Why are CFOs talking about managed services again?

When Chief Financial Officers start talking about a new way of working, everyone in the finance function should be listening. Good news, you’ve come to the right place to find out exactly what’s driving this resurgence of interest in managed services, and how they apply to the finance function.

Managed services and managed service providers (MSPs) are nothing new, the term “managed service” having been coined in the 1990s, but they have evolved in scope and relevance to business needs.  In the early days, managed service providers sprung up alongside application service providers (ASPs).  The key difference between these was that MSPs focused on the delivery of skills and services (underpinned by technology) whereas ASPs focused on the delivery of software applications.  It’s not hard to see that ASPs were a forerunner of Software-as-a-Service (SaaS).

There are parallels between the popularity of IT managed services and remote computing.  Consider the shift from terminal and mainframe (1990s) to fully in-house IT systems (early 2000s), before the rise of cloud infrastructure (over the last 15 years).  MSPs lost out as businesses brought teams in-house, but the pace of technology change has made it increasingly challenging to keep in-house teams up-to-speed with the combination of technology and skills needed to maintain a competitive advantage.

Business consultancies boomed in the early 2000s as enterprises sought external wisdom and technology best-practices to accelerate their performance, but consultancy moved from one-off fixes to long-term partnerships as businesses realised the value of ongoing and iterative support.

Businesses may have been willing to leverage cloud-based solutions and remote consultancy, but some critical business processes were seen as having to remain in-house, including the vast majority of financial processes, or surely they would fail from a security and performance perspective.

And then, the COVID-19 pandemic shook everything up.

The pandemic showed even the most office-centric businesses how remote working and delocalized teams could be successful, often more efficient than office-based workers. Many businesses switched to hybrid working in the long term as a result.

So, if your own accounting teams can work remotely, what are the barriers to supplementing and extending these teams with a managed service?

The great resignation and ensuing recruitment crisis has driven businesses to seek out new ways to do more with less, as they struggle to recruit and retain the skills needed for a wide range of roles.  Businesses are once more looking at managed services as a solution, but beyond their originally limited scope.

Relaxing the need for in-house and on-premises

Cloud computing changed the business mindset of having ”everything under one roof,” and remote working has pushed this further.  Businesses are now more confident with cybersecurity to support offsite processes.

Data centers are off-site by default these days, leveraging economies of scale for resource sharing, cooling and management. Cloud computing has transformed information technology delivery, proving secure real-time connections to cloud resources can sit at the heart of business-critical processes. So why has it taken a pandemic and enforced remote working to shake up the delivery of financial processes?

It wasn’t just the physical security of having teams working in line-of-sight at company desks that executives craved. There’s something unnerving about an off-site team handling business-critical processes, isn’t there? Or is there?

Well, let’s think about all those sensitive documents that are delivered by post.  That’s a fair bit of trust that’s placed in an outside agency.  And financial processes have always worked closely with banks and other financial service providers to handle the flow and investment of cash – pretty fundamental to a business’s well-being.

So, just as it’s been acknowledged that the speed of technology change makes in-house technology ownership expensive and onerous, now comes a dawning realization of the many benefits that managed services can bring to financial processes – particularly those underpinned by complex technology.

The growth in managed services

In recent years, the popularity of managed services for businesses has grown significantly. Companies of all sizes and industries are turning to managed services providers to handle their IT, security, and financial needs, among others. Managed services provide companies with a cost-effective and scalable solution that allows them to focus on their core business activities.

One area where managed services are now gaining ground is in financial services, specifically accounts receivable and accounts payable.  Managed financial services providers offer businesses a variety of services, including invoice processing, payment processing, and cash application. These services help businesses improve their cash flow, reduce errors, and streamline their financial operations.

According to a report by MarketsandMarkets, the global managed services market size is expected to grow from $242.9 billion in 2021 to $354.8 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 7.9% during the forecast period. The report cites several factors driving the growth in managed services, including the increasing adoption of cloud-based services, the need for businesses to reduce costs, and the growing complexity of IT infrastructure.  The report indicates that nearly 70% of the enterprises are reaching out to MSPs to fill cloud IT skill gaps.

Managed services for finance leaders

Finance leaders are now waking up to the idea of supplementing their finance team with managed services. The business model that has worked so well for IT services is now being used to fix resource gaps as finance teams struggle to recruit and retain the skills they need in-house.

With competitive advantage in financial management increasingly reliant upon technology investment, managed service providers who can deliver people, processes, and technology as a package have a strong appeal.

Risk management is incredibly important to finance leaders, so the selection process and service level agreements (SLAs) with managed service providers need to be carefully managed. But, the credibility and experience of providers such as Corcentric makes this easier than ever.

Just as every supply chain partner needs to be carefully vetted for reliability, security, and now ESG credentials, managed service providers should meet a long list of suitability criteria for your business. Efforts previously spent on recruiting the right teams and investing in the best technology can be redirected to the task of evaluating managed service providers, to identify those likely to make a bigger and more sustainable impact on business performance.

One example of a company that has seen significant benefits from managed services is PepsiCo. In 2017, the company entered into a multi-year agreement with a managed financial services provider to support their accounts payable and receivable processes, including invoice processing, payment processing, and cash application. The partnership has helped PepsiCo streamline its financial operations, reduce costs, and improve its cash flow.

Another example is United Parcel Service (UPS), which partnered with a managed services provider to help automate its accounts payable processes. The company was processing more than 70,000 invoices each week manually, leading to delays and errors. By outsourcing its accounts payable processes, UPS was able to improve its efficiency, reduce its processing time, and free up resources to focus on other areas of its business.

Technology-empowered CFOs

CFOs were previously beholden to strategic decisions about new technology investments for business process improvements being made by CIOs.  But as CFOs have become increasingly tech savvy, many realise that the old arguments for building technology solutions in-house, or investing in SaaS and having IT spend months implementing it, were driven more by the IT department’s desire for control than valid security and ownership concerns.

CFOs are now often empowered to make these strategic decisions for themselves, so are ready to leverage managed services to remove the traditional delays, costs, and headaches of initiatives getting bogged down in an ”internal IT project.”

As the C-Suite look to CFOs to provide carefully informed decision-making for business success, finance leaders need to invest heavily in technology-driven solutions that measure the right metrics and monitor the KPIs needed to optimize business outcomes. This investment in technology simply cannot afford to fail, so managed services are seen as crucial to deliver solutions that quickly bring value to the financial process, without the delays, overheads, and risks of an internal IT project.

Without wanting to sound negative, it’s well documented that big internal IT projects are far more likely to fail than succeed.  Take a look at this 2021 Forbes article for some sobering stats – highlights might be the suggestion that 90% of IT projects fail to deliver any ROI, or that only 30% of digital transformation projects yield improved performance. It’s not hard to see why CFOs are looking to expert partners as a more guaranteed way of delivering technology-intensive transformation to their financial processes.

Why wait? Your time is NOW!

Bringing a managed service provider onboard requires little more to get started than a few discovery meetings, a supply of financial data, and a means of interfacing with your ERP system (which can be as simple as an import/export process, rather than full integration).

The managed service provider should be able to quickly identify and commit to short-term cost savings and operational efficiencies that ensure a rapid time-to-value. Longer-term ROI goals are then funded by these short-term savings and approaches to liberating working capital. A managed service provider should present a strategic partnership for the long term, without the need for up-front investment.

There are more and more examples of managed services delivering business outcomes beyond the traditional scope of IT services. Finance leaders who are slow to incorporate managed services are missing out; do you want to fall behind with them, or would you rather seize the competitive advantage?

Let us show you how quickly you can benefit from managed services in your business today— talk to one of our experts to learn how Corcentric provides managed services for some of the world’s most successful businesses.