Harnessing the global village

Making sense of outsourcing

Accepting, if you will, that compliance work is being commoditised and the price that clients are willing to pay for it is being driven down, it becomes clear that accountants must look elsewhere for revenue.

Rajesh Venkat, chief executive officer of outsourcing specialists Sundaram Business Services, says the answer is in advisory services. Australian accountants, he says, should use this change in compliance as a catalyst to reposition themselves as a business adviser rather than a compliance practitioner. And, of course, outsourcing can help.

“There is a strong correlation between face time with clients and revenue from clients,” he says.

“This applies to people at any level – partner level, consultant level. The more time that such people spend with their client, the more revenue they are able to grow.” Mr Venkat says that the

nature of compliance work and the fact that it requires a lot of time and effort, for what is clearly a diminishing return, provides a strong case for firms to outsource this lower value work and concentrate on higher value services.

“Accountants are never able to spare enough time to be with their client and that becomes a bottleneck to growth. One of the things an outsourcing solution like ours will offer is that it frees up time in Australia for accountants to take on client facing work and work of a more analytical nature.

“Ideally, an accountant who works with a small business will add a lot of value to that business. They can advise the business owner on how to manage the finances on their investments or how to manage profitability. Accountants never end up having time to do this, though, because they’re too busy with the transactional work,” says Mr Venkat.

While this all sounds great in principle, though, some accountants remain sceptical.

A couple of concerns

Some would have accountants believe the case for outsourcing is clear cut, but many firms still refuse to engage in the practice. Some accountants aren’t convinced; time and time again they argue that they just can’t trust the security of data.

Mr Venkat vehemently denies that outsourcing to a reputable third party is a security risk. “Entry into our offices has biometric restrictions. Only by using a thumb print that is pre-recorded in our database

can anyone get into the office,” he says, proud of his firm’s security credentials.

“All employees can only bring company issued devices or mobile phones into the office. They can’t bring in their personal devices; they have to deposit them outside. There are CCTV cameras all over the building, with complete coverage of every part of the office – and it’s a paperless office. We do random walk throughs and if we see paper lying around we confiscate it and destroy it. Someone is held accountable for why that paper was there.”

Mr Venkat stresses that operations like his own in India have some of the most strict security protocols

around the world – not only in terms of physical security, but cybersecurity too. “Apart from all the physical security around the premises, we have some fairly robust mechanisms to make sure information security is in place and we test them often. The testing is usually done by third parties who do these certifications. They try to breach the information security and they try to penetrateour barriers. Only if they cannot successfully penetrate the barriers do we get certified,” he says.

It’s clear that security is a big priority for outsourcing providers. It’s not just security that concerns accountants, though; it’s also quality. Firms have long traded on their quality of service, so to hand their cornerstone compliance work to a third party is a huge gamble in the eyes of many practitioners.

Again, Mr Venkat says outsourcing providers understand this concern, going above and beyond to ensure that all their work matches the quality guaranteed. In fact, he says, due to the process heavy nature of the work, third party providers can often deliver higher quality results.

“Our staff are accountants and they understand accounting well. They understand Australian accounting well,” Mr Venkat insists. “We have been doing Australian accounting since 2004. Many of our staff travelled to Australia and trained there in the early days of the business. “Now we have a fairly large

pool of people with a good understanding of Australian accounting. We have our own

training programs, our own training manuals and we train people internally using that. We have some robust process documentation … we document all of our processes, we document how we approach our work and we put that together in our training documents.”

Andrew Noble of AccSource, another offshore outsourcing provider, says it was actually a need for quality outsourcing work which drove him to create his current business.

“Managing quality, that’s actually the reason that I wanted to set up our own platform,” he says.

As a member of the IPA with a Perth-based practice of his own, Mr Noble decided to outsource some work overseas and set out to find the right people for the job. “I experimented with a bit of bookkeeping stuff out of India. That was in the early days, when the whole concept had just become apparent to early adopters. Throughout that early trial phase, I had some positive and negative experiences,” he says.

“The positive side was that, as long as your infrastructure was set up correctly, it seemed that it was easy enough to get someone overseas to log in and do some work for you. The negative parts were that it’s actually quite difficult to control and manage people overseas; and also quality was probably inconstant.

“What I found when using people ad hoc overseas,” adds Mr Noble, “was you don’t get any control over quality. You don’t have a management team over there and you end up with quality that’s up and down. “You lose confidence in the personnel that you’re dealing with,” he says.

And so, after learning from this first foray into outsourcing, Mr Noble decided to set up his own outsourcing operation in India, keeping in mind the positives and negatives he had already experienced. His goal was to commit to quality.

“I came across some guys in Chennai who were at the time working for KPMG and they were keen to join me on a journey to put a platform together. We secured a couple of accounting firms in Perth to help fund the setup of the operation and provide the early work.

“We had three firms and two guys from Chennai who helped us set up our own team. That is still the backbone of what we have today. We have the same two leaders over in Chennai but now with a team

of 70. Obviously, we are not just providing services to those three original accounting firms.

“We have been marketing ourselves a little bit more broadly and we are now providing services to accounting firms across the country.”

Firms demand a certain level of quality and without having the right team in place that’s very difficult to achieve. It is clear, though, that a reliable outsourcing operation can develop a loyal client base. Mr Noble credits the stable base of AccSource’s Indian operation for the firm’s enduring success. “It’s not the one or two people you hire that are important. It’s the people around them, who are there to motivate and quality control,” he says.

A different path

So far, this article has focused on outsourcing compliance work to facilitate the shift to advisory, but it’s worth digressing a little to consider other benefits. If the aim of outsourcing really is to free up capacity within a firm, then it’s worth looking at what else is out there; for example, the outsourcing of debtor management.

Debtor management has long been a thorn in the side of accountants, not least because it can be an uncomfortable conversation to have with clients, but also because it can be a time consuming process.

David Birch from SmartAR, an outsourced debtor management company, says around 70 per cent of the company’s clients are accounting firms.

“I’ve been working with accountants for a long time,” he says. He puts the profession’s poor debtor management down to the personality type of the typical accountant and the hectic schedules usually enjoyed by those in the profession.

“The relationship tension that’s involved with a debtor call isn’t something they feel comfortable with. The busy person will put it off and then all of a sudden it becomes a bit of aproblem. “We think debtor management suits outsourcing in much the same way as mowing your lawn, cleaning your gutters or cleaning the windows suits outsourcing. It’s not a pleasant job and sometimes you need someone with

specialist skills and equipment to do it efficiently. Why wouldn’t accountants outsource their

debtor management?”

The biggest concern for accountants with this type of outsourcing seems to be management and control.

Accountant’s debtors are their clients, and that is an incredibly important relationship to put in the hands of someone else. However, Mr Birch says that with carefully designed processes and carefully managed client communication, it is easy to allay accountants’ fears.

“We give them weekly, monthly and quarterly reports, so they can manage our services. For some accounting  firms, and I’m sort of typifying the IPA membership as smaller  firms, giving up the control of actually doing something, but retaining the necessary control to manage it, is one of the

biggest challenges.

“With us, they’re still in charge but we are doing the heavy lifting. Once they get the idea, they love it. They absolutely love it,” says Mr Birch. What’s more, he adds, it’s not just their own time that accountants can save.

“Our average KPI for March through to December last year was a 15 day reduction for new

clients,” he says. “Someone who joins us with debtor days of 70 will have debtor days of 55 after 90 days.”

The final say

Of course, the final say in a firm’s decision to utilise outsourcing in any form comes down to its own principles and partners. Some practitioners need to feel in complete control and won’t ever outsource

work, but for others it may be worth considering.

The industry is changing and firms need to adapt, but no single strategy will lead to success for all. However, there are options that accountants can and should explore to drive their firm forward in the new accounting environment. And, for some, outsourcing may be one of them.