry enters into 50-some new deals per year.9The technology industry is leveraging all formsof services delivery at an accelerating rate to As in other industries, most high-tech companiesrespond to these imperatives (see Figure 4). Ten used IT as their entrée into global serviceyears ago, the technology industry entered into delivery. Today, however, the technology industryroughly 20 new global services deals per year is increasingly adopting BPO for functionsaccording to our research. Five years ago, the such as finance and accounting (F&A), humantechnology industry entered into approximately resources and customer support. In addition to cognizant 20-20 insights 4
  5. 5. Revenue & Profit Increases; SG&A Remains Lean Apple, Google and Intel have performed exceedingly well on net profit margins; due in part by managing SG&A expense. Net profit Margin SG&A as % of Revenue 40% 50% 30% 40% 2010 30% 2010 20% 2009 2009 20% 10% 10% 0% 0 Microsoft Google Intel Oracle Apple eBay Yahoo Cisco IBM SAP Symantec* HP Amazon Dell Apple HP Dell Intel Google Amazon IBM Oracle SAP Cisco Microsoft Yahoo eBay Symantec *Symantec – Goodwill impairment charges have been discounted from 2009 profit Peer group average (2010)Source: Company annual reports and 10-K filingsFigure 3Dependence on Global Services Accelerates In ten years the technology industry has approximately tripled the number of new sourcing deals entered per year 2011E – 59 Deals 10 years ago the tech industry entered into 2010 – 47 Deals twenty-some new sourcing deals per year Citrix, EMC, Google, Intel, Lenovo, Microsoft 2009 – 57 Deals 5 years ago the tech industry entered into Dell, HP, Intel, Microsoft, Novell, SAP, Symantec thirty-some new sourcing deals per year 2008 – 50 Deals Cisco, Dell, Google, HP, Microsoft, Novell, Symantec, Yahoo Today the tech industry enters into 2007 – 42 Deals fifty-some new sourcing deals per year Dell, EMC, HP, Microsoft, Sun Microsystems, Yahoo 2006 – 44 Deals Apple, HP, Microsoft, NEC, Unisys Corp, IBM, Dell, Novell 2005 – 37 Deals AOL, Apple, EDS, HP, Microsoft,SAP America Inc, Sun Microsystems 2004 – 34 Deals Avaya, EDS, Fujitsu, HP, Microsoft,Sun Microsystems, IBM 2003 – 30 Deals Avaya, EMC, Gateway, HP, Microsoft,Novell, Unisys Corp, Yahoo, IBM 2002 – 28 Deals Apple , Borland, EMC, HP,i2, IBM, Microsoft, Oracle 2001 – 21 Deals AOL, CSC, EDS, Getronics, Apple, HP, Intel, Logitech, Microsoft Note: The list is not intended to be exhaustive but illustrative to show trendsSource: Cognizant research and analysisFigure 4having built offshore software development and more than $4.5 billion in 2011, according tomaintenance capabilities, technology companies Everest.11are buying specialized capabilities such asF&A and HR from third parties. While accounts Globalization of technology companies’ oper-payable (AP), accounts receivable (AR), fixed ating models through these partnerships is anasset accounting (FA) and general ledger (GL) accelerating and measurable response to theconstitute the majority of F&A outsourcing (FAO) current technology and economic trends. Tech-services, companies have started sourcing tax, nology companies are discovering that BPOregulatory reporting, internal audit and other in general, and F&A services in particular, cancomplex activities from third parties. be their pathway to creating an agile business model that promotes growth and innovationThis trend is gaining momentum outside of the while reducing costs.technology sector as well. BPO and FAO aregrowing rapidly across all industries. In 2011, Most companies begin their F&A services journeycross-industry BPO is expected to grow at over with transaction-processing work such as30% and FAO at over 20%,10 according to the accounts payable, accounts receivable, generalEverest Research Institute. The total contract accounting, fixed asset accounting and payroll.value of new FAO deals is estimated to reach As they get more comfortable, they expand cognizant 20-20 insights 5
  6. 6. into financial reporting, analytics, compliance • Automate record-to-report (R2R). Here, the activities and treasury work. goal is to automate the R2R processes that do not add value, such as manual journal pro- We have taken a unique approach to the three cessing and reconciliations. We use automated major aspects of F&A: tools, period-end close management tools, and • Commoditize procure-to-pay (P2P). P2P well-defined procedures, to minimize manual processes (including purchasing, accounts processing and improve process predictability payable and travel & enter- and visibility.Technology companies tainment) are typically highly Looking Ahead are discovering that manual, with few controls and Partnering with an F&A specialist brings an BPO in general, no end-to-end process tools We use state-of-the-art view. immediate cost advantage and capability and F&A services in with a goal of eliminating all improvement. This results from economies of scale gained by processing greater volumesparticular, can be their manual P2P work. than any individual company and core skill sets pathway to creating • “Verticalize” order to cash that includes a higher mix of experienced and (O2C). These processes (in- an agile business cluding order management, degreed personnel. The provider also does this work in a lower cost location, supported by a model that promotes invoicing, dispute management, larger investment in best practice researchgrowth and innovation collections and AR) tend to and technology. FAO also improves controls have industry-specific require- while reducing costs. ments and characteristics by providing improved separation of duties, better documentation of processes, docu- and are therefore best optimized using indus- mentation of performance levels, and higher try-specific best practices. We have industry levels of automation. In turn, this creates domain knowledge and expertise to provide better audit trails and visibility into the industry-tailored O2C solutions. processes, which gives insight that can be leveraged to optimize processes. Footnotes 1 Deloitte TMT Predictions 2011 2 IDC Worldwide Quarterly Mobile Phone Tracker 3 Cognizant research and analysis based on surveys by Sand Hill Group and Axios Systems. 4 Cognizant research and analysis based on IBM survey, “Dispelling the vapor around cloud computing in the financial services industry.” 5 IDC 6 IDC 7 Cognizant research and analysis based on data from annual reports of top hardware, software and Internet companies. 8 Cognizant research and analysis based on 2011 revenue estimates from UBS analyst reports of top hardware, software and Internet companies. 9 Cognizant research and analysis 10 Everest Research Institute and TPI 11 Everest Research Institute cognizant 20-20 insights 6
  7. 7. About the AuthorsPaul Nowacki, CFA, is a Global Leader in Cognizant’s Finance & Accounting Center of Excellence. Inthis role, he oversees all F&A service delivery for existing clients and solution design for prospects,worldwide. Paul also serves as a thought leader in F&A and helps identify market trends and shapenew Cognizant offerings. By combining industry experience in IT and finance leadership roles withexperience as a transformation consultant, Paul takes a holistic look at finance and accounting organi-zations, helping clients to optimize process, systems and organizational design. Paul can be reachedat Paul.Nowacki@cognizant.com.Imran Masood is Cognizant’s Manufacturing, Logistics and Technology BPO Practice Leader. He worksclosely with business leaders to help create innovative solutions leveraging Cognizant’s core strengthsof technology, industry best practices and process reengineering. Imran has over 12 years of pro-fessional experience in the areas of business process reengineering, operations delivery and rela-tionship management and has also worked with many Fortune 500 companies, helping them in theareas of shared services setup, offshoring strategy and process innovation with a special focus onmulti-location technology leveraged global environments. Prior to Cognizant, he worked at GeneralElectric, PepsiCo and Siemens. He holds degrees in management and electrical engineering and isa certified Six Sigma black belt and a project management professional. Imran can be reached atImran.Masood@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 111,000 employees as of March 31, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. Haymarket House #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA 28-29 Haymarket Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London SW1Y 4SP UK Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7321 4888 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7321 4890 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.