While 75 percent of U.S. and European multinational companies use outsourcing or shared services to support their financial functions and will continue to do so over the next 12 to 24 months, less than half consider outsourcing to be cost effective, according to a survey by PricewaterhouseCoopers.
Among European multinational companies, 72 percent have outsourced financial functions over the past two years, compared with 77 percent in the U.S. In addition, 71 percent of European companies and 78 percent of U.S. companies plan to use these services in the next 12 to 24 months.
However, according to the PwC survey, 31 percent of companies see limited or very little benefit to outsourcing, 9 percent feel that they are breaking even, and 4 percent believe that they are losing money, but are achieving other benefits. The survey is based on responses from chief financial officers and managing directors of 127 Europe-based companies and 151 U.S.-based companies.
Nearly half (47 percent) of combined U.S. and European executives who've outsourced financial functions say that their company has been saving either a moderate amount (44 percent) or a great deal (3 percent).
Overall, PwC said that 29 percent of U.S. and European companies expect to increase their use of outsourcing of financial functions, with spending expected to be nearly 16 percent higher than current levels.
While U.S. and European executives agree that outsourcing or shared services are important to growth, they are divided about their effectiveness. Thirty-eight percent of Europeans report the benefits their company derives from outsourcing are better than initial expectations, 46 percent rate them about on par, and 8 percent rate them worse. Among U.S. executives, 20 percent believe that the benefits are better than expected, 61 percent rate them on par, and 10 percent consider them worse.
The survey also showed a marked difference in the financial functions that these multinationals have or are planning to outsource. In the U.S., the top two outsourced financial functions are payroll/billing/accounts payable (74 percent) and benefits/claims administration (70 percent), while in Europe, the top two functions are information technology/systems support (70 percent) and tax services (59 percent), with payroll/billing or accounts payable services trailing (48 percent). Overall, PwC said that use of IT/systems support is higher in Europe than in the U.S., as are accounting services and human resources/hiring. European companies, however, make far less use of most other outsourcing services, including payroll/billing/accounts payable, benefits/claims administration, internal auditing, and risk management.
European and U.S. executives also disagreed on which financial functions have reaped the greatest benefits from outsourcing. A majority of Europeans gave ratings of "highly effective" for security/privacy; timing/timeliness; advisory competencies; competence of outsiders; control; and compatible IT/systems support. But only 40 percent described cost savings benefits as "highly effective," versus 38 percent "mixed," and 9 percent "less than effective." A majority of U.S. executives rated security/privacy; control; timing/timeliness; and ability to deal with compliance issues "highly effective," while overall quality and cost-saving benefits received mixed ratings.
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