Rethinking your problem – cost reduction and performance improvement

Today more than ever, Chief Financial Officers (CFOs) are expected to be more than just “numbers people.” Unless you’re in a time warp, Finance leaders are diversifying rapidly, moving out of pure Finance towards performance enhancement and business growth. Companies and their Boards want their CFOs to be tactical business partners and key drivers of organisational strategy.

While organisations attempt to remain competitive (and grow), deliver shareholder return, and innovation is genuinely being encouraged; company Boards are scrutinising costs more closely than ever. It’s perhaps not surprising then, that in a recent survey by Deloitte, 45% of CFOs admitted costs are the factor posing the most significant risk to their companies over the next year.

Labouring Over Labour

A large part of a CFO’s success depends on the quality of their Finance team. But globalisation, the rise of millennials, and general market developments mean the labour market is under pressure. It’s becoming harder and harder to find or replace top talent or niche skills.

Building a team of people with the right mix of skills and experience is critical. But finding and hiring people like this takes time and, more crucially, money. This impacts productivity, and limits the ability to expand and delivery customer benefits.

This is a particularly common problem in developed economies such as Australia, United King and parts of Europe, and North America. In these locations, labour costs are very high, and there are talent shortages. In addition, many companies are protective of their current employment practices, and are slow to accept change, persevering with rising costs and under-performing functions across their business.

Reshaping the Problem

For many companies, offshoring offers a genuine solution to these, and other, problems. They’ve found the practice has delivered effective cost and performance improvements, resulting in significant savings without sacrificing productivity. In fact, driving productivity gains through the ability to enhance services, and hire ahead of the curve.

For many other organisations, however, the concept of offshoring is still misunderstood and for some, frowned upon. There is a widely held belief that it causes cultural disruption, and problems with communication due to language and other perceived differences.

Essentially, there are four areas you should explore when considering an offshoring program. These are:

1. Cost reduction

This is an obvious focus, with executive and Boards placing increasing pressure on their Finance teams to achieve tighter and tighter financial objectives. With a 70-80% reduction in the cost of like-for-like staff, when comparing the Philippines to Australian Finance staff, there are naturally huge opportunities to explore. This is only the tip of the iceberg, but an obvious component of your business case.

2. Capability and scale

Talent shortages and financial pressures make offshore recruitment an attractive option. For some companies, this is often the only way to remain viable in the marketplace. In addition, many organisations are seeing the building of an offshore model as a way to increase customer engagement through enhanced services.

3. Focus on high value

Onshore talent often has much of their day taken up by administrative or lower value tasks. We are in an era where the ‘business partner’ is highly valued. Yet, despite this, organisations frequently fail to create an environment favourable to the growth of business partner functions.

The cost of hiring an offshore employee to take on these lower value tasks could be the same as a more senior business partner’s annual bonus. When you look at it like that, it’s not hard to see why offshoring is directly linked to cost-effective performance improvement.

4. Innovation

Finding talent in offshore environments enables many companies to offer new services or solutions for their clients, and this is often the overlooked opportunity in most businesses. This not only becomes a “value-add” for the client but potentially a new potential revenue stream. Ultimately, it’s lower risk, low cost innovation that may never be available onshore. Many examples of this can be seen in financial modelling, engineering, technical functions and other customer engagement or customer experience-based functions.

Getting It Started

Many companies like to start small, to see how the model works for them and increase engagement over time. Once they are happily established, however, and have seen for themselves how well it works, most adopting organisations accelerate their offshore expansion process and explore offshore innovation opportunities with more confidence.

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