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Centralised finance vs outsourced solutions – which is better?
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Centralised finance or outsourced solutions? That is the question finance leaders continue to consider as they prepare for an uncertain future. By Reabetswe Rabaji
Finance leaders have long debated the question of whether to insource or outsource finance functions. There is little doubt that the Covid-19 pandemic has led to the topic gaining more traction around the boardroom table. At the recent Finance Indaba Online panel discussion, finance experts recently looked at material arguments for both sides.
“I have a personal preference regarding centralised transactional finance: the standardised way of accounts payable, accounts receivable or cash banking. We get economies of scale, governance and segregation of duties and we prevent conflicts of interest, especially when it comes to very small businesses who might not have the manpower to have the right segregation of duties,” said Sharon Naidoo, CFO at TransUnion.
Centralised finance frees up time for finance to be more transformative and more aligned to business advisors and business partners, according to Sharon. It also retains certain nuisances: “Something like tax will never be centralised, especially in the African continent, because you need in-house expertise. In my experience, centralised finance works much better,” she noted.
“As business advisors we focus on the strategic growth and direction of the company as opposed to being all to everyone. Having it in one place means standard processes, standard timelines and no deviations, and time to drive the business forward,” she added.
Hannes Boonzaaier, CFO at Afrocentric, said the decision boils down to what you want to achieve. “In cases where we have had three-year projects and wanted to achieve high economies of scale in localities that we were not familiar with, outsourcing worked quite well. Outsourcing eliminates the red tape that comes with appointing staff when a project begins and releasing them from their contracts once it is completed,” he said.
Hannes pointed out that in respect to continuous business and as Afrocentric develops its finance staff to become commercial managers, the value that comes with understanding the business, its people and supporting them is greater than the price you pay from acquisitions to procurement. “In contrast, specialised services and skills such as cybersecurity require both insourcing and outsourcing for several reasons,” he noted.
Sitting on the outsourcing end of the spectrum, InnoVent CFO Zakhe Khuzwayo explained that outsourcing declutters the balance sheet and allows the separation of soft assets from core assets, which means access without worrying about ownership and maintenance.
He also shared some of the current and upcoming insourcing and outsourcing trends. “We have witnessed
“Our biggest strength as CFOs will be to live in the future and work in the present, and let that roadmap dictate the decisions we make as leaders.”
a move towards a world of access, where people or companies would rather access/outsource the technology or resources that they need than have these in-house themselves,” he said.
“In addition, products and services are being supplied on an everservice basis; device as a service or software as a service rather than having it as an in-house service. The most significant trend has been large organisations selling off some assets for billions and leasing them back,” Zakhe noted. “You would assume that these large corporations would want to keep these assets considering the level of the transaction, but they believe that if another entity can maintain and secure them, they’d rather not keep it themselves. A new world of accessing the resources that you need rather than owning them is emerging,” he added. Looking ahead, the CFOs anticipate that insourcing and outsourcing will take on a hybrid model of both directions being necessary on a case-by-case basis.
“Our biggest strength as CFOs will be to live in the future and work in the present, and let that roadmap dictate the decisions we make as leaders. When it comes to insourcing or outsourcing, I think the conversation shouldn’t be about whether one is better than the other, but how both ecosystems can co-exist,” said Sharon.l
