Neither one is better than the other, finance leaders shared at Finance Indaba Online.
During a panel discussion on insourcing vs. outsourcing in finance at the Finance Indaba Online, Hannes Boonzaaier, CFO at Afrocentric, Zakhe Khuzwayo at CFO InnoVent and Sharon Naidoo, CFO at TransUnion revealed that leaders should not be pressured to take a particular stand, but rather take the route that makes the most sense and will deliver the best results.
“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.
“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.”
According to Sharon, centralised finance frees up time for finance to be more transformative and more aligned to business advisors and business partners. 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 being all to everyone. Having it in one place means standard processes, standard timelines and no deviations, and time to drive the business forward.”
A case-by-case basis
Hannes, on the other hand, was of the view that the debate really boils down to what you want to achieve. “Our experience at Afrocentric has been that it mainly depends on the tenure of the contract or the type of transactions required,” he said. “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,” he added.
“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 continued.
He 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.
In the past, Afrocentric took the outsourcing route on specific projects. Hannes shared some examples where the company collaborated with the Road Accident Fund.
“As a result of our healthcare expertise, we were tasked to do some work for the Road Accident Fund as it is also linked to medical aid funds. Considering that this was not really our core business, we decided to recruit specific individuals who had the knowledge on how the insurance process works. Since this was a short-term project, we decided to outsource some of those functions,” he explained.
Insourcing and outsourcing trends
Zakhe shared some of the current and upcoming insourcing and outsourcing trends. “We have witnessed 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 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,” he noted. “A new world of accessing the resources that you need rather than owning them is emerging,” he added.
Sitting on the outsourcing end of the spectrum, Zakhe noted that experience has shown him that outsourcing declutters the balance sheet and allows you to separate the soft assets from the core assets, which means you have access to those if and when you need them. without worrying about ownership and maintenance.
“We encourage clients to take this route and focus on their strategic goals and move forward as a business,” he noted.
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. From a technological perspective, as more things move towards the cloud, they say even more activities will be outsourced. Overall, the finance leaders are quite excited to see how the finance function will grow, evolve and transform.
“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,” Sharon concluded.