FAO Suppliers Turn To M&A To Boost Tech Capabilities: Everest

Competitive intensity between Finance and Accounting Outsourcing (FAO) suppliers is spurring increased focus on technology-led solutions as a point of differentiation, leading toward M&A and partnership activity to expand capabilities as well as pioneering of platform-based approaches, according to a study of the FAO technology landscape by Everest, a global consulting and research firm. While the top five suppliers (Accenture, ACS, Capgemini, Genpact, and IBM) account for almost 70 percent of the FAO market, the major contenders (including TCS, Infosys, Wipro, and WNS), which accounted for 55 percent of new contracts signed in 2008, are beginning to challenge their dominance and technology is playing a pivotal role in their go-to-market.

The study, Technology Flavours in FAO – From Tools to Platforms, focuses on the different types of technology in FAO, add-on tools and solutions that enable technology augmentation and the current landscape of platform-based FAO offerings.

“The study clearly exemplifies the role of technology in playing a much more invasive role in the FAO market. It is interesting how domestic players are steadily making inroads in the FAO market by effectively leveraging technology. Buyer needs and requirements are clearly driving the role of technology in FAO – a segment which is no longer considered a tie-and-run solution – as evidenced by recent increase in M&A activities and partnerships, particularly with independent software vendors. Platform-based FAO is in fact emerging as a key lever to create competitive differentiation in an increasingly competitive supplier market,” said Gaurav Gupta, country head and principal, Everest.

Other insights of the study include:

• Most technology-led FAO offerings are horizontal in nature and targeted to mid-sized and large buyers
• Suppliers use transactional pricing or bundle technology costs with FTE pricing
• Most F&A organisations have ERP-based processing system and prefer licence ownership, thus most are not seeking new implementations or replacements
• Platform-play in FAO is being pioneered but augmentation with add-ons continues to be the preferred solution. Players taking a platform approach differ in their scopes and industry focuses; consequently, some platforms are horizontal in nature while some are more industry specific
• Successful go-to-market strategy for platform-based FAO has four key inputs – market dynamics, messaging, buyer segmentation, and risk management

“Technology is enabling FAO suppliers to drive non-linear growth,” said Saurabh Gupta, research director, Everest and co-author of the report. “FAO has largely derived value from labour arbitrage and process efficiency. This implies that growth in FAO is largely a factor of scale of operations or number of FTEs. Increased leverage of technology is changing the value creation lever mix in FAO solutions.”

The study analyses the technology capabilities and offerings of established FAO suppliers including Accenture, Capgemini, HP, Genpact, IBM, Infosys BPO, TCS, Wipro, WNS and Xchanging.

To read more about the findings of Technology Flavors in FAO – From Tools to Platforms, an extract of the report is available at www.everestresearchinstitute.com