Why Business Process Outsourcing is Relevant to Handle the New

Era Problems

Reynhard Nababan

, Sahala Purba

, Iskandar Muda

and Syafruddin Ginting

Doctorate Program Student, Fakultas Ekonomi dan Bisnis, Universitas Sumatera Utara, Medan Indonesia

Keywords: Business Process Outsourcing, Accountant’s role, Automation

Abstract: This paper presents literature review of two potential problems in the new era: (a) changes in accountant’s

role, (b) how accounting profession adopt into automation phase, and how business process outsourcing can

contribute to the first and second variables. Current changes in accountant’s roles requires shifting in the

way the accounting professional do the work to manage requirement to drive efficiency, and to focus on

strategic roles. Automation also brings a new a challenge to the business and requires the organization,

including accountant professional, to make a strategic decision to adopt the automation to bring economic

benefit into their organization. The new business model, Business process outsourcing (BPO) has been

implemented in several countries for few decades. BPO approach comes with different approach such as

allocating less value-added activities to business partner which resulted to additional time and free up

internal resources to manage the challenges. The study results show business process outsourcing positively

helps finance professional by taking less value-added activities of executive in finance, increase

productivity, with cost effective approach. BPO has embarked into automation, and the review also presents

the advantages of involving BPO providers as a solution to address the impact of automation in the

organization.

1 INTRODUCTION

CIMA study presented the trend in accounting

professionals referring to the shifting in accountants’

responsibilities from traditional accounting

operations to strategic management guidance and

support. (Belfo and Trigo, 2013) Strategic means in

the sense of ability to guide and support

management to take necessary action to achieve the

main goal, given scarcity of resources, or to get

benefit of competitive advantage over adversaries

given a set of options. (Iqbal, 2013b) The

economists wrote that the market demands today’s

accountants evolve into providers of insight on

finance, technology and strategy. Changing business

practices and technologies development have

transformed to accountant’s role. Accountants have

become increasingly required to take a hands-on

approach in guiding company operations and

formulating business strategy. (Unit, 2009) With the

new Industrialization era, Industry 4.0, various types

of works categories, particularly of those that

involve mechanically recurring and haeavy manual

works, have already been automated. With

continuous and significant improvement in

computing power, sooner than most anticipate, the

work of various professions including financial

analysts, and accountants may be partly or

completely automated. (Schwab, 2016) While it is

broadly known that the traditional accounting model

involves significant working hours to collect and

process the data, which is less process oriented, the

challenges lead into questions of (a) different

approaches in finance organization to enable a more

efficient gathering of financial and non-financial

information and (b) becoming more involved in the

“doing”, expanding into areas with which previous

generations had little or no experience. (Unit, 2009)

The study result presented in this paper is based

on literatures review of the current demand in

accountant’s role, automation impact to accountant’s

work, and discuss the role of Business Process

Outsourcing (BPO) to fit into the equations. The

paper is organised as: first - review of current

changes in accountant’s role, second - impact of

Nababan, R., Purba, S., Muda, I. and Ginting, S.

Why Business Process Outsourcing is Relevant to Handle the New Era Problems.

DOI: 10.5220/0009505311031107

In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pages 1103-1107

ISBN: 978-989-758-432-9

1103

automation into accountant’s work, third - BPO on

how it fits in the new era problems and benefit

driven through its implementation, fourth –

discussion, and followed by conclusion.

2 LITERATUR REVIEW

A literature review refer to those of those article and

papers that has been published by accredited

scholars and researchers. (Taylor and Procter, 2008)

Changes in Accountant's role

The accounting profession has always helped to

shape and support businesses, other organisations,

and economies of all types and sizes. To continue to

add value, professional accountants must be able to

meet current needs and anticipate emerging

demands. (ACCA, 2016) The Chartered Institute of

Management Accountants (CIMA) and the UK´s

University of Bath conducted a join survey in June

2010 major population consists of 5,426 senior

finance and senior non-finance professionals around

the World. The respondents of this study consisted

of a various financial professionals background,

from all regions of the world, with responsibilities

split into six categories: accounting operations,

external reporting, preparation and interpretation of

management accounting information, management

support, developing, implementing and maintaining

management information systems, and other like

staff management, training, administration, and

other miscellaneous activities. (Belfo and Trigo,

2013) This wide range of responsibilities involves

both transactional and strategic activities. Examples

of transactional activities which normally take

significant time of professional accountant which

could be outsourced are as follow: Procure to pay,

transaction processing, financial integrity, help desk,

Record to report, asset and transaction processing,

Month end closing and data integrity, financial and

government reporting. (Accenture, 2010)

Recruitment firm Randstad Singapore wrote that

several transactional roles such as data entry, general

ledger, accounts receivable and payable would

potentially be affected negatively while other

higher-skill roles such as financial planning and

analysis or business controlling would still have a

high opportunity. (Nagarajah, 2016) The changes

drive a move toward reducing the time and effort

spent to look into transactional activities, and focus

on and develop accounting professional into more

strategic activities. Survey of Robert Half, a

specialised recruitment consultancy, among 160

CFO in Australia showed the second most important

expectation for finance function by 2020 is to

manage their time and resources efficiently within

increasing work volume. Which triggers a need to

allocate transactional activities to other party. The

other finding of Robert Half survey showed finance

function shall evolve from data driven (reduce the

time spent on their desk - of which third party

service provider could help through BPO

arrangement) to data educator (spend their time

walking around the office and helping drive

performance). (Robert Half, 2016)

Automation impact into Accountant’s work

Automation is also threatening several jobs and

could make them obsolete, for example the

accountants work which identified stay in the top of

the hit list. Research by Frey and Osborne in their

article in 2014 article published by the Economist,

found that 47% of job categories are open to

automation within the next two decades.

Accountants and auditors ranked in the second

highest in terms of risk, after telemarketers job.

(Nagarajah, 2016) The change in the the

accountant’s role may occur as accountants will

begin to form a new role when attempting to adapt

themselves to new usage and workflows resulting

from the use of automation technology being

implemented. (Fernandez and Aman, 2018)

Consultant KPMG presented three suggested

scenarios to companies in their effort to implement

automations as seen in table below. (KMPG, 2018)

Table 1: Implement Automations

Source: KPMG Global Business Services Advisory

Business Process Outsourcing

BPO is defined as the movement of processes or

activities from inside the organization to external

service providers. BPO is the delegation of the

company’s processes which is considered as non-

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

1104

core to an external service provider to administers

and manages it accordingly. (Krstic and Kahrovic,

2015) The company non-core business process

consists of: corporate governance such as legal,

finance, planning, and public and government

relations, accounting, building services,

management, and administrative support, human

resource management activities such as recruiting,

hiring, training, compensating, and dismissing

personnel, technology and process development

such as maintenance, automation, design or redesign

of equipment, hardware, software, procedures, and

technical knowledge. (Brown, 2008) Outsourcing

concept is not new in the modern business

environment. (Vaxevanou and Konstantopoulos,

2015) Russ Banham, in his article, showed rationale

for BPO efforts such as: focus on core competencies,

save money, tap vendor domain expertise, focus on

strategic growth, etc. (Banham, 2001) Outsourcing is

a trend in the US. Several major corporations such

as Dell, AIG, IBM and Citi Group have been using

BPO and have leveraged the larger scale of outside

service activities to gain benefit such as costs

reductions, process quality improvement and

improvement in response time to market

requirement. (Li and Meissner, 2008) Many believe

there are several American companies who paid

millions of dollars to outsource their energy supply.

It means paying other companies to perform a

service the company previously had in-house, with

goal to save money and focus on their own business.

(Vestre, 2016) Procter & Gamble (P&G) showed an

$ 28 million significant saving when the company

outsourced its Java Programming to Manila,

Philippines, and Poland. Which is significant

amount in terms of cost reduction and profit

maximization. (Iqbal, 2013a)Transactional finance

activities normally outsourced consists of: data

entry, general ledger, accounts receivable, accounts

payable, inventory reconciliation, preparation of

management reporting, preparation of balance sheet,

taxes, and treasury reporting.

BPO is generally complex arrangement and

requires both parties, the company and service

provider, to consider set of questions and analyse

specific element to identify if BPO is the right

option to proceed. Before moving into next step, the

company needs to identify their objectives and

aspiration, scope, operating model, and the right

partner along with services provided. (Deloitte,

2016) In the past, companies pursued outsourcing as

a means to achieve better service at lower cost.

Since the outsourcing is conducted in the low-cost

country or locations. Recently, many organisations

are moving beyond low costs objectives to achieve

step changes in their performance and new,

innovative business models. Reported benefits of

BPO are: cost reduction, radical transformation,

access to superior capabilities and expertise of the

provider, release of capacity for remaining finance

function to provide business partnering, and

increased innovation. (Jim Downey and Technical

Information Service, 2008).

3 DISCUSSION

BPO and Changes in Accountant's role

An important fact of BPO is its ability to free

corporate executives’ time from managing day-to-

day process to deal with a more important

management responsibility. This happen since the

day-today activities are moved to the service

provider to perform according to the outsourcing

agreement. The study of Ohnemus showed

executives normally spend their time managing

everyday business and only some time on

formulating strategies for a successful advancement

of the company. And once a process is successfully

outsourced, the executives time spending ratio can

be easily reversed and as results it gives more time

to explore new revenue areas, accelerate other

projects and focus on customers, i.e. to concentrate

on the company core competencies. Which resulted

to improvement in the company’s eﬃciency and

productivity. (Ohnemus, 2010) Forbes Insight, in

association with Infosys, survey results of more than

200 executives showed that executives recognized

the how critical BPO in supporting their businesses.

Six out of 10 respondents said that BPO plays a very

important role in supporting their business model,

while another third said that BPO’s role was

somewhat important. The trend is expected to

continue positive, looking ahead three years, fully

68% of executives believe BPO’s role will be very

important. (Forbes, 2010) Review made by Jörg

Ohnemus showed that business process outsourcing

has a considerably positive and signiﬁcant eﬀect on

companies’ productivity, which accounts on average

for a 9 percent productivity increase for companies

sourcing-out their business processes to outsourcing

service providers. (Ohnemus, 2010)

However, with those benefits generated from the

arrangement, BPO could also pose some drawback

which could affect the company if the same are not

properly considered. Some of the drawback are: loss

of control, outsourcing can cause disruption, risk to

proprietary data, risk to innovation, risk to

succession planning. (Jim Downey and Technical

Information Service, 2008) To mitigate some of

potential drawback such as loss of control, potential

Why Business Process Outsourcing is Relevant to Handle the New Era Problems

1105

disruptions and risk of proprietary data, both parties

need to manage the BPO arrangement well, it is

important to set up the right Service Level

Agreement (SLA) between the service provider and

the company. The SLA should define the minimum

quality of service to meet the business needs, to

enable the customer to monitor and control the

performance of the service received from the

provider, against mutually agreed standards. (CIPS,

2009) In addition, the arrangement shall consider a

collaborative partnership, where benefits of business

process improvements or new systems

implementation are shared between the company

and the provider than risk and reward sharing

agreements. (Jim Downey and Technical

Information Service, 2008)

BPO and Automation in Accountant’s work

Outsourcing and automation works toward

improvement in effort to achieve higher accuracy,

productivity, efficiency and cost reduction. And they

are not mutually exclusive. (Sukalp Sharma, 2017)

The emergence of the ‘Robotic Process Automation’

term began around early 2000. The term Robotic

Process Automation (RPA) though sounds like a

physical robot that runs human operations, in fact, it

is a computer software configuration that replaces

humans in doing a task. (Fernandez and Aman,

2018) Today automation in BPO industry focuses on

RPA which is built to handle structured data and

standardized processes. RPA automates repetitive

tasks such as invoice matching and processing by

setting up advanced rules-based processes which

enable improvement in accuracy and compliance.

Automation also works 20 times faster than that of

human, with cycle time and waiting time reduction,

reduced error rates which could happen in manual

tasks. (Kearney’s, 2014) Other findings showed that

the major impact on accountants after they

implemented the automation technology is the

improvement of work efficiency, reducing work

routines, improving the quality of statements and

management analysis, improving motivation in

learning and innovation, improving IT and

professional skills, and also improving competition

pressure. (Fernandez and Aman, 2018)

Scenario from consultant KPMG shows how

BPO can provide solution for the company to reap

the benefit of automation. The company can free up

from new investment requirement and can use their

cash for other business opportunities, nor to provide

significant resource and time. Instead, they can have

the service provider to implement the automation in

the company processing activities. According to

consultant Ernst and Young, by leveraging RPA in

the outsourced scope outsourcing providers are often

able to pass on higher productivity benefits, as high

as 50% over the life of a contract. (Sukalp Sharma,

2017).

4 CONCLUSION

The study result shows positive role of BPO in the

new Era problem in accounting professional work.

Organization can allocate less value-added activities

into business partner through contractual BPO

arrangement to free up company’s executive and

internal sources time for more strategic activities to

cope with market demand. BPO arrangement applies

SLA to govern the service performance and to

mitigate potential risk to the company once the BPO

arrangement starts. BPO also comes as alternative

solution and partner for the company to bring the

benefit of automation to their process with no major

concern on additional investment requirement, with

potential costs saving passed back by BPO provider

to the company. This study is not conclusive since

the discussion focus on those two variables above,

and moving forward could be expanded into broader

scope to see how BPO can make impacts into other

challenges financial accounting such as

improvement in reporting timeliness and accuracy.

In addition, although BPO has become a new

model as well industry globally, it is worthied to

study the BPO practices in Finance and Accounting

in Indonesia and possibility for broader

implementation following comment from President

of the Republic of Indonesia. Mr Joko Widodo in his

remarks cited from Majalah Online Bisnis Indonesia

dated on March 27, 2017, emphasized a huge

opportunity in BPO which can explored by young

entrepreneur following the trend in other country

such as Philippines who managed to generate

revenue of USD25 billion in a year. He also

suggested for Indonesian to look into opportunities

outside of those being dominated by the Philippines.

In closing remarks Mr Joko Widodo emphasized that

BPO industry in Indonesia looks very promising.

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