F&A outsourcing has come a long way. Clients are more demanding, suppliers are more responsive and there has been significant growth. Peter Scott from Alsbridge reflects on where the sector stands now.

Finance and Accounting (F&A) outsourcing is now acknowledge as viable option. Scepticism and doubt have been replaced with confdence and interest.

But there have been several false dawns.So how has outsourcing established itself as a credible and practicable option for F&A services? What can clients reasonably expect from a BPO supplier? And what does the future hold? There are three main reasons why F&A outsourcing has become a genuine alternative to in-house solutions.

1. BPO suppliers offer a credible and sophisticated service. Until recently, the main offering was straightforward lift and shift and the main benefit was cost reduction through labour arbitrage. For many organisations this was. and still is, a perfectly valid reason for outsourcing, especially where the client feels they have limited experience in the low-cost delivery location.

Now, BPO suppliers offer more. By developing repeatable processes, they have been able to reduce risk on transition and define and deliver a more effective service.

With the basics in place, development was the obvious next step. Now, clients stand to benefit from a more sophisticated service with a systems infrastructure for workflow and service management. In addition, experienced suppliers are more willing to share risk with clients, for example, around future pricing or productivity improvements.

For companies with US operations, complying with the Sarbanes-Oxley Act (2002) became a key consideration. Outsourcing suppliers have risen to the challenge of compliance, for example, through SAS70 certification.

The result? Potential clients feel less like pioneers: they can be confident that F&A outsourcing has a risk profile no F&A outsourcing has a risk profile no in-house development of shared services.

2. Clients are becoming more ambitious, but not unrealistically so.By striving for the best outcomes, clients are driving improvements. Today, suppliers are committing to achieve and maintain world-class standards of performance, as defined by external benchmarks. That's great for everybody, providing the goals are achievable.

Clients have become more realistic about what suppliers can deliver: and better at recognising that if a proposition looks too good to be true, it probably is.

In addition, we are finding that clients have a better understanding about the effort they will need to put in to make the deal work. Outsourcing contracts still require management - to monitor processes and communicate changes in the business to the supplier.

3.Experience has refined the product and the process.Experience has created a critical mass of knowledge in the market. Supplier willingness to develop services and client demand for ambitious targets have pushed the outsourcing industry forward.

The trailblazers have established what works, through trial and, sometimes, error. Although this does not eliminate the chance of over-promise and underdelivery, it does mean that with due care and diligence, deals will work.

So what does the future hold for F&A outsourcing?

There will be a breakthrough with 'ondemand' outsourcing systems.'On-demand' outsourcing systems are beginning to make their mark in the SME market and that looks set to grow.

Essentially, clients will treat the service like a utility, accessing standardised systems. Pricing mechanisms will reflectsystems. Pricing mechanisms will reflect input by the supplier.

Suppliers will become more flexible.We will see suppliers becoming more flexible about the deals they will take on,both in terms of size and configuration.

For example, suppliers could exploit their core competencies by building a centre, recruiting staff, performing the transition work and then allowing the client to run the new facility. Effectively, the client directly oversees the staff employed by the supplier, addressing concerns about loss of control. Clearly, not all suppliers would want to do this but a market exists for those that do.

I have avoided mentioning transformational deals as a trend on purpose. These deals are where the supplier takes on responsibility for a significant amount of change, be it process or Enterprise Resource Planning (ERP) and for delivering the associated business benefits. The jury seems to be well and truly out on these arrangements. Do they deliver value? Can they be contracted for properly? What happens if they go wrong? Are they just too complex? We'll see.

F&A outsourcing has, undoubtedly, changed: clients and suppliers are more knowledgeable: more sophisticated services have evolved and there has been significant growth.

But the key lesson is that there are no magic solutions or shortcuts to success. The companies that have benefited the most have almost certainly invested the most time and effort in their deal.