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OUTSOURCING OF

TYPICAL ACCOUNTING FUNCTIONS :

IMPACT ON THE ACCOUNTING SERVICES INDUSTRY

Nyuk S. Hayes

Master of Business by Research (Accounting and Finance)

Victoria University of Technology Melbourne Australia

December 1999

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FTS THESIS 657.0994 HAY 30001005559481 Hayes, Nyuk S Outsourcing of typical accounting functions : impact on the accounting

DECLARATION

I certify that this thesis does not incorporate without acknowledgement any

material previously submitted for a degree or diploma in any university; and to

the best of m y knowledge and belief, it does not contain any material previously

published or written by another person where due reference is not made in the

text.

'~eZy

Nyuk Sien Hayes

15 December 1999

n

ABSTRACT

Since the Australian recession which began in the 1990s, outsourcing has

received considerable attention. Amongst the many benefits that outsourcing is

believed to offer, a key benefit is that it allows organisations to focus on their

competitive strengths while contracting out non-core activities.

While there is currently a considerable amount of studies and evidence on the

costs and benefits of outsourcing, much of this is centred on Information

Technology. There are predictions and some anecdotal evidence indicating

that the outsourcing of typical accounting functions will increase as w e

approach the second millennium. The questions left unanswered are many:

• are the trends in the outsourcing of typical accounting functions really on the

increase?

• what are the rationales and perceived benefits associated with the

outsourcing of typical accounting functions?

• does the outsourcing of typical accounting functions raise any concerns?

• what impact will outsourcing have on the service providers in the accounting

services industry?

This study has been designed to answer the above questions. The methodology

undertaken necessitated two separate surveys which were conducted over a

period of 6 months within 1997 and 1998. Both surveys were based on mailed

questionnaires which were forwarded to 300 service-user organisations and 300

service-provider organisations.

in

Several key findings have emerged from this study:

• the increasing trend to outsource in between 1992 and the period beyond

1997 had only applied to two out of nine accounting functions.

• the outsourcing of typical accounting functions were not undertaken by at

least 7 5 % of responding firms in 1997.

• there were differences between service-buyers' and service-providers'

perception of outsourcing benefits.

• the outstanding number of concerns associated with the management and

control of outsourced functions as well as humans resource, technological

and financial issues was a factor which appear to have deterred firms from

outsourcing typical accounting functions.

The recommendations arising from this study are summarised, as follows:

First, in order to minimise undesired outcomes as a result of outsourcing,

service-user firms need to consider several issues before the decision to

outsource is made. These issues include the strategic importance of, and

existing problems associated with their accounting functions, as well as the risks

and benefits of outsourcing those functions.

Second, service providers' ability to deliver services at pre-determined levels are

more likely to be successful if they are prepared to specialise in the types of

client industries where risks can be measured.

IV

Third, the identification of human resource problems warrants some research

into h o w organisations can achieve a win-win situation with in-house staff

whose positions are jeopardised as a result of outsourcing arrangements.

Fourth, service-provider firms need to be aware and perhaps become familiar

with the capabilities of commercially available software for the processing of

basic accounting functions.

v

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGMENTS ii

ABSTRACT iii

PART A

1 INTRODUCTION 1

1.1 THE CONCEPT 1

1.2 ACCEPTANCE OF OUTSOURCING IN THE 1990s 2

2 TRENDS IN THE PRACTICE OF OUTSOURCING 4

2.1 GENERAL TRENDS IN OUTSOURCING 4

2.2 TRENDS IN THE OUTSOURCING OF TYPICAL 7 ACCOUNTING FUNCTIONS

3 SERVICE-USER ISSUES 11

3.1 OUTSOURCING RATIONALE 11

3.2 ORGANISATIONAL FACTORS WHICH INFLUENCE 12 OUTSOURCING

3.3 CRITERIA IN THE EVALUATION OF SERVICE 13 PROVIDERS

3.4 OUTSOURCING PROBLEMS OR CONCERNS 16

3.4.1 Financial concerns 17

3.4.2 Technological concerns 17

vi

3.4.3 Legal concerns 18

3.4.4 Human resource concerns 18

3.4.5 Management and control concerns 19

SERVICE PROVIDER ISSUES 20

4.1 DISPOSITION OF SERVICE-PROVIDERS 20

PARTE

THE CURRENT STUDY 23

5.1 PRIOR RESEARCH ON OUTSOURCING OF 23 ACCOUNTING SERVICES

5.2 STUDY RATIONALE AND OBJECTIVES 24

5.3 HYPOTHESES 28

5.4 RESEARCH AND ANALYSIS GUIDELINES 34

RESEARCH METHODOLOGY 61

6.1 DATA COLLECTION 61

6.2 SURVEY 1 (SERVICE-USER ORGANISATIONS) 62

6.2.1 Development of the survey instrument 62

6.2.2 Sample selection 64

6.2.3 Limitations of the methodology employed 67

6.2.4 Conduct of the survey 69

Vll

6.3 SURVEY 2 (SERVICE-PROVIDER FIRMS) 70

6.3.1 Development of the survey instrument 70

6.3.2 Sample selection 71

6.3.3 Additional samples 72

6.3.4 Limitations of the methodology employed 74

6.3.5 Conduct of the survey 75

PARTC

FINDINGS: SERVICE USER SURVEY 76

7.1 PROFILE OF RESPONDENTS 77

7.1.1 Geographical location 77

7.1.2 Industry classification 78

7.1.3 Period of operation 79

7.1.4 Annual revenue 79

7.1.5 Employment numbers 80


7.2.1 Level of outsourcing performed 82

7.2.2 Outsourcing trends 83

7.3 PROFILE OF FIRMS A N D THEIR TAF 89 OUTSOURCING LEVELS

vm

7.4.1

7.4.2

7.4.3

Annual revenue

Industry classification

Experience

7.4 ASSOCIATION B E T W E E N GENERAL 90 CHARACTERISTICS OF FIRMS A N D THEIR OUTSOURCING BEHAVIOUR

91

92

92

7.4.4 Size 93

7.4.5 Outsourcing of administrative functions other 94 than accounting

7.4.6 Organisational change 95

7.5 ASSOCIATION B E T W E E N ACCOUNTING 95 INFRASTRUCTURE A N D DEGREE OF OUTSOURCING PERFORMED

7.5.1 Size of Accounting Department 96

7.5.2 Strategic importance of typical accounting 97 functions

7.5.3 Risk levels associated with typical accounting 99 functions

7.5.4 Cost of typical accounting functions 100

7.6 RATIONALES FOR OUTSOURCING 101

7.6.1 Most significant outsourcing rationales 101

7.6.2 Degree to which outsourcing rationales were 105 achieved

7.7 CONTINUITY IN OUTSOURCING PRACTICE 106

IX

7.8 AWARENESS OF K E Y SUCCESS FACTORS IN 108 RELATION TO TYPICAL ACCOUNTING FUNCTIONS

7.9 FIRMS'EVALUATION OF THE OUTSOURCING 108 OPTION FOR TYPICAL ACCOUNTING FUNCTIONS

7.10 CRITERIA FOR SELECTION OF SERVICE- 109 PROVIDERS

7.11 OUTSOURCING CONCERNS 110

7.11.1 Concerns associated with the outsourcing of 111 TAFs

7.11.2 Association between outsourcing concerns and 112 degree of outsourcing performed

7.11.2.1 Legal concerns 113

7.11.2.2 Financial concerns 114

7.11.2.3 Technological concerns 115

7.11.2.4 Human resource concerns 116

7.11.2.5 Management and control concerns 117

7.11.3 Concerns associated with outsourcing of 117 Payroll

8 FINDINGS: SERVICE PROVIDER SURVEY 119

8.1 PROFILE OF RESPONDENTS 119

8.1.1 Size of firms 119

8.1.2 Professional accreditation 119

8.1.3 Client base 120

8.2 SERVICE-PROVIDER FIRMS' INTEREST IN T H E 120 PROVISION OF TYPICAL A C C O U N T I N G SERVICES

8.2.1 Degree of provision of TAS within the 121 accounting service industry

8.2.2 Most attractive services 122

8.2.3 Least attractive services 123

8.3 IMPACT OF PROVISION OF TAS ON COST 124 STRUCTURE OF SERVICE-PROVIDER FIRMS

8.3.1 Cost factors in the pursuit of attractive 124 accounting services

8.3.2 Escalating costs and impact on firms' ability to 125 compete

8.4 SERVICE-PROVIDERS'PERCEPTION OF 127 OUTSOURCING BENEFITS

8.4.1 Perception of most significant outsourcing 128 benefits

8.4.2 Magnitude of cost savings achieved 131

PARTD

9 SERVICE USER SURVEY: SUMMARY OF KEY FINDINGS 132 AND CONCLUSIONS


9.2 DETERMINATION OF FACTORS AFFECTING 133 OUTSOURCING LEVELS WITHIN SERVICE-USER FIRMS

9.3 RATIONALES FOR OUTSOURCING TAFs 135

XI

9.4 CRITERIA FOR SELECTION OF SERVICE 137 PROVIDERS

9.5 OUTSOURCING CONCERNS 138

9.5.1 General observations 138

9.5.2 Common concerns 139

9.5.2.1 Legal concerns 140

9.5.2.2 Financial concerns 140

9.5.2.3 Technological concerns 141

9.5.2.4 Human resource concerns 142

9.5.2.5 Management and control concerns 143

9.6 INTEREST IN THE PROVISION OF TYPICAL 144 ACCOUNTING SERVICES WITHIN THE ACCOUNTING SERVICES INDUSTRY

9.7 IMPACT OF PROVISION OF TAS ON SERVICE- 146 PROVIDER FIRMS' COST STRUCTURE

9.8 A COMPARISON OF SERVICE-USERS' AND 148 SERVICE-PROVIDERS' PERCEPTION OF OUTSOURCING BENEFITS

PARTE

10 RECOMMENDATIONS 150

10.1 IS OUTSOURCING OF TYPICAL ACCOUNTNG 151 FUNCTIONS REALLY WORTHWHILE?

10.1.1 Management and control of outsourced 152 functions

xn

10.1.2 Human resource concerns 155

10.1.3 Technological concerns 156

10.2 HOW COMPATIBLE ARE SERVICE-USERS' AND 157 SERVICE-PROVIDERS' PERCEPTIONS OF OUTSOURCING BENEFITS?

10.3 CURRENT TRENDS IN THE ACCOUNTING 158 SERVICES INDUSTRY - ARE THERE ALTERNATIVES TO OUTSOURCING?

GLOSSARY 161

BIBLIOGRAPHY 163

APPENDICES 170

A SERVICE-USER SURVEY: 171 INDUSTRY CLASSIFICATION OF ORGANISATIONS IN SURVEY SAMPLE

B SURVEY INSTRUMENT: SERVICE USER SURVEY 173

C SURVEY INSTRUMENT: SERVICE PROVIDER 181 SURVEY

D SURVEY RESPONSE RATES: 185 - SERVICE USER SURVEY - SERVICE PROVIDER SURVEY

E SERVICE-USER SURVEY: 189 OUTSOURCING LEVELS PERFORMED IN 1992, 1997 AND THE PERIOD BEYOND 1997

F-l SERVICE-USER SURVEY: 190 PEARSON'S CORRELATION TEST RESULTS

F-2 SERVICE-USER SURVEY: 191 RESULTS OF CROSS-TABULATIONS BETWEEN TAF OUTSOURCING LEVELS AND VARIOUS ORGANISATIONAL FACTORS

xm

G SERVICE-USER SURVEY: 195 DEGREE TO WHICH OUTSOURCING RATIONALES WERE MET

H OUTSOURCING CONCERNS 196

I SERVICE-USER SURVEY: 198 FIRMS OUTSOURCING TAFs AND THEIR OUTSOURCING CONCERNS

J RECORD OF INTERVIEWS CONDUCTED 199

xiv

PART A

1 INTRODUCTION

As Australia slowly begins to emerge from the recession which began in the

early 1990s, many organisations are becoming acutely aware of the need to re

examine ways of improving their competitive position. Indeed, looking at ways

to reduce the time and costs associated with non-core activities has become an

important ingredient in a company's recipe for success. This, in turn, has

produced a growing trend throughout the corporate world of contracting non-

core business functions out to third parties.

Although outsourcing has received significant attention in the 1990s, it is not a

new phenomenon (IC, 1996; Rimmer, 1994; IBIS, 1994). Services such as mail

delivery, prison management, road maintenance, and refuse collection dating

back to the 18th and 19th century were outsourced (Rimmer, 1994).

Ll THE CONCEPT

"Although outsourcing changes the means of delivering services, it does not

change an organisation's accountability for ensuring that the services are

delivered. Under outsourcing, an organisation's focus shifts from managing

the inputs of service provision to managing the outcomes. It becomes a

contract manager rather than a resource manager... "

Outsourcing and Contract Management Guidelines,

Department of Treasury and Finance, 1996

1

Outsourcing refers to the contracting out of services which have previously been

performed in-house. This practice involves obtaining goods and services from

an external supplier as opposed to producing them internally. The focus of this

practice is therefore on the services to be provided, not the assets to be

employed. (ASCPA, 1996; Harris, 1995; Mayne, 1993; Noble, 1996).

Since the early 1980s, outsourcing has been discussed within the context of

improving organisational efficiencies. The philosophy behind the practice of

outsourcing can be found in both the earlier works of management experts

(Handy, 1989; Drucker 1988; Peters and Waterman, 1982), as well as in more

recent works (Harris, 1995a, IBIS, 1994).

The common theme emerging from the work of these experts is in association

with organisational efficiency. This philosophy states that in order for

organisations to remain competitive and effective, they must eliminate non-cost-

efficient activities. It enables organisations to free themselves from less

strategic tasks to focus on core competencies and strengths. These underlying

principles have become the main reason for the adoption of outsourcing, and

have resulted in the contracting out of non-core activities to external service

providers.

1.2 ACCEPTANCE OF OUTSOURCING IN THE 1990s

Highly reputable sources (Handy, 1989; EIU, 1995) have described the 1990s as

a period wherein the development of "virtual" organisations will occur. These

organisations will evolve from an intricate web of partnerships and alliances

composed of specialists in their respective roles, all relying on one another for

the provision of essential functions. A growing number of organisations has

2

taken their first steps towards this evolving virtual organisation, through the

decision to contract out simple activities such as: building security and

maintenance, distribution, logistics, manufacturing and even product design.

Reputable research organisations such as IBIS Australia, the Economist

Intelligence Unit, and large chartered accounting firms in Australia have been

promoting the outsourcing of professional services including Information

Technology, Finance and Accounting, Superannuation, Legal Services, Taxation

Consulting, etc.

In the finance area, outsourcing typically begins with the simplest functions

such as payroll, accounts payable and accounts receivable. As top management

in organisations are evaluating their core competencies and asking what it is that

gives their organisation comparative advantage, these executives are also asking

whether the provision of internal finance processes, such as accounting and

payroll, is a core competence. Except in the case of organisations that specialise

in the provision of such accounting services, these financial functions would not

represent core competencies. This implies that these functions are likely

candidates for outsourcing.

Nevertheless, there are assertions that the outsourcing of accounting is in its

relative infancy due to technological, human resource and financial barriers

(IBIS, 1994; EIU, 1995). The question of whether this view represents the

perception of service-user and service-provider organisations within the

accounting services industry in Australia has provided the impetus for this study.

3

2 TRENDS IN THE PRACTICE OF OUTSOURCING

2.1 GENERAL TRENDS IN OUTSOURCING

The 1990's recession in Australia is believed to have been a major driver in the

growth of outsourcing (Mayne, 1993; James, 1995). The slow recovery of the

Australian economy has resulted in organisations becoming more aware of the

need to maintain competitive while reducing time and costs. The outsourcing of

non-core activities has made it possible for organisations to meet these

objectives.

Outsourcing has also been used to fill in gaps in the labour force created by

organisational downsizing (Handy, 1989; Maiden, 1996b). The recent

Australian trend in downsizing amongst large organisations has been

accompanied by the hiring of external contractors to perform some of the jobs

which were previously performed in-house (Maiden, 1996b). A n Australian

study by the National Institute of Labour Research indicated that between 1990

and 1993 when manager numbers decreased by 10 percent (38,640 positions),

there was growth in the provision of contracted services using a total of 7200

external service providers from the legal, accounting and information

technology industries (Maiden, 1996b).

In the United States, the trend of cost-cutting, downsizing and removal of

hierarchical layers was observed at an earlier period during the 1980s amongst

many organisations. While the Australian trend was described as a recessionary

effect, the American trend was described by Handy (1989) as a deliberate

strategy by organisations to reduce their labour force to achieve greater

efficiencies.

4

In the United Kingdom, the growing popularity in outsourcing was due to the

widespread acceptance of the philosophy that organisations should concentrate

on their core competencies and outsource all other functions. One driving factor

for this trend was the well-publicised economic disasters experienced by a

number of key organisations, such as the London Stock Exchange and the

London Ambulance Service, which were the result of their attempts to develop

and maintain in-house processing systems (Sweet, 1994).

The increase in the levels of outsourcing in Australia is seen in the historical

data associated with the use of competitive tendering and contracting (CTC)

within the public sector in the 1990s. While there is minimal data on the use of

C T C prior to the 1990s, the findings of two studies have indicated that the use

of C T C had increased:

- the 1995 Industry Commission study (IC, 1996) indicated that at

Commonwealth government level, the value of C T C expenditure in 1993-

94 was 24 percent higher in real terms than nine years earlier (IC, 1996,

p. 73). At state level between 1992/93 and 1993/94, the levels of C T C had

increased by 98 percent in N e w South Wales and 29 percent in Western

Australia (IC, 1996, p. 62).

- a separate 1995 study of contracting by public sector agencies in Victoria

(IC, 1995) found that the number of service contracts increased from a total

of 122 (totalling $171.5 million as at 1 July 1992) to a total of 289 (totalling

$335.9 million as at 1 July 1994), reflecting a net increase of 167 contracts

totalling $164.4 million (increase of 96 percent) within two years.

5

The practice of C T C in the Australian public sector has seen the introduction of

the policy of compulsory competitive tendering (CCT) in the Victorian local

government sector in 1994. This policy requires local councils to have

competitively tendered at least 20 percent of total expenditure by 1994-95,

increasing to 30 percent by 1995-96 and 50 percent by 1996-97. O f the 78

Victorian councils, all but 5 reached the 1994-95 target, with many exceeding it

(IC, 1996, p. 80). While C C T does not necessarily result in the contracting out

of the services being tendered, the policy has opened up the opportunity for

local councils to have access to services which are expected to be rendered more

competitively.

The increasing trend to outsource is also expected to continue within the private

sector, according to the findings of the 1995 Australian study of 300 large and

medium-sized organisations (Price Waterhouse Urwick, 1995). This study

revealed that there is growing confidence (as revealed by 40 percent of

respondents) in outsourcing information technology, accounting, financial

services and internal audit beyond 1995, further supporting the outsourcing

trend already set.

While the above-mentioned literature indicates growing confidence in and

support for the practice of outsourcing, there are views which indicate potential

difficulties in the practice:

- the view still exists that costs would be lower by choosing the in-house

processing option (Smith, 1991);

- there is resistance towards the practice of outsourcing due to the potential

difficulties of managing the working relationships between internal and

external staff (James, 1992); and

6

- there are concerns that the contracting out of existing in-house functions

would result in a reduction of staff morale and commitment, as revealed by a

recent survey of 653 employers in Australia and N e w Zealand (Maiden,

1996a).

2.2 TRENDS IN THE OUTSOURCING OF TYPICAL ACCOUNTING

FUNCTIONS

The outsourcing of accounting activities appears to be less developed in

comparison to information technology services (IT). In comparison to IT, there

is considerably less literature on the outsourcing of accounting activity. There

are also differences in the depth of literature between outsourcing of IT and

outsourcing of accounting activity.

Literature on IT outsourcing is more detailed and specific. Literature released

from the United Kingdom and the United States discuss various issues such as

the evaluation of outsourcing decisions, the impact of outsourcing on IT cost

structures and service performance, effective outsourcing techniques and the

implications of organisational forms and management (Fitzgerald, 1994). In

Australia, literature on IT outsourcing has covered diverse issues such as the

evaluation of IT areas suitable for outsourcing, service buyers' selection criteria,

the management of service providers and outsourcing contracts (Standen, 1994),

cost benefit evaluation process (Rundell, 1994) and performance measurement

techniques (Callaghan, 1994). There is also literature which has highlighted IT

outsourcing deals carried out by well-known organisations in overseas countries.

Examples of these are, in Europe, the London Stock Exchange, British Airways,

the Westminster City Council (Sweet, 1994), the Bank of England, Hoover, ICI

7

(Callaghan, 1994) and in the United States, Kodak, Ford, BP, Continental

Airlines and 7-Eleven (Callaghan, 1994). In Australia, examples of success in

IT outsourcing have involved Epson, the Transport and Storage Group, CSIRO

and Challenge Bank (Callaghan, 1994).

Literature on the outsourcing of accounting activity includes six studies (ABS,

1987/88; 1992/93; Price Waterhouse, 1995; IC, 1995; 1996; EIU, 1995) and one

business publication (IBIS, 1994). The literature suggests that the level of

outsourcing of typical accounting functions is expected to increase into the next

century.

An increasing trend in the outsourcing of accounting activity was identified by

the following:

- a comparison of 1987/88 and 1992/93 statistics on the accounting services

industry in Australia (ABS, 1987/88; 1992/93) revealed that the contribution

to total industry turnover from General Business Accounting had increased

from 26.4 to 27.1 percent, as compared to Taxation which fell from 34.5 to

33.0 percent.

- the 1995 study on outsourcing within the Victorian public sector (IC, 1995)

showed that the number of financial services contracts between the period

1992-94 had increased from 4 to 17, totalling $5,661 million as at 1 July.1

While the 1994-95 report on CTC in Commonwealth budget-funded agencies

(IC, 1996, p.504) did not indicate changes in the level of outsourcing, it ranked

The study, however, did not isolate typical accounting functions from other finance related

functions within the 'financial services' category.

8

financial management in thirteenth position for the most number of contracts.2

A more recent study conducted by the Victorian Office of Local Government in

1995 indicated that 'Administrative, Financial and Professional Services' took

up approximately 5 percent of Local Government expenditure, ranking fourth

after public works and services (IC, 1996).

An increasing trend towards the outsourcing of accounting activity in the future

has also been forecast by other writers:

- the 1995 Price Waterhouse survey of 300 large and medium-sized

organisations (Price Waterhouse Urwick, 1995) revealed that 16 percent of

respondents had expressed the desire to increase the outsourcing of

accounting functions.3

- though not representative of the Australian situation, the 1995 European

study which surveyed 350 companies in Europe and North America (EIU,

1995) found substantial interest amongst respondents in the outsourcing of

tax (57 percent of respondents), payroll (50 percent) and accounts

receivable/payable (31 percent) in the period between 1995 and 1998.

- the observation made by IBIS (IBIS, 1994) that there is an increasing trend

for large and medium-sized Australian organisations to outsource their basic

accounting functions, led to its 1994 prediction that there will be growth in

As mentioned in Section 1.1, the 'financial management' category of services did not isolate accounting services from other financial services such as auditing, valuation services, funds management, advisory service, fraud control, etc.(p.512).

The types of functions which were categorised as accounting activity in the survey were payroll, superannuation, accounts payable, accounts receivable, general ledger and financial management.

9

contract accounting,4 which will be accompanied by growth in the provision

of value-added management accounting information. According to IBIS,

these organisations place greater importance in having high value-added

information than in carrying out basic accounting tasks.

While an increasing trend in the outsourcing of accounting activity has been

forecast, IBIS (1994) highlighted the existence of technological barriers to full

contract accounting e.g., accountants not being fully computer-literate. Until

these are removed and the attitudes of organisations towards contract accounting

change, the advantages in contract accounting will not be fully realised.

In comparison to IT where the success of outsourcing has been widely tested

(Fitzgerald, 1994; Cullen, 1994), there is a lack of evidence on the success of

outsourcing accounting functions. The similarities between accounting and IT

services are that both are professional administrative services, and for the

accounting tasks that are computer-based, the responsibility for the maintenance

and development of these functions involve IT resources (Kent, 1994). The

rationale for outsourcing of IT which includes the improvement of cost control

and service delivery, the ability to concentrate on core competencies and access

to specialist skills as revealed by Cullen's study are also evident in the

outsourcing of accounting functions (Kent, 1994). Based on the similarities

between IT and accounting services, it would be appropriate for this study to use

the outsourcing of IT as a benchmark for the purpose of identifying the benefits

which have been enjoyed through the outsourcing of typical accounting

functions.

The term "contract accounting" has been defined by IBIS as an accounting service which involves the full sub-contracting of the accounting function by a firm to an outside specialist.

The types of functions include General Ledger, Accounts Payable/Receivable, Payroll, Budget Preparation, Management Accounting Information and Compliance Returns.

10

3 SERVTCE-USER ISSUES

3.1 OUTSOURCING RATIONALE

As discussed in Section 1.1, the underlying principle that organisational

efficiency can be increased when an organisation focuses its efforts on core

activities has become an important justification for outsourcing.

Cost reduction is another important reason for outsourcing and has been referred

to in all the literature discussing outsourcing rationale (Price Waterhouse

Urwick, 1995; Boreham, 1994; Sweet, 1994; Mayne, 1993; James, 1992). The

Victorian Government Outsourcing Guidelines released in 1996 (Victorian

Department of Treasury and Finance, 1996) included cost savings as a key

assessment criterion in the evaluation of service providers. There is also

substantial empirical literature estimating the effect of outsourcing on the costs

of service provision within the public sector in Australia, as reported in a review

by the Australian Industry Commission (IC, 1996, p. 528).

Other common reasons for outsourcing are improved manageability (Mayne,

1993; Harris, 1995a; Sweet, 1994), improved quality of service delivery, and

access to special expertise and latest technology (Sweet, 1994; Price

Waterhouse Urwick, 1995; Victorian Department of Treasury and Finance,

1996).

11

3.2 ORGANISATIONAL FACTORS WHICH INFLUENCE

OUTSOURCING

A number of earlier studies on the outsourcing of Information Technology (IT)

performed by organisations (Cullen, 1994; Loh and Venkatraman, 1992) had

attempted to identify factors which would influence the degree of outsourcing

performed. The factors examined included general organisational

characteristics such as industry classification of firms, size of firms, and the

stability of firms. Also examined were IT infrastructure characteristics such as

the strategic importance of IT functions and the size of the IT department.

In the above-mentioned studies, industry sector and firm size were not found to

be significant determinants of outsourcing activity. In terms of firms' stability,

Loh and Venkatraman found that the instability of firms had a positive

relationship with outsourcing activity. Through fixed price contracts and

guaranteed service levels, IT functions which were outsourced were not affected

in periods when firms experienced instability. Cullen on the other hand was

unable to draw any association between the stability of firms and the level of

outsourcing performed.

With regard to the IT infrastructure characteristics, Loh and Venkatraman found

that there was a negative relationship between the strategic importance of IT

functions and the levels of outsourcing. The explanation for this is that

organisations preferred to keep control of, and were less willing, to outsource

strategic IT functions. O n the other hand, Cullen was unable to find any

significant relationship between this factor and the level of outsourcing activity.

In terms of the size of the IT department, Loh and Venkatraman found that there

was a negative relationship between the size of the IT department and the level

of outsourcing. The explanation for this is that a smaller base of IT workers

12

would have less influence on the outsourcing decision toward retaining services

in-house. Cullen's finding on the other hand failed to show any significant

relationship between this factor and the level of outsourcing activity.

Given that the accounting functions included in this study are automated and run

on IT systems, the approach taken by Loh, Venkatraman and Cullen in their

outsourcing studies can be adopted in this current study. As useful as it is to

identify the factors which influence organisations' decision to outsource IT, this

procedure is also useful when applied to the accounting services industry. In

this context, the factors which were included in this study were organisational

and accounting infrastructure factors. The organisational factors included

industry sector, firm size, annual revenue, period of service, and, experience

with outsourcing of other administrative functions such as IT, legal and

superannuation functions. The accounting infrastructure factors included the

size of the accounting department, the strategic importance of the accounting

functions and the risk levels associated with the accounting functions.

3.3 CRITERIA IN THE EVALUATION OF SERVICE PROVIDERS

According to Boreham (1994) and IBIS (1994), accounting functions involve

two types of task. The first type involves the preparation and production of

accounting data. These tasks are repetitive and are easily computerised (e.g.,

bookkeeping), and can be performed by service providers who do not need to

have professional accounting skills. The second type of task are value-adding

tasks which require analysis and interpretation skills which practising

accountants are trained to provide.

13

IBIS warns that the trend towards the outsourcing of basic accounting functions

could favour non-accounting firms, given that the tasks involved can be easily

computerised. Boreham and IBIS both suggest that accountants have a greater

role to play in the latter task, i.e., the analysis of accounting data and adding

value to accounting data.

In the Victorian public sector, the evaluation of contractors who have tendered

for outsourced services is based on the service user's selection criteria.

Anecdotal evidence obtained from the Outsourcing Evaluation and Contract

Management Unit have highlighted a variety of factors which have been

recommended for use by the public sector when evaluating service providers in

outsourcing decisions. Also documented in the Victorian Outsourcing and

Contract Management Guidelines (Victorian Department of Treasury and

Finance, 1996), these factors include cost savings, service-provider capability

and experience, quality of services provided, flexibility in contractual

relationships and the impact of the outsourcing arrangement on staff

Within the IT industry, expectations of outsourcing benefits go further than

lowering IT costs. The success of outsourcing has been measured in terms of

business results, not just IT performance. Service-provider firms which fail to

deliver minimum service levels have had their contractual fees reduced. Having

identified their exact evaluation criteria in relation to the selection of service

providers, service buyers have built periodical payment adjustments into

outsourcing contracts that are based on the evaluation criteria (Gerber, 1995).

An IT outsourcing study undertaken in the United Kingdom (Fitzgerald, 1994)

involving a sample of 1,000 firms revealed the expectations from IT outsourcing

were not all met. Against the general projections of a rising trend in

5 For summary of interview details, refer to Appendix J (Interview No. 2).

14

outsourcing, approximately a third of the 162 responding firms which have

experienced outsourcing, had in the last five years cancelled contracts as

opposed to straightforwardly renewing them. In half of these cases, the contract

was subsequently re-negotiated, but a further 2 8 % of cases involved a change of

service provider, while the remaining 2 2 % saw the IT brought back in-house.

The study also suggested that the relationships between separate parties in the

outsourcing arrangement were becoming increasingly contractually based.

Recommendations made as a result of the study were centred on contractual

issues.

It was suggested that at a minimum, contracts should include four elements:

- specified service level agreements;

- penalty clauses;

- specific arrangements for adapting to changing circumstances in the future;

and

- early termination provisions.

Because the evaluation of service-providers is a necessary task before

outsourcing of any service can occur, an objective of this study (Section 5.2,

Table 5.1) was to identify the selection criteria used by service-user firms in the

evaluation of service-providers of typical accounting functions. Under this

objective, the degree by which service-users have had their expectations met by

service-providers was also examined.

15

3.4 OUTSOURCING PROBLEMS OR CONCERNS

Although outsourcing has been promoted as a practice which brings many

benefits to service-user organisations, it had failed to avoid criticisms. Articles

on outsourcing which have been published in the 1990s often highlight problems

or concerns encountered by both service users and service providers. Although

most of the articles were associated with IT (a function which has been heavily

outsourced in the 1990s), many of the problems highlighted were general in

nature. In addition to evidence drawn from the above-mentioned articles,

anecdotal evidence obtained from the Outsourcing Evaluation and Contract

Management Unit has revealed human resource concerns encountered during

outsourcing arrangements within the public sector .

The types of outsourcing problems highlighted in the literature can be classified

as financial, technological, legal, human resource and management and control.

The documented problems or concerns which have been experienced by firms

involved in outsourcing are listed in the sections 3.4.1 to 3.4.5.

Given that the evaluation of outsourcing decisions for any type of function

would involve financial, technological, legal, human resource and management

and control considerations, an objective of this study (Section 5.2, Table 5.1)

was to identify any concerns over the outsourcing of typical accounting

functions.

6 For summary of interview details , refer to Appendix J (Interview No. 3).

16

3.4.1 Financial concerns

• Extra-use charges and hidden costs (Bresnen and Fowler, 1994; Cullen,

1997; Ernst and Young, 1994)

• Cost of service changes (Cullen, 1997)

• Short-term savings offset by long-term costs (Ernst and Young, 1994)

• Loss of economies of scale for very large service-user firms which are

subject to transaction-based charges (Chalos, 1995; Dobbie, 1991)

• Transitional personnel-related costs associated with remuneration payouts,

placement costs and potential lawsuits and union difficulties (Cullen, 1997;

Ernst and Young, 1994)

• Cost of conversion and implementation (Ernst and Young, 1994)

• Cost of management team to monitor and manage the outsourcing

relationship (Ernst and Young, 1994)

• Exposure to vendor's financial strength and profit motive (Cullen, 1997;

Ernst and Young, 1994)

• Potential litigation costs for contract breaches (Ernst and Young, 1994)

3.4.2 Technological

• Loss of critical skills required to maintain competitive advantage (James,

1992; Quinn and Hilmer, 1994)

• Possibility of being tied to obsolete technology for the service provider to

achieve economies of scale (Ernst and Young, 1994)

• Exposure to service providers' lack of commitment, resulting in technology

or service degradation (Cullen, 1997; Ernst and Young, 1994)

17

• Potential loss of service levels as service provider may only meet the

contract, not exceed it, without incentives (Cullen, 1997; Ernst and Young,

1994)

• Difficulties in transfer of data between customer and service-provider for

functions which have been partially outsourced (Dobbie, 1991)

3.4.3 Legal

• Defining service levels (Fitzgerald, 1994)

• Managing outsourcing contracts and its details (Fitzgerald, 1994)

• Lack of flexibility in contracts to accommodate major changing business

circumstances of service-buyers (Rothery and Robertson, 1995)

3.4.4 Human Resource

• Loss of customer focus (Cullen, 1997)

• Service-provider lacking thorough knowledge of customer's business

(Cullen, 1997)

• Industrial relations problems (Cullen, 1997; Bresnen and Fowler, 1994;

Bushell, 1996; James, 1992; Rothery and Robertson, 1995)

• Difficulty in managing relationships between external service-providers and

operational management (Fitzgerald, 1994; Rothery and Robertson, 1995)

• Loss of morale amongst internal staff during the evaluation of outsourcing

decisions (Maiden, 1996a; Bushell, 1996)7

In addition to information drawn from these articles, anecdotal evidence was gathered from the Outsourcing Evaluation and Contract Management Unit - refer to Appendix J (Interview

No. 3).

18

3.4.5 Management and control

• Loss of control over decision making, resource management and daily

operations (Cullen, 1997; Bresnen and Fowler, 1994; Ernst and Young,

1994; Quinn and Hilmer, 1994)

• Service-provider inflexibility to meet changing requirements on a timely

basis (Cullen, 1997; Ernst and Young, 1994; Fitzgerald, 1994)

• Service-providers' lack of responsiveness to unexpected situations

(Fitzgerald, 1994)

• Monopolistic supplier actions (Cullen, 1997)

• Loss of in-house expertise (Cullen, 1997; Bresnen and Fowler, 1994; Ernst

and Young, 1994)

• Loss of confidentiality (Cullen, 1997)

• Loss of competitiveness and innovation as service users rely on service

providers' technology and operational procedures(James, 1992)

19

4 SERVICE-PROVIDER ISSUES

In order to gain some preliminary understanding of the categories, and role, of

service providers within the accounting services industry, interviews were

conducted with the Australian Bureau of Statistics (ABS) and two accounting

firms. The main focus of the interviews with the accounting firms were to

identify important issues associated with the outsourcing of typical accounting

functions, as perceived by accounting firms.

4.1 DISPOSITION OF SERVICE PROVIDERS

According to evidence provided by the ABS, the three main categories of

service-provider firms which are in the business of providing some or all of the

accounting functions included in this study, are accounting firms, bookkeeping

firms and payroll bureaux. The accounting functions included in this study are

basic accounting functions (e.g., general ledger, accounts receivable, accounts

payable, payroll etc.) and value-added functions (e.g., management accounting

etc.).

Information gathered from articles by Boreham (1993; 1994), and evidence

gathered from interviews with two accounting firms9, indicate that accounting

firms prefer to provide value-added services in preference to bookkeeping

services. Even though accountants profess to be the most capable in the

provision of bookkeeping services, many accounting firms lack interest in these

services due to low financial returns and their inability to perform the services in

a cost-effective way.

For brief details of interview conducted with the A B S , refer Appendix J (Interview No. 4).

For summary of interview details, refer Appendix J (Interview No. 5 and 6).

20

The ability of basic accounting services, e.g., bookkeeping, payroll, accounts

payable, etc., to be computerised has led to these activities being seized by non-

accounting firms. This c o m m o n attitude of accounting firms towards the

provision of basic accounting services has led to a generally low level of

commercialism and competitiveness necessary to confront and win the emerging

battle of accounting and accounting-related services (Allen, 1993; IBIS, 1994).

Notwithstanding the common attitude of accounting firms towards the provision

of basic accounting services, these services could be financially worthwhile if

accounting firms can 'package' the services with other types of accounting

services which generate greater returns. According to the accounting firms

interviewed, the attractive types of services are generally consultative type

services, e.g., Management Accounting, Taxation Consulting, etc.

Alternatively, accounting firms can contract out the bookkeeping services of

clients to specialised bookkeeping firms or provide referral services in

conjunction with bookkeeping firms. With these alternatives, accounting firms

can utilise the data processed to perform value-added services. This marketing

strategy was also mentioned by Boreham (1993), who reinforced the importance

of accounting firms' need to maintain an important relationship with their

clients, and avoid losing their mantle as "natural" advisers to businesses.

The capacity of non-accounting firms to service basic accounting functions has

been significantly affected by the computerisation of these functions (Boreham,

1993; 1994). The success of these firms is based on their ability to pass on to

their clients the cost savings gained from the economies of scale in their

computerised operations.

21

There are beliefs that the role of computers will become increasingly important

over time, to the extent of necessitating accounting firms to be fully aware of the

capabilities of new state-of-the-art computer technology and be able to

capitalise on these technologies (Allen, 1993).

Apart from the information gathered from the interviews and the articles

mentioned above, there is little empirical evidence to indicate whether

accounting firms are interested in becoming service providers for typical

accounting functions. There is also a lack of evidence indicating whether

accounting firms have the capacity (i.e., technology and appropriate cost

structure) to take advantage of business opportunities arising from the

outsourcing of typical accounting functions. As such, two objectives of this

study were to evaluate, within the accounting services industry, the interest in

the provision of typical accounting services, and the impact of the provision of

these services on the cost structure of service-provider firms (Section 5.2, Table

5.1).

22

PARTB

5 THE CURRENT STUDY

5.1 PRIOR RESEARCH ON OUTSOURCING OF ACCOUNTING

SERVICES

While the outsourcing of Information Technology is relatively advanced with

numerous cases detailing their success and benefits (Adams, 1993; Cullen,

1997; Deloitte and Touche, 1997; Fitzgerald, 1994; James, 1992; Plunkett,

1991; Power, 1994; P W , 1995; Rundell, 1994; Rothery and Robertson 1995;

Ryan, Hasler and Nadalin, 1996; Scott, 1995; Smith, 1991; Sweet, 1994;), there

has been considerably less literature or cited cases (both locally and overseas)

on the success of outsourcing accounting activity.

The types of accounting services currently outsourced in Australia include

general business accounting, management accounting, taxation, auditing and

investment advice (ABS, 1992/93). A number of Australian studies (ABS,

1987/88; 1992/93; IBIS, 1994; Price Waterhouse Urwick, 1995) and a European

study (EIU, 1995) have highlighted an increasing trend to outsource typical

accounting functions. IBIS (1994) has claimed that the level of outsourcing of

typical accounting functions in Australia will increase from 10 percent ($5.5

billion) of accounting services turnover in 1994 (estimated at $55 billion) to 30

percent ($30 billion) of predicted turnover of $90 billion in 2005.

While the above-mentioned studies (ABS 1992/93; IBIS, 1994; Price

Waterhouse, 1995; EIU, 1995; IC, 1996) and a public sector study (IC, 1995)

suggest that there are expectations of an increase in outsourcing of accounting

activity, there are some limitations in this literature:

23

- the statistical data produced by the Australian Bureau of Statistics (ABS

1992/93) lacked currency, as the accounting services industry census is

performed once every three years;

- IBIS' estimate of the increase in the dollar value of accounting activity

outsourced between 1994 and 2005 (IBIS, 1994) was not supported by

evidence of h o w such estimates were determined;

- the sample used in the Price Waterhouse study was based on existing and

potential clients of the firm, in order to provide it with an insight into future

business opportunities with the respondents. As such the findings of the

study are biased towards the type of firms or industry that are meaningful to

Price Waterhouse and are not necessarily representative of a random

selection of firms or industries;

- data provided by the Victorian State Government (IC, 1995) which reflected

the increase in the number and dollar value of contracts between 1991/92

and 1993/94 for financial services included a variety of service types and not

accounting services alone.

5.2 STUDY RATIONALE AND OBJECTIVES

Studies on outsourcing (Price Waterhouse, 1995; EIU, 1995) and a business

publication on the accounting profession and its developments (IBIS, 1994)

have predicted that the outsourcing of accounting services will increase into the

next century. While these studies have identified the types of functions that will

increasingly be outsourced in the future, there was a lack of information

24

describing the selection criteria that will be used by service-buyers

(organisations) in the evaluation of service- providers. These claims have been

used in this study as a basis for further research into the needs of service buyers,

and to determine whether these needs could provide business opportunities for

accounting firms as service providers. The outsourcing concerns associated

with several aspects such as financial, technological, human resource etc.

(Section 3.4) have also been examined.

In terms of the market of service-providers of typical accounting functions, there

were assertions (IBIS, 1994) that the trend to outsource basic accounting

functions could favour non-accounting rather than accounting firms. Functions

which are capable of being computerised such as payroll, invoicing, share

registries, etc., are increasingly being seized by non-accounting organisations

with electronic data processing skills rather than accounting skills. O f the

estimated $5.5 billion of basic accounting functions outsourced, $2 billion were

lost to non-accounting firms, raising concern that this trend could develop

further to the detriment of accounting firms. Evidence to support these figures

was however, not provided. A n increasing trend to outsource typical accounting

functions could provide more business opportunities for practising accountants.

However, there was little evidence to indicate whether accounting firms had the

capacity and ability to fulfil the role as service providers of outsourced typical

accounting functions. This aspect had not been investigated in the Price

Waterhouse study or in any of the other studies mentioned above. The purpose

of this study is therefore, to identify a number of aspects in relation to both

service-user and service-provider organisations.

25

The major questions raised from the above discussion are, thus, as follows.

Is there an increasing trend in Australia to outsource typical accounting

functions?

Is there any association between certain organisational and accounting

infrastructure characteristics and the degree of outsourcing performed?

What are the perceived benefits resulting from the outsourcing of typical

accounting functions?

What criteria are considered the most important by service-buyers when

selecting service providers for typical accounting functions?

Do service-user organisations have any concerns over the outsourcing of

typical accounting functions?

What is the level of interest amongst service-provider firms within the

accounting services industry in the provision of typical accounting

services?

Does the provision of typical accounting services have an impact on the

cost structure of service-provider firms within the accounting services

industry?

26

This current study has been designed to answer these questions and to achieve

the objectives shown in Table 5.1:

Table 5.1 No.

1

2

3

4

5

6

7

8

Objectives

T o determine the trend in the outsourcing of typical accounting functions

To identify any association between organisational and accounting infrastructure characteristics and the degree of outsourcing performed

To identify the rationale and perceived benefits associated with outsourcing typical accounting functions

To identify the selection criteria used by organisations (service buyers) in the evaluation of service providers of typical accounting functions

To identify any concerns over the outsourcing of typical accounting functions

T o evaluate the interest of service-provider firms in the provision of typical accounting services

T o evaluate the impact of the provision of typical accounting services on the cost structure of service-provider firms within the accounting services industry

T o identify service-provider firms' perception of the benefits enjoyed by their clients in the outsourcing of typical accounting functions

In satisfying the above-mentioned objectives, a set of hypotheses was developed

for testing (refer to Section 5.3).

For the purpose of this study, typical accounting functions will be defined to

include both basic processing tasks and value-adding tasks.

27

Basic processing tasks are those which are capable of being computerised, and

will include:

- General Ledger processing;

- Accounts Payable/Receivable functions;

- Payroll processing;

- Fixed Asset accounting;

- Inventory accounting.

Value-adding tasks require information analysis and interpretation skills,

and will include:

- Budgeting;

- Costing;

- Management accounting.

There is a range of other functions which are performed by accountants, such as

auditing, external reporting, taxation, treasury, insolvency/reconstructions and

superannuation. As these functions are specialist fields and are not expected to

be serviced by all public practices, they will not be included in this study.

5.3 HYPOTHESES

Hypotheses were developed for study objectives 1,2 and 6. These hypotheses

are shown in Table 5.2 and have been developed from prior research and

anecdotal evidence (which was previously discussed in Chapters 1 to 4). Where

prior research was used, studies on the outsourcing of Information Technology

28

were relied on as the main source due to the limited availability of research data

on the outsourcing of TAFs.

Hypotheses were not developed for study objectives 3, 4, 5, 7 and 8 because of

their descriptive nature.

29

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5.4 RESEARCH AND ANALYSIS GUIDELINES

Tables 5.3 and 5.4 (Research Guideline Tables) shown in the following pages

have been designed to assist in the development of the survey instruments.

Based on the study objectives (Section 5.2, Table 5.1), each table identifies the

study objective and the specific questions for which information is sought. For

each question, the key research variables and the means of measuring each

variable, are identified.

Table 5.3 relates to study objectives 1 to 5 (Section 5.2, Table 5.1). The

questionnaire addressing service users of typical accounting functions were

based on this table. Table 5.3 relates to study objectives 6 to 8 and was used to

aid in the preparation of the questionnaire addressing service providers within

the accounting services industry.

The information sought in Tables 5.3 and 5.4 are shown below. 'RG' refers to

Research Guidelines.

Service-user Survey (Table 5.3)

• Profile of respondents (RG No. 1)

• Trends in the outsourcing of typical accounting functions (RG No. 2)

• Association between organisational and accounting infrastructure

characteristics and the degree of outsourcing performed (RG No. 3)

• Rationales/perceived benefits for outsourcing (RG No. 4)

• Selection criteria used in the evaluation of service providers (RG No. 5)

• Concerns in outsourcing typical accounting functions (RG No. 6)

34

Service-provider Survey (Table 5.4)

• Profile of respondents (RG No. 7)

• Respondents' degree of involvement as providers of typical accounting

services11

(RGNo. 8)

• Respondents' interest in the provision of typical accounting services (RG

No. 9)

• Impact of the provision of typical accounting services on respondents' cost

structure (RG No. 10 and 11)

• Perceived benefits for outsourcing typical accounting functions12 (RG No.

12)

1' The term typical accounting services refer to the nine accounting services associated with

the nine accounting functions which are the subject of this outsourcing study. Refer Glossary for full explanation of the terms typical accounting functions and typical accounting services

12 See footnote 11.

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6 RESEARCH METHODOLOGY

6.1 DATA COLLECTION

The common methods of data collection in research studies include face-to-face

interviews; telephone interviews; questionnaires that have different ways of

administration; observations of organisations or events, etc. The

appropriateness of each data collection technique would depend on the

environmental setting from which data are collected and the type of data

sources. In the case of this study, the environmental setting was the workplace

within organisations where accounting functions were performed. This was

regardless of whether the functions were performed in-house i.e., within the

service-users' premises, or performed externally within the vendor's premises.

Data sources were primary: to satisfy objectives 1 to 5 (Section 5.2, Table 5.1)

data were collected from top management of service-user organisations; to

satisfy objectives 6 to 8, data were collected from principals of service-provider

organisations. The collection of data from top level management was, in both

cases, to avoid any bias in the answers, especially since outsourcing has been

perceived to be a sensitive issue.

Two groups of data sources were required for this study. The first group was a

random sample of 300 service-user organisations which was randomly selected

from a listing obtained from the Australian Stock Exchange (Section 6.2.2).

The second group was a sample of 300 service-provider firms which was

carefully selected from the Australian Yellow Pages (Section 6.3.2). The

organisations or firms selected were geographically based all over Australia.

The data which were required for this study varied in detail; while most of the

data could be supplied with very little effort and time, some could not be

accurately supplied without investigation. Given these considerations and the

61

fact that top level management have time constraints while carrying out their

professional responsibilities, the most practical method of data collection would

be the use of questionnaires which were administered through the public mail.

With the necessity to collect data from two separate groups, two separate

surveys were performed. The first survey was conducted in October 1997 and

was designed to meet objectives 1 to 5 of the study (Section 5.2, Table 5.1).

The findings of the first survey were used to develop the questionnaire for the

second survey, which was aimed to satisfy objectives 6 to 8 of this study. The

second survey was conducted in April 1998. Details of the first and second

surveys are discussed in Sections 6.2 and 6.3 respectively.

6.2 SURVEY 1 (SERVICE-USER ORGANISATIONS)

This survey was designed to obtain information from organisations which had

accounting operations in Australia. A number of factors had been considered in

the selection of organisations to be included in the sample. The first factor was

the organisation's familiarity with the topic of outsourcing. According to the

findings of prior research and anecdotal evidence, the organisations which

outsourced administrative functions tended to be successful and large. The

second factor was the desirability of obtaining findings which were

representative of organisations throughout Australia. Taking into account these

two factors, the sample of organisations for this survey was taken from a

Profitability Study conducted by the Australian Stock Exchange (discussed in

Section 6.2.2).

62

6.2.1 Development of the Survey Instrument

The questionnaire was formulated around the information specified in the

Research Guidelines for service-user organisations (Section 5.4, Table 5.3).

A brief description of the survey was provided at the start of the questionnaire to

inform the recipient of the document as to the purpose of the survey, the

preferred individual who should complete the questionnaire and a glossary of

terms used in the document in order to avoid any misinterpretation by the

reader. The content of the questionnaire was divided into four parts. The

sequence of each part and the questions contained within each part were such

that the respondents were led from questions that were generally easy to answer,

to those that were progressively more difficult. The first part of the

questionnaire contained general questions about the organisation itself, while

the next three parts contained questions which were specifically related to the

accounting functions and outsourcing itself. Respondents were required to

complete only the relevant sections, and this depended on whether the

respondent organisation had performed outsourcing or not.

Of the sixteen questions contained in the questionnaire, twelve were in the form

of check boxes or scale ratings. These formats were used only where the

choices of answers were mutually exclusive and collectively exhaustive. While

these questions were simple to understand and quick to complete, there were

other types of information which warranted open-ended questions. For instance,

the identification of outsourcing concerns by service-user organisations was not

confined by questions framed in a closed format, as respondents were

encouraged to describe their concerns or problems freely. Four questions in the

questionnaire took this open-ended format.

63

A pilot survey was conducted prior to performing the main survey. This survey

involved two companies and two accounting firms which were based in

Victoria, for the convenience of follow-up.13 Feedback was required from these

participants to ensure that the questionnaire was comprehensible and easy to

complete within the expected time frame. The feedback and suggestions which

were received during this survey were considered in the development of the

final questionnaire.

6.2.2 Sample Selection

In order to obtain reasonable findings for this survey, public listed companies

identified from the listing of participants of the 1995 Australian Stock Exchange

Profitability Study (SSERD, 1995) were included in the sample. There is a

number of merits in having taken this approach. First, these companies were

expected to have familiarity with the accounting functions specified in the

study, due to their requirement to maintain proper accounting records according

to the legislative reporting standards imposed on them by the Australian

Securities and Investment Commission (ASIC) and the Australian Stock

Exchange (ASX). Second, the expectation that most of these companies are

large due to their reliance on public raising of equity capital, would increase the

likelihood of their familiarity or experience in outsourcing. Third, the

distribution of these companies in all states could provide an even

representation of outsourcing experiences and trends obtained throughout

Australia.

For details of the firms or organisations which assisted in the pilot survey, refer Appendix J.

64

The sample of organisations was identified from the list of 433 companies

which had participated in the Stock Exchange Profitability Study (SSERD,

1995). The participants of the Profitability Study have had at least four years of

reasonable performance and are associated with all 24 industry groups.

Of the 433 companies involved in the 1995 Profitability Study, 300 companies

were randomly selected for this outsourcing study. To ensure that sensible

answers could be obtained for this study, the researcher had to ensure that

companies which did not meet the following criteria were not selected for the

survey:

i) Location of each company's head office to be based in Australia.

This was to ensure that the findings were comparable in the following

aspects:

• Being Australian based, the accounting reporting standards would be

in compliance with the Australian Corporations L a w and the

Australian Stock Exchange.

• These companies would have access to Australian-based service

providers of typical accounting functions. This factor is important

when comparing the findings of this survey to the findings of the

second survey, which is based on responses from Australian service

providers of accounting functions.

(Interviews No. 5,6,7 and 8).

65

i i) Employment of staff.

This factor was mandatory because the study may be able to determine if

there is any relationship between employment numbers and the

aggressiveness with which an organisation pursues outsourcing.

Of the 24 industry groups, two groups, i.e., Investment & Financial

Services and Property Trusts, were omitted from the survey sample, as

most of the companies within these industries were owned by other

companies and did not employ any staff.

iii) Existence of a reported turnover figure in the last year covered by the

Stock Exchange's Profitability Study, i.e., 1994/95.

An area of investigation in this study was the direction of changes in the

turnover of both respondents which outsourced and those that did not

outsource, over a period of three financial years between financial years

1994/95 and 1996/97. A number of companies in the Stock Exchange

Profitability Study, especially those within the mining industries, failed

to report a turnover figure for the financial year 1994/95.

Appendix A, Table A-l shows the 24 classification of industries involved in the

1995 A S X Profitability Study. Out of the total 433 companies, 300 companies

were randomly selected for this outsourcing study. As shown in the last column

of Table A-l, companies have been have been selected from all classifications

except for Investment & Financial Services and Property Trusts. The

proportion of companies selected under each classification for this outsourcing

study was not similar to the proportion of companies which existed under each

classification in the A S X study; maintaining the same proportion

66

was not possible due to the process of elimination mentioned above (i.e., the

companies had to meet three criteria).

6.2.3 Limitations of the methodology employed

In collecting data, any researcher is concerned with the objectives of validity

(the research measures what it intends to measure) and reliability (response

consistency) in their selection of the research tools. There are four issues which

represent limitations in this context. While these limitations have been

acknowledged, deliberate measures have been taken, where possible, to

overcome the limitations as far as possible.

(i) Reliance on the ASX company listing.

While recognising the merits in using the company listing of the Stock

Exchange Profitability Study (Section 6.2.2), there was unequal

representation of companies from each type of industry. As such, the

responses obtained may not be representative of the entire population of

organisations listed on the stock exchange. Taking this into

consideration, the information requested in the survey included the

organisational characteristics of the respondent such as industry type,

operational size in terms of revenue and employees, etc. The objective

of this was to allow a profile to be built for organisations which

outsourced and those that did not.

67

Impact of decentralised organisations.

Due to the possibility that the head office and other operational areas of

the companies may be decentralised, the extent of outsourcing of

accounting functions in one area may differ from that of another area. In

such a case, information may not have been readily obtainable that

represents the organisation as a whole. In order to obtain the best

centralised source of total organisational information and activities, the

Head of the Accounting or Finance Department in each company was

requested to complete the questionnaire.

Risk of completion of questionnaire by individual other than the

preferred individual.

While the Head of the Accounting or Finance Department of each

company was requested to complete the questionnaire, there is the risk

that an individual other than the Head of Department (e.g., the

department secretary, financial accountant, etc.) would complete the

questionnaire. This risk is conceivable due to the fact that very senior

personnel are often restricted by time constraints while carrying out their

varied high level duties. In such a situation, the answers supplied in the

questionnaire may be biased towards the collective experiences of an

individual who may not be as informed as the Head of Department.

Financial constraints.

Because of the costs associated with performing two surveys, the number

of companies included in the sample for this service-user survey was

limited to 300. Based on an expected response rate of between 20 - 2 5 %

68

(i.e., 60-70 responses), the data received may not be representative of the

entire population of organisations listed on the stock exchange, which

was above 1,000 at the time of the survey. Taking this into

consideration, respondents were asked permission to enable the

researcher to conduct follow-up interviews where required. This would

enable the quality of research information to be enhanced.

6.2.4 Conduct of the Survey

The documents mailed in this survey included a questionnaire and a cover letter

which outlined the objectives of this study. Both of these documents are shown

in Appendix B. The Head of the Accounting or Finance Department of each

company was requested to complete and return the questionnaire by a specified

date, which was approximately three weeks from the date the questionnaires

were mailed to them.

Where questionnaires were returned by Australia Post due to the inability to

locate the addressees, direct enquiries or references were made of the Australian

Stock Exchange, Telstra Directory Assistance and White Pages to obtain current

contact details.

Of the 300 questionnaires sent, a total of 19 questionnaires were removed from

the sample. These comprised;

18 companies which were unable to be located;

one company which had been taken over by another company which was

already included in the .sample.

69

The survey had a response rate of 21.7%. O f the 281 questionnaires which were

presumed to have been received, 61 responses were received over a period of

seven weeks.

Although the respondents were not required to identify themselves, a relatively

small proportion had volunteered to provide follow-up consultation. The

opportunity was taken to follow up the responses from these respondents in

order to obtain more detailed information where appropriate.

6.3 SURVEY 2 (SERVICE-PROVIDER FIRMS)

This survey was designed to obtain information from service providers in the

accounting services industry. The majority of service providers comprise

accounting firms which were run by qualified accountants as well as

bookkeeping and payroll bureaux which were run by non-accountants. As such,

questionnaires were sent to accounting firms, bookkeeping firms and payroll

bureaux. The number of questionnaires sent to each group was stratified by the

proportion of the population of each group, against the total population of three

groups, as indicated by the contents of the Telstra Yellow Pages. The

stratification process is illustrated in Tables 6.1 and 6.2 (Sections 6.3.2 and 6.3.3

respectively).

6.3.1 Development of the Survey Instrument

The questionnaire for this survey was formulated around the information

specified in the Research Guidelines for service-provider firms (Section 5.4,

70

Table 5.4). All six questions contained in the questionnaire were in the form of

check boxes or scale ratings.

Similar to the service-user survey, a pilot survey was conducted to ensure that

the questionnaire was comprehensible and easy to complete within the expected

time frame. The pilot survey involved three accounting firms which were based

in Victoria for the convenience of follow-up. The feedback and suggestions

received from these firms were considered in the development of the final

questionnaire.

6.3.2 Sample Selection

In order to obtain valid evidence from this survey, a number of factors had been

considered in the selection of service-provider firms for the sample. The

following factors were the preferred criteria and have been taken into account in

the selection of service-provider firms for the survey.

The first factor was the type of services which were provided by the firms. As

the focus of the study was on the nine types of accounting service specified in

Section 5.2, there was a need to survey accounting firms which could provide

informed responses in relation to questions on these service types. In order to

avoid the reliance on responses from firms that are mainly involved in providing

tax compliance services (believed to be the main service provided by the

majority of small practices, i.e., one or two person practices), there was a

preference for the accounting firms to be of substantial size, i.e., having at least

5 persons providing accounting services.

71

The second factor was the geographical location of these firms. As the potential

respondents of the service-user survey were based throughout Australia, there

was a need for the geographical location of the service-provider firms to be

taken from as many states as possible. This would enable an even

representation from states throughout Australia, consistent with the approach

taken in the service-user survey.

The Australian Society of Certified Practising Accountants was approached to

assist by providing a mailing list which would satisfy both of the above-

mentioned criteria. However, due to technical difficulties this could not be

obtained. In order to satisfy the above-mentioned factors as closely as possible,

the Telstra Yellow Pages of five major Australian cities were used. Accounting

firms were selected by the details of the services they provided, as advertised.

A total of 300 accounting firms was selected from five Australian states as

follows:

Table 6.1 Stra

State

Victoria

N e w South Wales

Queensland

Western Australia

South Australia

Total

tification of accouni

Ratio of advertisements (approximation)

26.0%

27.0%

17.0%

19.0%

11.0% 100.0%

ting firms in sam

No of firms included in sample

80 80 50 60 30 300

pie

Ratio of firms included in sample

26.5%

26.5%

17.0%

20.0%

10.0%

100.0%

6.3.3 Additional samples

Although the above-mentioned survey objectives involve the study of

accounting firms, two small and separate samples of other types of firm

72

operating within the accounting services industry were included. These other

firms were categorised as bookkeeping firms and payroll bureaux. The volume

of Yellow Pages advertisements placed by both categories aggregated to

approximately 1 0 % of the total volume of advertisements placed by accounting

firms. Altogether, twenty bookkeeping and twenty payroll firms were selected

for the service-provider survey as shown in Table 6.2.

According to the findings of the service-user survey which was conducted in

October 1997, payroll services was the most popular service outsourced

amongst all the accounting services included in this study. As such, a higher

proportion of payroll firms (i.e., 7 % instead of 3%) was surveyed in order to

obtain findings which can be analysed together with the findings from the

service-user survey.

Table 6.2 Stratification of bookkeeping firms and payroll bureaus based on number of accounting firms

N o of firms included in sample Sample

proportion of non-accounting firms (against accounting

firms)

Proportion of Accounting firm advertisements

100%

300

Proportion of Bookkeeping firm advertisements

(against accounting firms) 7%

20

7%

Proportion of Payroll firm

advertisements (against

accounting firms) 3%

20

7%

73

6.3.4 Limitations of the methodology employed

Given the resources available for the selection of service-provider firms to be

included in the sample, there were two limitations to the methodology

employed. In order to obtain valid and reliable answers from the survey,

deliberate measures have been taken to overcome these limitations as far as

possible. These limitations were as follows:

(i) Difficulty in identifying appropriate service firms for survey sample.

With the varied styles of advertising placed by service-providers in the

Yellow Pages, there were difficulties in identifying service-provider

firms which could provide meaningful answers to the questionnaire used.

Firms which advertised under the "Accountants" section were not

necessarily operated by qualified accountants. Similarly, firms which

advertised under the "Bookkeeping" and "Payroll" sections were

operated by accountants as well as non-accountants. In order to be able

to judge the credibility of the answers received, survey respondents were

requested to indicate their firm's professional membership, size and

portfolio of services provided.

(ii) Financial constraints.

Because of the costs associated with performing two surveys, the number

of firms included in the sample for this survey was limited to 340. Based

on an expected response rate between 20-25% (i.e., 68-85 responses), the

data received may not be representative of the entire population of

service-provider firms in the accounting services industry. Taking this

into consideration, respondents were asked permission to enable the

74

researcher to conduct follow-up interviews where required. This would

enable the quality of research information to be enhanced.

6.3.5 Conduct of the Survey

The documents mailed in this second survey included a questionnaire and a

covering letter which outlined the objectives of this study. Both of these

documents are shown in Appendix C. The Principal or Managing Executive of

each firm was requested to complete and return the questionnaire by a specified

date, which was approximately three weeks from the date the documents were

mailed to them.

Where questionnaires were returned by Australia Post due to the inability to

locate the addressees, direct enquiries or references were made with Telstra

Directory Assistance to obtain current contact details.

Of the 340 questionnaires sent, a total of 16 questionnaires was removed from

the sample. These comprised:

14 firms which were unable to be located; and

- 2 firms which had preferred not to participate in the survey

The survey had a response rate of 25.6%. Of the 324 questionnaires which were

presumed to have been received, 83 responses were received over a period of

seven weeks.

Although the respondents were not required to identify themselves, a substantial

proportion had volunteered to provide follow-up consultation. The opportunity

75

PARTC

SURVEY FINDINGS

The responses of both the Service-User and Service-Provider Surveys were

analysed in accordance with the Research Guidelines (see Tables 5.3 and 5.4).

These are discussed in Sections 7 and 8 respectively.

The findings in Section 7 relate to the first five study objectives shown in Table

5.1. These include the identification of various aspects such as outsourcing

trends, any association between outsourcing and organisational characteristics,

the rationales and benefits of outsourcing, the selection criteria used by service-

buyer firms and any concerns about the practice of outsourcing.

In Section 8, the findings relate to the last three study objectives shown in Table

5.1. These include the evaluation of service-provider firms' interest in

providing typical accounting services (TAS), the impact of the provision of

these services on the cost structure of the firms and the perception of service-

providers on the benefits enjoyed by their clients through outsourcing.

7 FINDINGS: SERVICE-USER SURVEY (SURVEY 1)

The questionnaire was designed to identify a number of aspects, in accordance

with the Research Guidelines shown in Table 5.3. A response rate of 21.7%

was achieved, based on 61 returned questionnaires. The responses for

individual questions were not all usable due to failure to answer certain sections

76

of the questions. The response rates for each question in the order of the

discussion in this chapter are shown in Appendix C-l, Table C-l.

7.1 PROFILE OF RESPONDENTS (RG No. 1)

7.1.1 Geographical Location

The survey covered all Australian States. Response rates varied as shown in

Table 7.1 with responses from New South Wales and Victoria being

substantially higher than those from other States.

Table 7.1 Service-User Survey: Distribution of Responding Firms

Australian State

N e w South Wales

Victoria

Queensland

Western Australia

South Australia

Tasmania

Unidentified

Total

Number

19

17

7

5

3

1

9

61

Percentage

31

28

11

8

5

2

15

100

77

7.1.2 Industry Classification

As shown in Figure 7.1, the majority of responding firms was from the Mining

and Manufacturing sectors (representing 26 and 2 5 % respectively). Other firms

were from Retail Trade (10%), Finance and Insurance (10%), Communication

Services (8%), Construction (5%), Transport and Storage (5%), Electricity, Gas

and Water Supply (3%), Wholesale Trade (3%), Personal and Other Services

(3%) and Cultural and Recreational Services (2%).

Figure 7.1 Respondents' Industry Classification

INDUSTRY CLASSIFICATIONS

Cultural/Recreational Service

Personal/Other Services

Wholesale Trade

Elec, Gas & Water Supply

Transport & Storage

Construction

Communication Services

Finance/Insurance

Retail Trade

Manufacturing

Mining

~—-j 2 %

_ _ 3 % --''"•"-""""! 3% --::'..'•:'". " | 3 %

-• - 1 b %

--tb%

--

--

--

--

|8%

310%

__ 10%

'" ••': • .'.''. ' _|2b% --"," •'""' ~Jzo% ' : ' • . . 1

0% 5% 10% 15% 20%

% Respondents

25% 30%

78

7.1.3 Period of Operation

The experience of responding firms measured by the period of their operations

was varied. Approximately 90% of firms were quite experienced having

operated for at least 10 years. As shown in Figure 7.2, the majority of these

comprised 36% who have operated for between 11 to 20 years, followed by

3 4 % who have operated for 41 years or more. The other 13% have had 21 to 30

years while 7 % in between 31 to 40 years of operations. Firms who have

operated for less than 10 years represented only 10% of total respondents.

Figure 7.2 Respondents' period of operation

PERIOD OF OPERATION

1-10 yrs 10%

41 +yrs Jgk

34% A 7\

WryjL M11-20 yrs

^^^/ • w 36%

31-40 yrs \ s > ^ ^ ^ 7 % 21-30 yrs

13%

7.1.4 Annual Revenue

Most responding firms were quite large, with 38% reporting revenue between

$10 and $100 million per annum, followed by 26% reporting revenue of $500

million or more per annum. The rest of the responding firms had annual

revenue in the range of $100 to less than $500 million (25%), $1 to less than

79

$10 million (8%) and under $1 million (3%). Figure 7.3 illustrates the

proportion of firms with various revenue earning capacity.

Figure 7.3 Respondents' annual revenue

7.1.5 Employment Numbers

The employment aspect was broken down into full-time employment within the

organisation (as a whole) and within the accounting department.

In terms of full-time organisational employment, most responding firms were

reasonably large, with 4 0 % having maintained employment in the range of 101

to 1,000 staff, followed by 2 8 % which had employment in the range of 1,001 to

10,000 staff. The remaining firms had employment in the range of 11 to 100

staff (20%), 10,000 or more staff (10%) and 1 to 10 staff (3%).

80

Figure 7.4 illustrates the distribution of employment numbers amongst the

responding firms.

Figure 7.4 Respondents' Employment Numbers

45% T

40%

35% |

30%

I £ 25%

J 20% _.

15%

10% |

5% |

0%

3%

EMPLOYMENT SIZE

40%

20%

28%

10%

1-10 staff 11-100 101-1000 1000-10000

Employment Numbers

10000+

All firms had maintained full-time employment within the accounting

department. More than half (54%) had employed between 1 to 10 accounting

staff, followed by 3 1 % which employed between 11 to 100 accounting staff.

The rest of the firms employed between 101 to 1,000 (9%), 1,001 to

10, 000 (5%) and in excess of 10,000 (1%) accounting staff.

81

7.2 TRENDS IN THE OUTSOURCING OF TYPICAL ACCOUNTING

FUNCTIONS

(RG No.2)

In this section, the outsourcing levels for typical accounting functions (TAFs) at

three points in time were compared. Outsourcing levels in 1992 and 1997 were

based on responding firms' actual experiences, whereas the outsourcing levels

beyond 1997 were based on firms' projected levels. A comparison is made of

the levels in 1992, 1997 and that which was projected for the period beyond

1997 to obtain a trend.

During the survey, the firms were asked to complete a schedule listing the nine

TAFs to indicate the degree of outsourcing performed for each function.

Different response rates were received for each function. The findings provided

were based on usable responses. Non-usable responses included cases where

the accounting function was not applicable and so an answer was not required,

or where the respondent had failed to respond even though, earlier, an indication

was given that the function was applicable.

7.2.1 Level of outsourcing performed

The outsourcing levels measured by the percentage of total respondents

outsourcing each type of T A F are contained in Table E-l (see Appendix E).

The results indicate that in 1992 and in 1997, TAFs were not outsourced by

more that three quarters of responding firms. The same proportion of

respondents had also indicated that TAFs were not considered for outsourcing

beyond 1997. The T A F outsourced by the highest percentage of respondents in

82

1992, 1997 and the period beyond 1997 was Payroll (18%, 2 7 % and 13%,

respectively).

7.2.2 Outsourcing trends

A trend was derived from responding firms' actual outsourcing levels in 1992,

1997 and firms' projected outsourcing levels beyond 1997. The TAFs for

which outsourcing had increased between 1992 and the period beyond 1997

were Accounts Receivable (Figure 7.5) and Accounts Payable (Figure 7.6).

Figure 7.5 Outsourcing of Accounts Receivable

6%

5% --

4% --

•o

o 3 %

_ 2% --

1%

0% 1992 1997 Projection

beyond 1997

Pe riod

|Series1 • 3 per. Mov. Avg. (Seriesl)

83

Figure 7.6 Outsourcing of Accounts Payable

The TAFs for which outsourcing had decreased within the same period were

General Ledger (Figure 7.7), Payroll (Figure 7.8), Inventory Accounting (Figure

7.9), Costing (Figure 7.10) and Management Accounting (Figure 7.11).

Amongst these accounting functions, Payroll was outsourced by the highest

percentage of firms in 1992 and 1997. The percentage of firms outsourcing

Payroll increased by 9 % between 1992 and 1997, and was projected to decrease

by 1 4 % after 1997, as firms indicated their intention to return to in-house

processing of this function. A summary of firms' concerns in relation to the

outsourcing of Payroll is highlighted in Section 7.11.3 of this report.

84

Figure 7.7 Outsourcing of General Ledger

1992 1997 Projection beyond

1997

ISeriesI 3 per. Mov. Avg. (Seriesl)

Figure 7.8 Outsourcing of Payroll

30%

25% |

| 20% 0) •o

§. 15% (A 0)

-g? 10%

5%

0%

18%

1992

27%

1997 Projection beyond 1997

Period

ISeriesI •3 per. Mov. Avg. (Seriesl)

85

Figure 7.9 Outsourcing of Inventory Accounting

14%

12%

10%

12%

1992 1997 Projection beyond 1997

Period

ISeriesI 3 per. Mov. Avg. (Seriesl)

Figure 7.10 Outsourcing of Costing



86

Figure 7.11 Outsourcing of Management Accounting

5%

4%

4%

3%

4%

0%


Period


87

The TAFs for which outsourcing had remained unchanged were Fixed Assets

(Figure 7.12) and Budgeting (Figure 7.13).

Figure 7.12 Outsourcing of Fixed Assets


Period

i ISeriesI •3 per. Mov. Avg. (Seriesl)

Figure 7.13

3%

2%

I 2% -c o _

8 1% 4 _ 1% o% -(

2%

- f —


Period

C___ISeries1 •3 per. Mov. Avg. (Seriesl)

88

7.3 PROFILE OF FIRMS AND THEIR TAF OUTSOURCING

LEVELS (RG No. 3A)

In accordance with Study Objective 2 (Table 5.1), the level of outsourcing

undertaken by responding firms in 1997 is summarised.

The maximum number of TAFs outsourced by firms in 1997 was four. Based

on this rate, the degree of outsourcing undertaken was categorised as follows:

- Nil (no outsourcing undertaken);

- L o w (outsourcing of one or two out of nine TAFs); and

- High (outsourcing of three or four out of nine TAFs).

SPSS frequencies were taken to identify the percentage of firms falling into each

of the above categories. A score of 0 was given for no outsourcing, and a score

of 1 given for each T A F outsourced by a firm.

In 1997, over half of the respondents (62%) had not outsourced any TAF while

approximately a third (35%) had outsourced at low levels. Only a minority

(3%) had outsourced at relatively high levels. The degree of outsourcing

performed by 61 firms is illustrated in Figure 7.14.

89

Figure 7.14 Degree of outsourcing performed for TAFs (1997)

7.4 ASSOCIATION BETWEEN GENERAL CHARACTERISTICS OF

FIRMS AND OUTSOURCING BEHAVIOUR (RG No. 3A)

The degree of outsourcing TAFs undertaken by respondents in 1997 (as

discussed in Section 7.3) was analysed against the firms' organisational

characteristics. These include annual revenue, industry classification,

experience (measured by period of operation), size (measured by employment

numbers), previous involvement in outsourcing of administrative functions

(other than accounting) and organisational stability (measured by the number of

organisational restructure experienced).

The analyses performed included cross-tabulations, supported by Pearson

correlation tests. The results from cross-tabulations are shown in Tables

incorporated, either in the subsections under Section 7.4, or, in Appendix F-2.

Where significant conclusions are able to be drawn from the results, the tables

90

are incorporated in the subsections in 7.4. The results of each correlation test

are shown in Appendix F-1, Table F-l.

7.4.1 Annual revenue

The distribution of annual revenues for firms which had outsourced at various

levels are shown in Table 7.2. While analytical tests indicated no correlation

between annual revenues and the degree of outsourcing performed, the 3 % of

firms which had outsourced at relatively high levels had annual revenues

between $10 million and $500 million. Outsourcing of TAFs was also most

popular amongst firms which have annual revenues of more than $10 but less

than $100 million.

It is possible for these results to suggest that there is an optimal firm size

(measured by annual revenue) associated with the outsourcing of TAFs. That is,

the economies of scale from outsourcing TAFs is maximised for large firms

earning annual revenues of up to $500 million, but will start to decrease for

firms which are larger, with annual revenues in excess of $500 million.

Table 7.2 Annual revenue range of firms which outsource at various degrees

Degree of Outsourcing Performed (TAFs)

High

Low

SUBTOTAL

Nil TOTAL

Firms' Annual Revenue Range ($ million)

<1

3.3 3.3

1-<10

3.3 3.3

4.9 8.2

10-<100

1.6 11.4

27.4

24.6

37.6

100-< 500

3.3 9.9 13.2

11.5

24.7

500 m +

9.8 9.8

16.4

26.2

Total (%)

4.9 34.4

39.3

60.7

100.0

91

7.4.2 Industry Classification

The distribution of firms which have outsourced at various degrees and their

industry classifications are shown in Appendix F-2, Table F-3. Except for firms

in Wholesale Trade, Cultural and Recreational Services and Personal/Other

Services which had not outsourced TAFs, firms which performed outsourcing

in 1997 were widely spread across all industries. Although it is difficult to

determine a strong correlation between industry type and the degree of

outsourcing performed, outsourcing was more obvious within the

manufacturing, mining, communication services and finance/insurance

industries.

7.4.3 Experience (measured by period of service)

The distribution of firms' period of service and their degree of outsourcing

performed are shown in Table 7.3. While analytical tests indicated no

correlation between period of service and the degree of outsourcing performed,

the 3 % of firms which had outsourced at relatively high levels have been in

existence between 11 and 40 years. The results also indicate that outsourcing of

TAFs was most popular amongst firms which have between 11 to 20 years of

experience. It is also possible for the results to imply that outsourcing of an

administrative type function such as accounting, was more apparent over the last

20 years.

92

Table 7-3 Length of service of firms which outsource TAFs at various degrees

Degree of Outsourcing Performed (TAFs) High Low

SUBTOTAL

Nil

TOTAL

Firms' Experience (Period of Operation)

1-10

1.6

1.6

8.2

9.8

11-20

1.6 13.1

14.7

21.3

36.1

21-30

1.6 4.9

6.5

6.6

13.1

31-40

1.6 1.6

3.2

3.3

6.5

41+

13.1

13.1

21.3

34.5

Total (%)

4.9 34.4

39.3

60.7

100.0

7.4.4 Size ( measured by full-time employment)

The distribution of firms' size (measured by full-time employment numbers) and

the firms' degree of outsourcing performed are shown in Table 7.4. While

analytical tests indicated no correlation between firm size and the degree of

outsourcing performed, outsourcing was most popular amongst firms which

have maintained staff employment in the range of 101 to 1000 staff.

Table 7.4 Size of firms which outsource TAFs at various degrees


SUBTOTAL

Nil

TOTAL

Firm Size (Full-Time Employment Numbers)

1-10

3.3

3.3

11-100

1.7 8.4

10.1

10.0

20.0

101-1000

1.7 15.0

16.7

23.3

40.0

1001-10000

8.4

8.4

18.3

26.6

1001 +

1.7 3.4

5.1

5.0

10.1

Total (%)

5.0 35.0

40

60.0

100.0

93

7.4.5 Outsourcing of administrative functions other than accounting:

(Legal, Superannuation and Information Technology (IT))

Analytical tests indicated no correlation between outsourcing TAFs and the

outsourcing of these non-accounting type functions (refer Appendix F-l, Table

F-l).

The distribution of firms which have or have not outsourced TAFs, and their

outsourcing behaviour with respect to Legal and Superannuation functions are

shown in Appendix F-2, Tables F-4 and F-5. The results indicate that

outsourcing of both the Legal and Superannuation functions was undertaken by

more than two-thirds of firms regardless of whether they had outsourced TAFs

or not.

Outsourcing behaviour of firms with respect to IT varied in comparison to that

in relation to their Legal and Superannuation functions. As shown in Table 7.5,

the majority of firms which had outsourced TAFs, did not outsource IT.

Table 7.5 Degree of IT outsourcing undertaken by firms which outsource TAFs at various degrees


SUBTOTAL

Nil

TOTAL

Outsource level - IT

Nil

3.6 27.4

31.0

52.8

83.8

Outsourced Fully/Partially

1.8 7.2

9.0

7.2

16.2

Total

(%)

5.4 34.6

40.0

60.0

100.0

94

7.4.6 Organisational change (measured by number of organisational

restructures)

The distribution of the firms' frequency of organisational restructure and their

outsourcing levels are shown in Appendix F-2, Table F-6. Although the 3 % of

firms which have outsourced TAFs at relatively high levels had experienced

organisational restructure at least once, the 3 5 % of firms which have outsourced

at low levels had varied experiences with organisational restructure. These

results, supported by correlation tests (refer Appendix F-l, Table F-l) indicated

no correlation between frequency of organisational restructuring and the degree

of outsourcing performed.

7.5 ASSOCIATION BETWEEN ACCOUNTING INFRASTRUCTURE

AND DEGREE OF OUTSOURCING PERFORMED

(RG No. 3B)

The association between firms' accounting infrastructure and the degree of

outsourcing T A F s is discussed in this section. Accounting infrastructure

comprises the following aspects:

- firms' accounting department size (measured by the ratio of accounting

to total organisational staff);

- firms' perception of the strategic importance of TAFs;

- firms' perception of risk associated with TAFs; and

- firms' cost of TAFs as a ratio to their total revenue.

The analyses performed included cross-tabulations and Pearson correlation tests

to identify any correlation between the above-mentioned factors and the degree

of outsourcing performed.

95

7.5.1 Size of Accounting Department ( measured by ratio of accounting

staff to total staff)

The proportional size of each firm's accounting department relative to the size

of the entire firm is measured by the ratio of total number of full-time

accounting staff to the total number of full-time staff within the organisation.

The distribution of each firm's accounting department size is illustrated in

Figure 7.15. As shown, more than three quarters (85%) of the respondents had

accounting staff ratios of not more than 10%.

Figure 7.15 Firms' accounting staff ratios

0)

c o Q. CA f? 35

90% | 80% 70% 60% 50% \ 40% 30% 20% \ 10% -0 % J

-

,85%r : •

'

.

•

10% .' I__S___B__

0-10% 11-20%

Ratio of accounting to

';<: ':;f% A :.-> ;•••;•':

2 % 3 %

21-30% 31-40%

total organisational staff

Pearson's correlation tests indicated no correlation between accounting

employment ratios and the degree of outsourcing (refer Appendix F-l, Table F-

2). The distribution of firms' accounting staff ratios and their degree of

outsourcing is shown in Table 7.6. Although firms which have outsourced at

relatively high levels had maintained accounting staff employment ratios of not

more than 10%, this employment characteristic was also evident amongst the

majority of all other firms.

96

Table 7.6 Accounting department sizes of firms outsourcing at various degrees

Degree of Outsourcing Performed (TAFs) High L o w Nil

Total (%)

Size of firms' accounting departments (measured by ratio of full-time accounting to full-time

organisational staff nos.)

0-10%

4.9 27.8 52.4 85.1

11-20%

6.5 3.2 9.7

21-30%

1.6 1.6

31-40%

3.2 3.2

Total

4.9 34.3 60.4 100.0

7.5.2 Strategic importance of typical accounting functions

Firms were asked to rate each TAF on its importance in achieving organisational

strategic goals. Response types were as follows:

- high (rating of 4 or 5);

- moderate (rating of 3); and

-low (rating of 2 or 1).

The ratings made by firms and their outsourcing behaviour in relation to each

TAF are summarised in Table 7.7.

Column A indicates the majority ratings of the strategic importance of each

TAF. The majority of firms have rated the General Ledger, Accounts

Receivable, Inventory Accounting, Budgeting, Costing and Management

Accounting functions as highly important to strategic operations. Meanwhile,

the Accounts Payable, Payroll and Fixed Assets functions were rated as only

moderately important.

97

The outsourcing behaviour of firms which have contributed to the majority

responses summarised in Column A is summarised in Column B. Except for the

Payroll function, more than 9 0 % of the firms have not outsourced the

accounting functions regardless of the perceived importance of these functions.

Table 7.7 Firms' perception of the strategic importance of each TAF and their outsourcing practice (1997)

TAFs

General Ledger Accounts Receivable Accounts Payable Payroll Fixed Assets Inventory Accounting Budgeting Costing Management Accounting

Column A Majority ratings of strategic importance

of TAFs (% firms )

High 54

42

56 79 60

91

Mod

42 39 47

Low

Column B Outsourcing practice of firms associated with

Column A (% firms)

Outsourced Not

Outsourced 94

95 96 70 100

93 98 97

94

The results of further analytical tests (Appendix F-l, Table F-2) indicate that

there is no correlation between the perceived strategic importance of TAFs and

the degree of outsourcing performed.

98

7.5.3 Risk levels associated with TAFs

For the purpose of this study, risk is defined as the possibility of errors or

problems associated with the carrying out the accounting function (see

Glossary). Firms were asked to rate the level of risk associated with each

TAF. Response types were as follows:

- high (rating of 4 or 5);

- moderate (rating of 3); and

- low (rating of 2 or 1).

The ratings made by firms and their outsourcing behaviour in relation to each

T A F are summarised in Table 7.8.

Column A indicates the majority ratings of risks associated with each TAF.

The majority of firms have associated low risk with all functions except for

Budgeting and Management Accounting.

The outsourcing behaviour of firms which have contributed to the majority

responses summarised in Column A is summarised in Column B. Except for the

Payroll function, more than 8 0 % of the firms have not outsourced the

accounting functions regardless of the level of risk the firms have associated

with TAFs.

99

Table 7.8 Firms perceived risk of each TAF and their outsourcing practice (1997)

TAFs

General Ledger Accounts Receivable Accounts Payable Payroll Fixed Assets Inventory Accounting Budgeting Costing Management Accounting

Column A Risk ratings ass(

with TAFs

(% firms)

High

39

Mod

44

•dated

Low 40 43 53 40 54

43

38

Column B Outsourcing practice undertaken by firms

associated with Column A (% firms)

Outsourced Not

Outsourced 100 100 90 74 86

83 95 100

84

The results of further analytical tests (refer Appendix F-l, Table F-2) indicate

that there is no correlation between the perceived risks associated with TAFs

and the degree of outsourcing performed.

7.5.4 Cost of typical accounting functions (as a ratio to total revenue)

The cost of running TAFs which is measured by the ratio of total cost to the

firm's total revenue in Australia, was used as an indication of the importance of

TAFs to each firm. The higher the value of this ratio, the greater the importance

of TAFs to firms.

As shown in Appendix F-2, Table F-7, approximately 85% of firms incurred

cost ratios which did not exceed 10%. This ratio was also evident amongst

firms which had outsourced TAFs. Regardless of any cost ratios incurred,

100

outsourcing was not performed by the majority (62%) of firms. Pearson's

correlation tests (refer Appendix F-l, Table F-2) indicated no correlation

between firms' cost of TAFs and the degree of outsourcing performed.

7.6 RATIONALES FOR OUTSOURCING (RG No. 4)

As shown in Table 5.1 the third objective of this study is to identify the

rationales and the perceived benefits associated with the outsourcing of TAFs.

Respondent firms were asked to rank eight listed rationales for outsourcing and

to indicate h o w well these were achieved.

Firms which have responded to these aspects have either previously outsourced

TAFs or have intentions to outsource TAFs after 1997. The firms' rankings of

the eight rationales and the degree to which each rationale was achieved are

discussed in Sections 7.6.1 and 7.6.2, respectively.

7.6.1 Most significant outsourcing rationales (RG No. 4A)

Two types of test were used to identify the most significant rationales for

outsourcing TAFs. These include the means test and the frequency test.

Table 7.9 summarises the results of the means test applied to the firms' rankings

of each of the eight outsourcing rationales listed in Question 11 in the survey

instrument. The rationales are shown in the order of importance from the lowest

to the highest mean. As shown in the Table, the three strongest rationales for

outsourcing TAFs were better cost control, better focus on core business and

better service delivery.

101

Table 7.9 Results of Means Test

Outsourcing Rationales for T A F s

Better cost control

Better focus on core business

Better service delivery

Access to skilled staff

Improved accountability/control of accounting functions

Access to technology

Meet requirements of special projects

Greater ability to cope with changes in staffing structure

Rank values received

1,2,3,4 and 6

1,2,3,4,5 and 6

1,2,3,4,6 and 7

1,2,3,4,5 and 6

1,2,3,4,5,6 and 7

1,2,3,4,5,6,7 and 8

1,3,5,7 and 8

3,4,5,6,7 and 8

Mean

2.1333

3.3333

3.4666

3.7143

4.3077

4.8571

5.6154

6.6923

The results of the frequency test to identify rationales which had the highest

percentage of No. 1 and No. 2 rankings are illustrated in Figures 7.16 and 7.17,

respectively.

102

Figure 7.16 Rationales with ranking o f T

Better service delivery _ < H M | Better focus on core business

_

_

Ability to meet requirements of special projects

Better cost control

pl —

13%

Il3%

P____ Il5%

• : •

|

• • - - • . . - ' -. - • • ; - , - • ; . - ; - : ; |

• F

140%

3 i •! 0% 10% 20% 30% 40% 50%

% Respondents

As shown in Figure 7.16, the top three rationales previously identified from the

means test, i.e., better cost control, better focus on core business and better

service delivery, were amongst those ranked as No. 1.

103

Figure 7.17 Rationales with ranking of '2'

0) LL

ss c '_ o 3

o 10

_2 (0

c o


Improved accountability and

control


+j Better cost control £_

15%

15%

27%

3 3 %

' 0% 5% 10% 15% 20% 25% 30% 35%

% Respondents

Figure 7.17 indicates that the rationales of better cost control and better service

delivery were amongst those receiving No. 2 rankings. The rationale, ability to

meet special projects, is also significant in that it received No. 1 and No. 2

rankings.

Based on the results of the frequency test discussed above, the four most

significant rationales were:

• Better cost control;

• Better focus on core business;

• Better service delivery; and

• Ability to meet the requirements of special projects.

104

7.6.2 Degree to which outsourcing rationales were achieved (RG No. 4B)

Frequency analysis was performed on firms' rankings of each of the eight listed

rationales to identify how well the rationales were satisfied. The results of this

analysis are shown in Appendix G, Table G-l.

All eight rationales including the four most significant rationales (indicated in

sub-section 7.6.1) were, at minimum, met as per expectations, for more than two

thirds of firms. A small percentage of firms, i.e., 10-20%, did not have their

expectations met through outsourcing.

Figure 7.18 Rationales satisfied as per expectations

<

3 0 tt) 3

o _ co

eg

_

Improved ability to cope with changes in staffing structure

Meet requirements of special projects

Improved accountability and control




Better cost control


79%

86%

86%

72%

64%

1 8 6 %

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 %

% Respondents

105

As shown in Figure 7.18, all eight outsourcing rationales were met as per

expectations.

There were four rationales which were met above expectations. As shown in

Figure 7.19, these were ability to meet requirements of special projects, improved

ability to cope with changes in staffing structure, access to technology and better

focus on core business.

Figure 7.19 Rationales satisfied above expectations

CO p

"o _ _ o

1 O

CO

£ cc _ o _


Improved ability to cope with changes in staffing structure



$

7%

7%

7%

22

0% 5% 10% 15% 20% 25%

% Firms

7.7 CONTINUITY IN OUTSOURCING PRACTICE (RG No. 4D)

Firms which had previously outsourced TAFs were asked to indicate whether they

had returned to in-house processing and, where applicable, the reasons for doing

so.

106

In the period between 1992 and 1997, firms had returned to in-house processing,

in six out of the nine accounting functions. These functions include General

Ledger, Accounts Receivable, Accounts Payable, Payroll, Fixed Assets and

Inventory Accounting.

Figure 7.20 illustrates, for each TAF, the percentage of firms which have

returned to in-house processing between 1992 and 1997.

Figure 7.20 TAFs returned to in-house processing

__B__BM_B__B-____-__________9 50%

_K___n_HBH_______________H so%

____________ 2 5 %

BH_______- 24%

— 14%

[ 10%

0% 10% 20% 30% 40% 50% 60%

% Firms

The reasons for returning to inhouse processing of TAFs were as follows:

the change in organisational size made it more economical to return to in-

house processing of TAFs;

outsourcing produced poorer performance; and

outsourcing resulted in relatively higher costs and was less beneficial than

commercially available software which allowed faster processing (this

problem was indicated for the Payroll function).

i

_ •i

3

nts Receivable

Fixed Assets

:ounts Payable

Payroll

ory Accounting

General Leger

107

The TAFs for which firms had continued outsourcing past 1997 were Budgeting,

Costing and Management Accounting.

7.8 AWARENESS OF KEY SUCCESS FACTORS IN RELATION TO

TAFs (RG No. 4C)

In order to determine the firms' level of awareness of the key factors used to

measure the successful running of TAFs, firms were asked to identify these

factors. L o w response rates were received for the relevant question (Question 12

- refer Appendix D, Table D-l) which could imply the following:

(a) the relevant questions in the survey instrument was inappropriately

designed to encourage such detailed information to be provided; or

(b) the person completing the questionnaire was unaware or had difficulty in

gathering the information requested.

As such, the limited data collected were not analysed.

7.9 FIRMS' EVALUATION OF THE OUTSOURCING OPTION TAFs

(RG No. 4E).

Firms were asked if they had evaluated and rejected the outsourcing option for

any TAFs. L o w response rates were received for the relevant question (Question

14 - refer Appendix D, Table D-l) which could have the implications as

mentioned in Section 7.8. As such, the limited data collected were not

analysed.

108

7.10 CRITERIA FOR SELECTION OF SERVICE PROVIDERS

(RG No. 5)

To satisfy Study Objective No. 4 (Section 5.2) respondents were asked to rank

five listed evaluation criteria which they would use when selecting service

providers for TAFs. Means tests and frequency analyses were performed to

determine the most important selection criteria.

The results of analytical tests are summarised in Table 7.19. The Table shows,

for each criterion, firms' rank values and the mean of these rank values. Based on

the means test performed, the three most important criteria are service provider

capability, financial impact and technical and service assessment.

Table 7.19 Results of Means Test

Selection Criteria for Evaluation of Service Providers of T A F s *

Service provider capability Financial Impact Technical and service assessment Contractual Impact Staff Impact

Rank values received

1,2,3 and 4 1,2,3 and 4 1,2,3,4 and 5 1,2,3,4 and 5 2,3,4 and 5

Mean

1.7059 2.1176 2.7647 3.7647 3.8235

Note: The definition of each criterion is found in the Glossary of this report.

Variation to the above analysis was also performed to identify the criteria which

had the highest percentage of No. 1, No. 2 and No. 3 rankings. The results of this

analysis is illustrated in Figure 7.21.

109

Figure 7.21 Rankings of No. 1,2 and 3 selection criteria for evaluation of

service providers

Contractual Impact

Staff Impact

g Financial impact

Technical & service assessment

Service provider capability

inB__n___i_____H j

"_________••' J'X •••HUM

24%

^ 1

18%

I :.

29%

:

num JIIIMI III_-I__- • _ • _ _

29% 49%

"1 1 • 1 i 1

59%

! i

_No.1 criteria

• No.2 criteria

DNo.3 criteria

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% Firms

Based on frequency analysis of No. 1, 2 and 3 rankings, the three most important

evaluation criteria used by service buyers when selecting service providers were

service-provider capability, financial impact and technical and service

assessment. These results are identical to the means ranking test performed

earlier (see Table 7.19).

7.11 OUTSOURCING CONCERNS (RG No. 6)

To satisfy Study Objective No. 5 (Section 5.3) firms were asked to identify

whether they had any concerns regarding the outsourcing of TAFs. Firms were

requested to indicate their concenfe under relevant categories listed in the survey

110

instrument. The percentage of firms which had expressed different aspects of

concerns are discussed in Section 7.11.1.

Further analysis was performed to identify if there were any links between various

concern aspects and the degree of outsourcing performed. The results from these

analysis are discussed in Section 7.11.2.

The number of firms which have expressed concerns about outsourcing TAFs

while actually having outsourced TAFs, are shown in Appendix I, Table 1-1. The

results indicate that the number of concerns expressed were substantially higher

amongst firms which had outsourced Payroll, than firms which had outsourced

any other TAF. Concerns associated with the outsourcing of Payroll is discussed

in Section 7.11.3.

7.11.1 Concerns associated with the outsourcing of TAFs (RG No. 6A)

The study revealed that more than half (59%) of firms had concerns related to the

outsourcing of TAFs. The following type of concerns are ranked in order of the

most common:

- management and control of outsourced functions;

- human resource;

- technology;

- financial; and

- legal.

The distribution of firms which have expressed these concerns is illustrated in

Figure 7.22.

Ill

Figure 7.22 Outsourcing concerns

Legal 8%

_ . ^ Financial _ ^ ^ L \

^ J l /

Technologic a.V • / /

17% Xy /

C_

J ^ ^ Management and >s. control \ 33%

r \

^

j ' Human resource

25%

The complete listing of concerns which were expressed by firms is shown in

Appendix H, Table H-l.

7.11.2 Association between outsourcing concerns and degree of outsourcing

performed (RG No. 6B)

Further analysis was performed to identify whether certain types of concerns were

more prevalent amongst firms which had either outsourced at high levels (3 or 4

out of 9 TAFs), low levels (1 or 2 out of 9 TAFs) or not at all. The types of

concern expressed by firms which have outsourced at different levels are

illustrated in Figure 7.23.

112

Figure 7.23 Association between outsourcing concerns and degree of outsourcing performed

E <L> U

c o o 5 (I)

§ IE

-9)

$ c «

a o a.

High

60%

I'

46%,

50<>

45%

40%

44%

55%

Nil

Degree of outsourcing performed

OLegal

• Financial

UTechnological

DHuman Resource

• Management- Control

More detailed observations have been made on outsourcing concerns expressed;

these are discussed in sub-sections 7.11.2.1 to 7.11.2.5.

7.11.2.1 Legal concerns

Although the least common, legal concerns were more prevalent amongst firms

which had outsourced at low levels than amongst firms which had not outsourced

TAFs (weighting of legal concerns were 60% and 40% respectively). Both groups

of firms had difficulty in establishing in legal contracts:

(i) the areas of responsibility with external service providers; and

(ii) the ownership of accounting data processed.

113

Legal concerns were not raised by firms which had outsourced at high levels,

suggesting that these firms had access to appropriate legal skills when it came to

negotiating outsourcing contracts.

7.11.2.2 Financial concerns

Financial concerns were common amongst all firms regardless of whether

outsourcing was performed. However, it was most common amongst firms which

had not outsourced TAFs (a weighting of 6 4 % was applicable). The factors

which had deterred these firms from outsourcing were fears of the following:

(i) that outsourcing would result in higher costs when compared to in-house

processing;

(ii) the hassles in having to monitor costs on a regular basis in order to justify

outsourcing;

(iii) the inability to reduce costs as desired; and

(iv) the lack of control over costs involved.

Firms which had outsourced TAFs had experienced the following problems:

(i) outsourcing costs were higher than anticipated; and

(ii) the difficulty in determining outsourcing costs in the longer term.

114

7.11.2.3 Technological concerns

Technological concerns were not raised by firms which had outsourced TAFs at

high levels. However, these concerns were equally c o m m o n amongst firms which

had outsourced at low levels, and amongst those which had not outsourced at all.

For firms which had not outsourced any TAFs, the factors which had deterred

these firms from outsourcing were the following:

(i) the fear that outsourcing of certain functions would be less effective than

in-house processing of these functions;

(ii) the lack of confidence in external service providers to provide timely

assistance in the resolution of problems;

(iii) the lack of compatibility between the technical systems used by external

service providers and in-house systems; and

(iv) the loss of skill base due to dependence on external service providers.

Firms which had outsourced at low levels have experienced the following

problems:

(i) the lack of compatibility between the systems used by their external

service providers and in-house systems;

(ii) the lack of disaster recovery plans;

(iii) the loss of service quality in the longer term; and

(iv) the lower effectiveness of systems applied by external service providers.

115

7.11.2.4 H u m a n resource concerns

H u m a n resource (HR) concerns were common amongst all firms regardless of the

degree of outsourcing undertaken. Firms which had outsourced at high levels had

very minimal H R concerns. O n the other hand, H R concerns were equally

common amongst firms which had outsourced at low levels and amongst those

which had not outsourced at all.

For firms which had not outsourced TAFs, the HR concerns which had deterred

these firms from outsourcing were as follows:

(i) the lack of confidence in service providers having adequate understanding

of service-users' business and their operations;

(ii) the anticipated difficulty in managing working relationships between

external service provider and operational management;

(iii) the fear of the loss of staff morale when forced to consider outsourcing of

functions performed in-house (due to the possibility of staff redundancy);

(iv) the difficulty in obtaining reliable and experienced service providers; and

(v) the fear of a loss of in-house skills which may results from dependence on

external service providers.

The first three HR concerns raised above represented real problems for firms

which had outsourced TAFs.

116

7.11.2.5 Management and control concerns

The concerns in the management and control of outsourced functions were

equally common amongst firms which had outsourced at low levels and amongst

those which had not outsourced at all.

For firms which had not outsourced TAFs, the concerns which had deterred them

from doing so were as follows:

(i) the loss of confidentiality of financial information handled by external

service providers;

(ii) the fear of a lack of control over processing timeliness and the accuracy of

data processed by external service providers;

(iii) the fear of external service providers showing lack of accountability.

The first two management and control concerns raised above represented real

problems for firms which had outsourced TAFs.

7.11.3 Concerns associated with outsourcing of Payroll

Out of the ten firms which have expressed concerns while outsourcing Payroll in

1997, seven of these have indicated that outsourcing of Payroll would be

discontinued after 1997. Some of the concerns which have been expressed by the

other three firms which had intended to continue outsourcing Payroll after 1997,

are common in comparison to those which have been expressed by the seven

firms. The concerns which are associated with the outsourcing of Payroll are

shown in Figure 7.24.

117

Figure 7.24 Summary of outsourcing concerns

MANAGEMENT & CONTROL

Service providers lacked understanding of service-users' business operations Service providers lack accountability when managing service-users' financial assets Lack of control over processing timeliness and accuracy Lack of suitable and timely assistance in the resolution of problems Service delivery by external service providers were poor overall Lack of disaster recovery plans with outsourcing

HUMAN RESOURCE

Loss of morale amongst internal staff when forced to consider outsourcing Difficulty in establishing good communication lines with external service providers Difficulty in managing relationship between external service providers and operational management

T E C H N O L O G I C A L

Technology provided by external service providers were not superior to in-house technology Lack of compatibility between external and in-house systems

FINANCIAL

Lack of control over outsourcing cost in the longer term Loss of confidentiality of financial information

L E G A L

Difficult to determine ownership of data processed Difficulty in establishing clear lines of responsibility in contractual agreements

118

8 FINDINGS: SERVICE-PROVIDER SURVEY (SURVEY 2)

The questionnaire was designed to identify a number of aspects, in accordance

with the Research Guidelines shown in Section 5.4, Table 5.4. A total

response rate of 25.6% was achieved, based on 83 returned questionnaires. The

83 firms which responded comprised accounting firms (identified by

memberships with professional accounting bodies), bookkeeping firms and

payroll bureaus. The responses for individual questions were not all usable due

to failure to answer certain sections of the questions. The response rates for

each question in the order of the discussion in this chapter are shown in

Appendix D, Table D-2.

8.1 PROFILE OF RESPONDENTS (RG No. 7)

8.1.1 Size of firms

Measured in terms of staff employment, the majority of firms were small with

66% maintaining employment up to 10 staff The percentage of firms which

had employed in the ranges between 11 to 20 were 15%, while less that 5%

employed in the ranges of 21 to 30 and 31 to 40. Approximately 10% had

employed in excess of 40 staff.

8.1.2 Professional accreditation

More than half of the service-provider firms (54%) had memberships with the

Institute of Chartered Accountants. Almost half of the firms (47%) also

maintained memberships with the Australian Society of Certified Practising

119

Accountants. A substantially smaller percentage (18%) maintained

memberships with the National Institute of Accountants whereas 6 % of firms

maintained memberships with various other bodies such as the Institute of

Chartered Secretaries, the Institute of Actuaries and the Association of Payroll

Specialists.

8.1.3 Client base

Almost all of the service-provider firms (96.4%) had clients which were

privately-owned enterprises. The majority of these clients, where measured by

employment sizes were small to medium firms with employment ranges of up

to 10 staff (66%) and 11 to 100 staff (22%).

In comparison, only 15% of service-provider firms had clients which were

Government-owned enterprises. The sizes of these clients were evenly

distributed amongst the various employment size ranges of 1 to 10 staff, 11 to

100 staff, 101 to 1,000 staff and 1,001 to 10,000 staff, although the percentage

of clients in each range did not exceed 5%.

8.2 SERVICE-PROVIDER FIRMS' INTEREST IN THE PROVISION

OF TYPICAL ACCOUNTING SERVICES (TAS)

In order to satisfy study objective 6 (Table 5.1), service-provider firms were

requested to indicate their interest in the provision of TAS. In particular, firms

were asked to indicate the percentage contribution from the provision of T A S

towards their total annual revenue (RG No. 8) and their interest or lack of

interest in pursuing opportunities in the provision of TA S , with relevant reasons

120

(RG No. 9). The firms' involvement in the provision of TAS in 1998 is

discussed in Section 8.2.1 while their interest in becoming service providers for

TAS are discussed in Section 8.2.2.

8.2.1 Degree of provision of TAS within the accounting services industry

(RG No. 8)

Service-provider firms' degree of involvement in the provision of TAS was

measured in terms of the weighted average contribution each TAS made

towards the respective firms' annual revenue.

The weighted average contribution from the provision of each TAS is shown in

Table 8.1. From the results, the accounting services which were more

significant in contributing towards service-provider firms' annual revenues in

1998 were General Ledger processing, followed by Management Accounting.

As shown, each of the other seven TAS were contributing no more than 10%

towards service-provider firms' annual revenue.

Table 8.1 Weighted-average contribution of TAS towards service-provider firms' annual revenue

TAS

General Ledger Accounts Receivable Accounts Payable

Payroll Fixed Assets

Inventory Accounting Budgeting Costing

Management Accounting

Weighted-average contribution towards

annual revenue 26 - 50% 1 - 10% 1 - 10% 1 -10% 1 - 10% 1 -10% 1 -10% 1 - 10% 11 - 25%

121

8.2.2 Most attractive services (RG No. 9)

The typical accounting services which were most attractive to service-providers

in the accounting services industry are shown in Table 8.2. Table 8.2 also

shows the strongest reasons for service-providers nomination of the respective

services as being most attractive.

Table 8.2 Mos

T A S

Management Accounting Budgeting Costing

General Ledger Payroll

Accounts Receivable Accounts Payable Fixed Assets

Inventory Accounting

t attractive services (in

Percentage firms

72% 64%

24% 27%

23%

17% 16% 15%

8%

order of popularity)

Most obvious reason for interest

High returns

V V

High demand

V V

V

Match competition

Availability of cost

effective technology

V

V V

V V V

Note: The three reasons indicated for budgeting received equal weightings.

From the results shown in Table 8.2, the most attractive services are the value-

added type services, which includes Management Accounting, Budgeting and

Costing. Management Accounting and Budgeting were the most attractive due

to high returns available from the provision of these services.

122

8.2.3 Least attractive services (RG No. 9)

Service providers were also asked to indicate the typical accounting services

which they had considered removing from, or had given low priority in, their

services portfolio, and the respective reasons for these. The results of this

aspect are shown in Table 8.3.

As shown in Table 8.3, the services which were least attractive to service

providers were Accounts Receivable, Accounts Payable and Payroll, mainly due

to low returns. Inventory Accounting and Fixed Assets lacked demand while

General Ledger were perceived to decrease in demand.

Table 8.3 Least attractive services

TAS

Accounts Payable

Accounts Receivable

Payroll Inventory Accounting

Fixed Assets

General Ledger Costing

Budgeting


Percentage firms

2 5 %

2 1 %

2 1 %

17% 13% 12% 4% 4%

4%

Most obvious reason for lack of interest

Low returns

V

V V

Low demand

V

V V

V V

V

Decreasing demand

V

Lack of cost effective technology

123

8.3 IMPACT OF PROVISION OF TAS ON COST STRUCTURE OF

SERVICE-PROVIDER FIRMS

In order to satisfy study objective 7 (Table 5.1), service-provider firms were

requested to indicate the impact of the provision of T A S on their running costs.

Firms were requested to consider a number of issues. These included, first, the

types of additional cost which would be incurred in their pursuit of the most

attractive accounting services (as previously discussed in Section 8.2.2);

second, the types of escalating costs associated with the provision of T A S in the

previous three years, and third, whether escalating costs in the provision of

basic accounting services (e.g., General Ledger, Payroll, etc.) had affected firms

which provided these services at different degrees. The first issue is discussed in

sub-section 8.3.1 whereas the second and third issues are discussed in sub

section 8.3.2.

8.3.1 Cost factors in the pursuit of attractive accounting services

( R G No. 10)

In relation to TAS which service-provider firms have indicated as attractive and

worth pursuing, the firms were asked to identify any additional costs which

resulted from their pursuit of these TAS. The most c o m m o n types of cost which

have affected the firms in their pursuit of respective accounting services are

shown in Table 8.4.

The most attractive TAS, which were Management Accounting, Costing and

Budgeting, would require service-provider firms to incur greater expenditure in

the recruitment and training of staff. Being value-added services which require

accounting skills, additional expenditures were anticipated in staff training. In

124

comparison, staff training expenditures were not anticipated as the greatest

requirement in the other seven TAS, which are capable of being serviced

through automated computer technology.

Table 8.4 Additional costs which were most common in the provision of respective T A S

T A S

Management Accounting Budgeting

Costing

General Ledger

Payroll

Accounts Receivable Accounts Payable

Fixed Assets Inventory Accounting

Percentage firms

wishing to pursue more of these

services

7 2 % 64% 24%

27% 23%

17%

16% 15%

8%

Additiona

Recruitment of more staff

V V V

V V

V

V V

V

cost areas which were most common

Staff training

V V V

Acquisition/ upgrade of

h/ware s/ware

Occupancy

Note: The two cost areas indicated for Management Accounting, Budgeting and Costing received approximately equal weightings.

8.3.2 Escalating costs and impact on firms' ability to compete (RG No. IIA

and U B )

Two issues are considered in this section. The first issue is the identification of

the types of escalating cost associated with the provision of T A S in a three-year

125

period between 1995 to 1998. The results in Table 8.5 show the most common

cost types which have escalated in the three-year period for TAS. As shown,

cost escalation has been most common in the acquisition and upgrade of

software for all basic accounting services (General Ledger, Payroll, etc.) and for

two value-added services, i.e., Costing and Management Accounting. Cost

escalation has also been common in the recruitment of staff for a number of

services.

The second issue is the determination of whether cost escalation associated with

basic accounting services (e.g., General Ledger, Payroll, etc.) had affected

firms' ability to compete. For this analysis, firms were distinguished by their

degrees of provision of the basic accounting services. The distinction was made

between firms which had provided basic accounting services at low to moderate

levels (measured by revenue contribution of up to 5 0 % from these services), and

firms which had provided the services at high levels (measured by revenue

contribution in excess of 5 0 % from these services).

The analysis was made on the two most attractive basic accounting services, i.e.,

General Ledger and Payroll.

In relation to General Ledger, 77% of firms had provided this service at low to

moderate levels. Amongst the one-third of these firms which have experienced

escalating costs, the majority were not affected by these costs. Similar results

were also found amongst the 2 3 % of firms which had provided General Ledger

services at high levels.

In relation to Payroll, 76% of firms had provided this service at low to moderate

levels. However, the percentage of these firms which have been affected by

escalating costs was very minor. For the 2 4 % of firms which had provided

126

Payroll services at high levels, a substantial portion of these firms had

experienced escalating costs. However, the percentage of those which have

been affected by these escalating costs was also minor.

Table 8.5 Escalat

T A S

Management Accounting Budgeting

Costing

General Ledger

Payroll Accounts Receivable

Accounts Payable

Fixed Assets Inventory Accounting

:ing costs and i mpact on firms' ability to compete

Most common escalating costs areas ( T Y

Recruitment of more staff

t

t

t t

Staff training

t

Acquisition/ upgrade of

h/ware s/ware

t

t t t t t t

t

Occupancy

T

Note: For T A S which have resulted in escalating costs in more than one cost area, the cost areas have approximate equal weightings.

8.4 SERVICE-PROVIDERS' PERCEPTION OF OUTSOURCING

BENEFITS (RG NO. 12)

Service-provider firms were requested to identify the benefits enjoyed by their

clients from the outsourcing of typical accounting functions (TAFs). In this

respect, firms were asked to rank the top three benefits which were enjoyed by

their clients and also indicate, where applicable, the magnitude of cost savings

enjoyed by their clients.

127

In relation to the ranking of benefits in general, a means test and a frequency

test were applied to determine the most significant benefits. The results of these

tests are discussed in sub-section 8.4.1. In relation to the identification of any

cost savings, a frequency test was applied to identify the percentage of service-

provider firms which have indicated cost savings as one of the benefits enjoyed

by their clients. These results are discussed in sub-section 8.4.2.

8.4.1 Perception of most significant outsourcing benefits

The results of the means test which was applied to these firms' rankings are

shown in Table 8.6. As shown, the top three benefits of outsourcing TAFs as

perceived by service-provider firms were better focus on core business, access

to skilled staff'and improved accountability and control of accounting functions.

Table 8.6 Results of means test:

Service-providers' rankings of benefits enjoyed by their clients from outsourcing T A F s

Benefits enjoyed by outsourcing of T A F s



Improved accountability/control of accounting functions



Better cost control


Greater ability to cope with changes in staffing structure

Mean 1.4688

1.8980

2.0250

2.0417

2.2273

2.3182

2.4000

2.5000

128

The results of the frequency tests to identify the benefits with the highest

percentage of No. 1 and No. 2 rankings are illustrated in Figures 8.1 and 8.2

respectively.

As shown in Figure 8.1, the results from the frequency test are similar to the

results from the means test. The top three outsourcing benefits as perceived by

service-provider firms were better focus on core business, access to skilled staff

and improved accountability and control of accounting functions.

Figure 8.1 Outsourcing benefits given ranking o f 1'

_!

<*z c Improved accountability and •° control of functions c 2 Access to skilled staff o 3

o Better focus on core business

0

,—„.m_„.„„„.,_™.„.™..„.„„„™..^...„

18%

24%.

48%

— — - i • i i 1 — — • ( ; ; • ' , r - - : f e

% 10% 20% 30% 40% 50% 60

% Respondents

%

129

Figure 8.2 Outsourcing benefits given ranking of '2'

tit

*< %

g Improved accountability and •° control of functions c

• _

g Access to skilled staff

3

o Better focus on core business

18%

• .

24%

48%

4 — 4 . — I . . , . ' , ' I i 1

0% 10% 20% 30% 40% 50% 60%

% Respondents

A s shown in figure 8.2, the benefits with the highest percentage of No. 2

rankings included the top two benefits shown in Figure 8.1, plus improved

accountability and control of accounting functions, which was ranked the third

most significant benefit according to the means test.

Combining the results of both the means and frequency tests, the four most

significant benefits from service-user firms' outsourcing of TAFs, as perceived

by the service-provider firms, are as follows:

• better focus on core business;

• access to skilled staff;

• improved accountability and control of accounting functions; and

• better service delivery

130

8.4.2 Magnitude of cost savings achieved

The results of the frequency test indicated that more than half (56%) of service-

provider firms believed that their clients had achieved cost savings through

outsourcing TAFs. Almost half of these firms (42%) had indicated that the

magnitude of savings was in the range of 11 to 20%, almost a third (29%) in the

range of 1 to 1 0 % and approximately 2 0 % in the range of 21 to 30%.

131

PARTD

9.0 SERVICE-USER SURVEY: SUMMARY OF KEY FINDINGS AND

CONCLUSIONS

The key findings of the study which provided insight into the outsourcing of

typical accounting functions (TAFs) are explored in this chapter. The

discussion centres on the outsourcing trends as well as the actual experiences

and expectations of both service-user and service-provider firms. The

conclusions identify the degree to which the previously held beliefs on

outsourcing (stated in a set of hypotheses in Section 5.3, Tables 5.2 and 5.3)

were substantiated.

The key findings and conclusions derived from the Service-User Survey are

discussed in Sections 9.1 to 9.5. Key findings and conclusions derived from the

Service-Provider Survey are discussed in Sections 9.6 to 9.7. Finally, the

compatibility of service users' and service providers' perception of outsourcing

rationales or benefits is discussed in Section 9.8.

9.1 TRENDS IN THE OUTSOURCING OF TAFs

Service-user firms selected for this study in 1997 were medium to large firms

which were expected to have strong familiarity with the nine types of

accounting functions termed as typical accounting functions (TAFs).

Responding firms were based in all Australian states, with the majority

operating in mining, manufacturing, retail trade and finance and insurance

industries. The majority of responding firms had a minimum of ten years

132

experience, with revenues in excess of $10 million per annum, and employment

of more than 100 full-time staff.

The outsourcing trend in relation to TAFs between 1992 and 1997, and the

period beyond 1997, varied, depending on the type of accounting function.

Accounting functions for which outsourcing had increased in the period

specified were Accounts Receivable and Accounts Payable. Functions for which

outsourcing had decreased over the specified period were General Ledger,

Inventory Accounting, Costing, Management Accounting and Payroll which was

most severely affected. The functions for which the level of outsourcing was

expected to remain unchanged over the specified period were Fixed Assets and

Budgeting.

Except for Accounts Receivable and Accounts Payable, outsourcing trends for

the other seven functions were not continually on the increase between 1992 and

the period after 1997. The results of the study revealed trends to be contrary to

beliefs that accounting functions which could be computerised, would be

increasingly outsourced in the 1990s (rejecting Hypothesis No. 1, Section 5.3,

Table 5.2).

9.2 DETERMINATION OF FACTORS AFFECTING OUTSOURCING

LEVELS WITHIN SERVICE-USER FIRMS

The second study objective (Section 5.2, Table 5.1) was to identify any

association between organisational and accounting infrastructure characteristics

and the degree of outsourcing performed. To satisfy this objective, analytical

tests were carried out to determine the existence of any correlation between the

level of outsourcing and ten organisational factors.

133

In this study, firms' T A F outsourcing levels were classified as high, low or nil.

In relation to the level of outsourcing undertaken in 1997, more than three

quarters of responding firms had not outsourced any TAFs. In the case of the

majority of firms which had, outsourcing was undertaken at relatively low

levels.

The ten factors which were used for this correlational test comprised six

organisational and 4 accounting infrastructure factors. These factors are shown

in Table 9.1.

Table 9.1 Firm-related factors

Organisational factors

Annual revenue

Industry classification

Experience (measured by period of operation)

Size (measured by full-time staff employment)

Outsourcing of non-accounting administrative functions:

Legal, Superannuation, Information Technology

Organisational stability (measured by no. of organisational restructures)

Accounting infrastructure factors

Size of accounting department (measured by ratio of full-time accounting staff to total full-time staff)

Strategic importance of TAFs

Risk levels associated with TAFs

Cost of TAFs (measured as a ratio to total revenue)

134

N o correlation between any of the above-mentioned factors and the degree of

outsourcing performed was found.

In relation to factors such as organisational size, business stability, departmental

staff ratios and strategic importance of the accounting services, the study results

support the set of hypotheses (Section 5.3, Table 5.3, Hypotheses No. 2,3,4 and

5) which were parallel to the hypotheses stated in CuUen's 1994 study on

Information Technology outsourcing.

Despite the lack of correlation between the above-mentioned factors and the

degree of outsourcing performed, the following organisational characteristics

were noted amongst the majority of firms which had outsourced TAFs:

firms' annual revenue earned falling in between $10 and $100 million;

- outsourcing of TAFs was more evident in the manufacturing, mining,

communication services and finance/insurance industries than in any other

industries;

- firms' period of service falling in the range of 11-20 years; and

- staff employment numbers falling in the range of 101 to 1000 staff.

9.3 RATIONALES FOR OUTSOURCING TAFs

As shown in Figure 9.1, the most significant rationales for outsourcing were

better cost control, better focus on core business, better service delivery and

ability to meet requirements of special projects. The percentage of firms which

have rated these factors as their top rationales is illustrated by the blue line. As

indicated by the red line, at least two-thirds of firms have had these rationales

met at expected levels.

135

Figure 9.1 Rationales met as per expectations

CA

CU eg

_ CD CJ

_ 0)

0.

100% -1 90% -80% -70%

^n% -40% -30% -20% -10% -0% -

B-W5T

__^-_k£6% _—a^fSC ">-«_. 72%;

__—3^-40%-j ^^ 1

• iay» » 1:&%- —"•"15% .::,.i^.;:>f


Better focus Abifity to on core meet business requirements

of special projects

Outsourcing rationales

Better cost control

—•—- Top four rationales

r-i x: i 4.

— B — rationales met as per expectations

While the four most significant rationales were satisfied as per expectations,

other outsourcing rationales were also satisfied at expected levels. These

include improved accountability and control, improved ability to cope with

changes in staffing structure and access to technology.

As illustrated in Figure 9.2, there were four rationales which were met above

expectation levels. These include ability to meet requirements of special

projects, improved ability to cope with changes in staffing structure, access to

technology and better focus on core business. This standard of performance

achieved, was, however, enjoyed by less than a quarter of firms. The rationale

which were met above expectations by the highest percentage of firms was

ability to meet requirements of special projects (22 % of firms).

136

Figure 9.2 Rationales met above expectations

« E c <c CD O)

43 c 0 o _ a.

25% -, 20% -15% J

10% -5% 4 0% -

Rationales met above expectations

iflSli

•' » 7 % ».:.7I%_.

X ! ^ I

¥1% \'1 .... '/,./' j&&'4

Better Access to focus on technology

core

business

Greater Better

abilityto service

cope with delivery

changes in

staffing

structure

Outsourcing rationales

9.4 CRITERIA FOR SELECTION OF SERVICE PROVIDERS

The ranking of criteria when selecting service providers, according to service-

user firms was as follows:

i) service provider capability;

ii) financial impact;

iii) technical and service assessment;

iv) contractual impact; and

v) staff impact

137

9.5 OUTSOURCING CONCERNS

The study revealed that more than half (59%) of responding firms had concerns

regarding the outsourcing of TAFs. The three most common types of concerns

were related to the management and control of outsourced functions, human

resource and technology. The distribution of firms which have expressed these

concerns was illustrated in Figure 7.22 earlier (Section 7.11.1).

General observations were made to determine whether there was any association

between various types of concern and the degree of outsourcing undertaken.

These observations were made across the three groups of firms (i.e., firms which

had outsourced at high levels, firms which had outsourced at low levels and

firms which had not outsourced at all), and are summarised in Section 9.5.1.

Of the two-thirds of firms which had not outsourced TAFs in 1997 (section 7.3),

many of these firms had expressed concerns regarding outsourcing. The study

found that many of the concerns expressed by these firms were common, and

had represented actual problems for firms which had outsourced TAFs. These

problems are summarised in Section 9.5.2 .

9.5.1 General observations

As shown in Figure 7.23 earlier (Section 7.11.2), firms which had outsourced at

high levels only had financial and human resource (HR) concerns, which were

of very minimal weighting compared to the other two groups. The conclusion

that can be drawn is that there is stronger confidence amongst firms to outsource

TAFs if they are able to overcome legal, technological and management and

138

control problems. Alternatively, if firms anticipate no legal, technological or

management and control problems, outsourcing can be performed at high levels.

In comparison to firms which had outsourced at high levels, those which had

outsourced at low levels had all types of concern. These include legal, financial,

technological, H R and management and control of outsourced functions. The

conclusion that can be drawn from this observation is that, outsourcing may be

less attractive to firms unless they can overcome legal, technological and

management and control problems. In other words, as long as technological or

management and control problems are not extremely serious issues, firms will

still outsource TAFs, but at low levels.

Firms which had not outsourced any TAFs had all types of concerns. As shown

in Figure 7.23 earlier (Section 7.11.2), financial, technological and management

and control concerns were more prevalent amongst these firms, than those

which had outsourced at low levels. The conclusion which can be drawn from

this is that, financial, technological and management and control concerns are

strong deterrents in the decision to outsource TAFs.

9.5.2 Common concerns

Of the two-thirds of firms which had not outsourced TAFs in 1997 (section 7.3),

many of these firms had expressed concerns regarding outsourcing. Many of the

concerns were common and had represented real problems for firms which had

outsourced TAFs. The sub-sections under 9.5.2 compare concerns which were

common between firms which had not outsourced TAFs, with firms which had

outsourced TAFs. The concerns listed under the second column in Tables 9.1 to

9.5 represented problems which were actually experienced by firms which have

outsourced TAFs.

139

9.5.2.1 Legal concerns

Legal concerns were common amongst firms which had not outsourced TAFs

and amongst those which had outsourced at low levels. The common concerns

faced by both groups of firms are shown in Table 9.2.

Table 9.2 Common legal concerns

Firms which had not outsourced

TAFs

Difficulty in establishing in legal contracts:



Firms which had outsourced TAFs at low levels

Difficulty in establishing in legal contracts:



9.5.2.2 Financial concerns

Financial concerns were common amongst all firms regardless of whether

outsourcing was performed. A comparison of these concerns are shown in Table

9.3.

140

Table 9.3 Common financial concerns

Firms which had not outsourced TAFs

Outsourcing would result in higher costs when compared to in-house processing.

The hassles in having to monitor costs on a regular basis in order to justify outsourcing, and, the lack of control over costs involved.

Firms which had outsourced TAFs

Outsourcing costs were higher than anticipated (note that firms did not clarify whether these costs were higher than in-house processing costs).

The difficulty in determining outsourcing costs in the longer term.

9.5.2.3 Technological concerns

Technological concerns were common amongst firms which had not outsourced

TAFs and firms which had outsourced at low levels. A comparison of these

concerns are shown in Table 9.4.

141

Table 9.4 Common technological concerns


Outsourcing evaluations found lack of compatibility between the technical systems used by external service providers and in-house systems.

The fear that outsourcing of certain functions would be less effective than in-house processing of these functions.

The lack of confidence in external service providers to provide timely assistance in the resolution of problems.

The fear of loss of skill base due to dependence on external service providers.


The lack of compatibility between the systems used by their external service providers and in-house systems generated problems.

The systems used by external service providers were less effective than previous in-house systems.

The system offered by external service providers had failed to provide disaster recovery plans.

The loss of service quality in the longer term.

The finding that technological concerns were not relevant to firms which had

outsourced at high levels support Hypothesis No. 6 (Section 5.3, Table 5.2), that

outsourcing of TAFs can be undertaken at high levels when technological

problems are overcome.

9.5.2.4 Human resource concerns

Human resource (HR) concerns were common amongst all firms regardless of

the degree of outsourcing undertaken. A comparison of these concerns are

shown in Table 9.5.

142

Table 9.5 Common H R concerns

Firms which had not outsourced

TAFs

The lack of confidence in service providers having adequate understanding of service-users' business and their operations.

The anticipated difficulty in managing working relationships between external service providers and operational management.

The fear of the loss of staff morale when forced to consider outsourcing of functions performed in-house.

Firms which had outsourced TAFs

External service providers were found to have lacked adequate understanding of service-users' business and their operations.

Difficulties were experienced in managing work relationships between external service providers and operational management. In addition, there was difficulty in establishing good communication lines between service-user firms and external service providers.

A reduction of staff morale were experienced in firms during the period when outsourcing was under evaluation, due to the fear of organisational restructure and staff redundancy.

9.5.2.5 Management and control concerns

Concerns related to the management and control of outsourced functions were

equally common amongst firms which had not outsourced TAFs and those

which had not outsourced at low levels. These concerns are shown in Table 9.6.

143

Table 9.6 Common management and control concerns


The loss of confidentiality of financial information handled by external service providers.

The fear of a lack of control over processing timeliness and the accuracy of data processed, by external service providers.


There was a breach of confidentiality of accounting/financial information within the client network of the external service providers

There was lack of control over the timeliness and accuracy of data processed. External service providers were also found to lack accountability in the management of financial resources of clients.

9.6 INTEREST IN THE PROVISION OF TYPICAL ACCOUNTING

SERVICES WITHIN THE ACCOUNTING SERVICES INDUSTRY

The sample of 83 service-provider firms which had responded in the Service-

Provider Survey had largely comprised accounting firms which had maintained

employment of up to 10 staff, with the majority of clients being private

enterprises.

The interest of service-provider firms in providing TAS was determined by the

revenue contribution made by TAS and the firms' perception of the most

attractive accounting services. The findings in relation to these two aspects

were as follows:

144

In 1998, General Ledger and Management Accounting had contributed

the highest levels of revenue for service-provider firms (providing

revenue in the range of 25 to 5 0 % , and 11 to 2 5 % , respectively). The

majority of firms which had provided these two types of services were

accounting firms, as indicated by their membership with professional

accounting bodies.

While General Ledger services had, on average, contributed the highest

level of revenue for service-provider firms, it is the value-added

accounting services, i.e., Management Accounting, Budgeting and

Costing which were perceived to be the most attractive. The main reason

for the attractiveness of these value-added services was the high returns

generated from these services. This finding supports Hypothesis No. 8

(Section 5.3, Table 5.2). Nevertheless, General Ledger services ranked

fourth after the value-added services and was the most attractive basic

accounting service compared to other basic services such as Payroll,

Accounts Receivable, etc.. The provision of General Ledger was

encouraged by the availability of cost effective technology.

While service-provider firms perceived high demand for Budgeting and

Costing, this was not the case for Management Accounting. At the same

time, the availability of cost-effective technology was not indicated as a

positive factor in relation to the provision of Management Accounting.

A conclusion which may be drawn from this is that the lack of cost-

effective technology and the high fees expected by service-provider

firms in relation to Management Accounting services may be a deterrent

in service-user firms' outsourcing this service. This finding supports

Hypothesis No. 6 (Section 5.3, Table 5.2) which proposes a negative

relationship between technological barriers and the degree of

145

outsourcing which can be undertaken by firms. Furthermore, it is a

possible explanation for the projected decrease in the outsourcing of

Management Accounting services after 1997, as found in the Service-

User Survey (Section 7.2, Figure 7.11).

9.7 IMPACT OF PROVISION OF TAS ON SERVICE-PROVIDER

FIRMS' COST STRUCTURE

In assessing the impact of the provision of TAS on service-provider firms'

running costs in between 1995 and 1998, there were three main findings:

(i) the types of additional cost which would be incurred by service-provider

firms if they were to increase their provision of the three most attractive

accounting services, i.e., Management Accounting, Budgeting and

Costing, were associated with staff recruitment and staff training.

(ii) cost escalations associated with the acquisition and upgrade of software

were most c o m m o n in the provision of all basic accounting services

(e.g., General Ledger, Payroll, etc.). Cost escalations in recruitment of

staff were also indicated for a number of accounting services.

(iii) cost escalations in the two common areas, i.e. acquisition and upgrade of

software and recruitment of staff which were associated with the two

most popular basic accounting services, i.e., General Ledger and Payroll,

had not affected the majority of firms' ability to compete. This finding

was consistent amongst firms which had provided these services at low

to moderate levels and amongst firms which had specialised in the

provision of these services.

146

T w o conclusions can be drawn from service-providers' behavior towards the

provision of TAS.

First, regardless of major additional expenditure which would be required if

firms performed more value-added services such as Management Accounting,

Budgeting and Costing, the returns must be perceived by these firm to outweigh

the additional costs.

Second, cost escalations associated with General Ledger and Payroll were not

significant enough to deter service-provider firms from increasing their

provision of these services. It is possible to conclude that firms which had

chosen to provide these services at low to moderate levels, must perceive

opportunity costs if they were to choose to provide these basic services at higher

levels. The opportunity costs are presumably the provision of services which

provide greater net returns, such as the value-added services. Nevertheless, for

the majority of firms, General Ledger services were found to have contributed

between 25 to 5 0 % of firms' annual revenue. The availability of cost-effective

technology has allowed service-provider firms to continue providing General

Ledger services, and to allow these services to be used as a drawcard for value-

added services which generate higher net returns.

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9.8 A COMPARISON OF SERVICE-USERS' AND SERVICE-

PROVIDERS' PERCEPTION OF OUTSOURCING BENEFITS

Service-user and service-provider firms were asked to rank the list of eight

rationales or benefits associated with the outsourcing of TAFs. A comparison of

the top four factors as perceived by each group of firms are presented in Table

9.7.

Table 9.7 Comparison of rationales/benefits associated with outsourcing T A F s

Ranking

1

2

3

4

Service-user firms' perception of top four

benefits

Better cost control



Ability to meet the requirements of special projects

Service-provider firms' perception of top four benefits enjoyed by

their clients



Improved accountability and control of accounting function


A number of conclusions can be drawn from Table 9.7.

First, service users prioritise cost control, whereas service providers perceive

their clients' ability to focus on their core activities as the main benefit. Cost

control was not perceived by service providers as a major benefit for their

clients.

148

Second, outsourcing has allowed service-user firms to concentrate on their core

operations and to gain from better service delivery. These two factors have been

acknowledged by both service-users and service-providers as significant

benefits.

Third, the ability to meet requirements of special projects was perceived as an

important outsourcing rationale by service users. However, this factor was not

awarded the same level of significance by service providers. Service providers

perceive their clients' ability to access skilled staff as a more significant benefit.

Fourth, while the ability to achieve improved accountability and control of

outsourced functions was perceived as a top outsourcing benefit by service

providers, this was not the case for service users. Nevertheless, this benefit was

enjoyed by the majority of firms which have outsourced TAFs. As an

outsourcing rationale, it was achieved as per expectation by 8 6 % of service-user

firms (sub-section 7.6.2).

149

PARTE

10.0 RECOMMENDATIONS

The nature of this study was exploratory in determining the extent, experiences

and expectations of service-user firms in relation to the outsourcing of typical

accounting functions (TAFs). Also explored were the interest of firms in the

accounting services industry to provide typical accounting services.

Based on the results of the study, a number of questions has arisen in relation to

the outsourcing of TAFs.

First, the question of whether outsourcing is worthwhile, given the number of

service-user concerns or problems, is raised. Along with this, recommendations

which can be taken to minimise these problems are presented in Section 10.1.

Second, the degree of difference between service-users' and service-providers'

perceptions of outsourcing benefits is raised. With these differences leading to

the possibility that m a x i m u m outcomes from outsourcing cannot be easily

achieved, recommendations addressing the approach service-providers can take,

are discussed in Section 10.2.

Third, there is the question of whether the current trends in relation to the

outsourcing of T A F s in 1999 are reflective of the trends represented in 1997 and

1998 when the Service-User and Service-Provider Surveys were performed.

The first point of discussion centres on the approaches taken by service-users as

alternatives to outsourcing, while the second centres on the role service

providers can undertake in conjunction with these alternatives, in assisting

service-users to maximise the desired outcomes from accounting functions.

These aspects are discussed in Section 10.3.

150

10.1 IS OUTSOURCING OF TAFs REALLY WORTHWHILE?

The results of the study which indicated that more than half (62%) of the firms

had not outsourced TAFs in 1997 and the majority of those which did (35%) had

outsourced at low levels, raises the question as to the extent with which firms

are willing to outsource their accounting functions.

The examination of an approximate trend on outsourcing of TAFs between 1992

and 1997, and projections of outsourcing beyond 1997, indicated that the

outsourcing of only two out of nine TAFs, was expected to increase after 1997.

These results were not significant enough to support assertions that outsourcing

of TAFs in general, would increase over the 1990s. While Accounts Payable

and Accounts Receivable were functions where outsourcing was expected to

increase, basic functions such as General Ledger, Payroll, Inventory

Accounting, and value-added functions such as Costing and Management

Accounting, were expected to decrease after 1997.

An aspect of the finding which partly explains the low levels of outsourcing in

1997, and the projected drop in the outsourcing of certain accounting functions

after 1997, were the concerns which were held by all service-user firms,

regardless of their outsourcing extent. While firms which had not outsourced

TAFs held concerns which had deterred them from outsourcing, many of these

concerns represented real problems for firms which had outsourced TAFs in

1997. The three main concerns involved management and control of outsourced

functions, human resource and technological aspects.

151

10.1.1 Management and control of outsourced functions

In relation to the management and control concerns associated with the

outsourcing of TAFs, three major issues and respective recommendations are

discussed.

First, service providers were found to possess inadequate knowledge of their

clients' business operations which was a serious disadvantage.

To minimise these problems, service providers should consider specialising in

servicing specific industries, which would then reduce the challenges taken to

familiarise with new industries. Specialisation means having a demonstrated

knowledge of clients' business, industry and the relevant regulations. These

aspects will affect the reporting of accounting data and how service providers

can add value to the data for the benefit of their clients. Specialisation will

offer service providers the opportunity to concentrate on service quality, rather

than quantity. Of course, specialisation will also require service providers to

incur greater expenditure in staff training. However, in the long run, service

providers will avoid malpractice suits by servicing the industries in which they

have solid experience.

Second, service providers were found to lack reliability when it came to

processing timeliness, accuracy and the ability to provide appropriate solutions

during unexpected situations.

While the responsibilities of service-providers are bounded by the outsourcing

contract, the nature of outsourcing which focuses on the outcomes or

deliverables, especially for service-based areas such as accounting, necessitates

some sort of service level agreement. As opposed to a contract which describes

152

the obligations, rights, responsibilities, guarantees, liability and termination

aspects, a service-level agreement describes the service to be performed,

performance requirements and expectations, key performance indicators and

measures. In other words, a contract is written up for service failure whereas a

service-level agreement is written up for service success.

In all fairness to service providers, service users must, before outsourcing, be

aware of issues that need to be resolved prior to outsourcing. Apart from

understanding all aspects of their accounting functions, including the details of

problems which have, or are likely to occur, service users should fully

understand their strategic reasons for outsourcing, methods for the evaluation

of costs, benefits and risks, standards and performance guarantees, properly

defined policies and procedures and clear definition of roles and responsibilities

in the outsourcing arrangement. In contrast, service-user firms that have

inadequate up-front definition of scope and deliverables, unrealistic

expectations, exclude staff from outsourcing decisions, have inflexible

contractual arrangements and poor outcome measurement methods, would be

more likely to experience difficulties in their outsourcing arrangements.

Service-user firms should be careful not to outsource accounting functions

which are strategic to their business, or that differentiate them in a positive way

from their competition. The maturity of the technology used in the outsourcing

arrangement and the service-users' understanding of that technology are

important factors which can determine whether outsourcing can be a successful

option. If the function is highly integrated in a business or technical sense, then

outsourcing should be treated with caution because there will be many complex

interfaces with the organisation which will require management.

Third is the breach of confidentiality through outsourcing. It was interesting to

note that firms which had outsourced at high levels did not experience this legal

153

problem, which implies that firms can outsource at higher levels if they have

complete confidence that breach of confidentiality is not a risk in their

outsourcing arrangements.

As the breach of confidentiality is an intellectual property issue which can

generate legal liability for service-providers, it requires serious attention for the

protection of both service users and service providers. The range of legal issues

which may be covered by an outsourcing arrangement is very wide and is likely

to vary depending on the type of accounting function outsourced. It is therefore

vital for planners of an outsourcing arrangement to establish, early in the

process, a checklist of features and requirements of the proposed transaction.

This should enable them to prepare a sound contract and prevent them

overlooking important matters. It is recommended that this confidentiality

aspect be given high priority in contractual agreements, apart from the two

legal aspects which were found to be of concern to firms (Section 9.5.2.1, Table

9.1). While a range of intellectual property rights can be put on the negotiations

checklist (e.g., copyright, trademarks, confidentiality, trade secrets, etc.),

particular care needs to be taken with respect to confidentiality. It may well be

in the interest of each party in the outsourcing arrangement to require the other

to acknowledge that all aspects of their relationship are to be treated

confidentially.

The requirements of any Privacy Act, e.g., the Australian Privacy Act 1988

(Cwth) which is concerned with protecting the intellectual property of

databases, which was originally developed for the Commonwealth public sector,

should be considered in outsourcing contracts. Given that the processing of

accounting data involves the process of data collection, data processing and

data output, outsourcing contracts should stipulate details associated with the

handling and use of data during these three stages. For instance, during data

collection, individuals should be notified of the purposes to which information

154

collected from them may be put; and collection should be fair, lawful, relevant

and necessary. During the processing stage, data should beheld securely and

freely accessible to the individual to whom this relates. The data output should

cater only for permitted uses and disclosures of personal information.

The outsourcing contract should also require the service provider to comply

with the service user's directions from time to time in connection with security

safeguards. The service provider may have to establish a mechanism whereby

checks can be made to ensure that the information is accurate, relevant,

complete and not misleading. Ideally, the quality of the data should be no less

than the requirements of the Accounting Standards SAC 3 which deals with the

qualitative characteristics of financial information.

10.1.2 Human resource concerns

There were two major human resource concerns raised in relation to the

outsourcing of TAFs and one recommendation has been made to address these

two issues.

First, service-users have emphasised the difficulty in managing work

relationships between external service providers and internal staff, as well as the

drop in staff morale when these firms were evaluating the outsourcing decision.

Although the fear of staff redundancy is a demoralising issue, the impact on staff

was found to be a factor which was the least important to firms when it came to

evaluation of service providers (as part of the exercise in considering

outsourcing practice).

155

Second, there was the problem of external service providers lacking familiarity

with the operations of their clients. While the arrangements recommended have

been beneficial in the Information Technology industry, it is highly likely that

these arrangements will also benefit the accounting services industry.

A recommendation is for further research to be carried out to determine whether

an organisation can benefit by re-employing staff whose job tasks have been

outsourced, either as independent contractors or as contractors for external

service firms. An advantage of recruiting redundant staff is that such staff

would already have familiarity with the business, compared to external service

providers who need to invest time and effort to gain the same level of familiarity.

The consideration to recruit redundant staff in an outsourcing arrangement

would also demonstrate that the organisation is responsible towards the

handling of personnel problems which have been generated by their decision to

outsource. After all, personnel problems have to be considered within a

cost/benefit framework, too.

10.1.3 Technological concerns

The prediction by IBIS (1994) that technological factors would be a major

obstacle to the outsourcing of TAFs was supported in the results of this study.

While technological problems were not experienced by firms which had

outsourced at high levels, they were common amongst firms which had

outsourced at low levels, and are believed to be deterrents to firms which had

not outsourced TAFs in 1997. The main technological concerns were:

(i) the lack of compatibility between the systems supplied by external

service providers;

156

(ii) the effectiveness of the systems introduced by external service providers;

a portion of service-users have found that systems supplied by external

service-providers were in fact less effective than in-house systems; and

(iii) the loss of quality of service in the longer term.

In the case of firms which have experienced the above-mentioned technological

problems, it is recommended that research be carried out to identify the

approaches these firms have taken to overcome their technological problems.

This research can also identify whether there were substantial benefits in firms

returning to in-house processing of their accounting functions.

10.2 HOW COMPATIBLE ARE SERVICE USERS' AND SERVICE

PROVIDERS' PERCEPTIONS OF OUTSOURCING BENEFITS?

A comparison of the perceptions or expectations of the most significant

outsourcing benefits from the point of view of service users and service

providers (Section 9.8) revealed some differences. In order for outsourcing to

achieve the highest possible outcomes, there is a need for service providers to be

aware of service users' major expectations in outsourcing.

First, service users prioritised cost control as a rationale for outsourcing,

whereas service-providers have not acknowledged this as an important factor.

Service providers need to be aware that the ability to determine the costs

associated with outsourcing in the medium to long term is vital in influencing

service users' decision to continue outsourcing. This is an important

consideration, since the inability to determine outsourcing costs in the medium

to long term was a major concern indicated by service-users (Section 7.11.2.2).

157

Second, while service-providers perceive their expertise skills as a major asset to

their clients, service-users expect to have the requirements of special projects

met through outsourcing. Furthermore, service-users have indicated service

provider capability as a significant criteria when selecting service providers.

In this regard, service providers should capitalise on their ability to implement

solutions promptly and efficiently.

10.3 CURRENT TRENDS IN THE ACCOUNTING SERVICE

INDUSTRY - ARE THERE ALTERNATIVES TO

OUTSOURCING?

The technological concerns which were identified in this study and which were

earlier discussed in Section 10.1.3, led to two additional steps being taken to

identify the current trends in the accounting service industry .

First, a brief investigation of the accounting software market was performed to

identify the types of accounting software available for the TAFs included in this

study. The results of this investigation are worthwhile highlighting for the

benefit of service-provider firms. Service-provider firms need to be aware of

the existence and capabilities of software which service-user firms can now

utilise as an alternative to outsourcing, thereby avoiding the above-mentioned

technological problems.

A brief look at the commercial software market indicates the availability of a

number of fully integrated accounting packages known as SAP, F I N A N C E 1,

PEOPLESOFT, ORACLE, SOLOMON, PRONTO, SAGE, PASTEL,

ATTACHE, MYOB, etc. which are capable of running basic accounting

158

functions such as General Ledger, Accounts Receivable and Payable, Payroll,

Inventory Accounting, and Fixed Assets. These packages can be tailored to suit

the needs of medium to large firms and are flexible enough to run on either

expensive mainframe or P C networks.

With the relative economy on computer software and PC networks now

available, these software packages are feasible for many firms. Software

companies also provide continuing training to client firms to meet their

accounting needs as the firms grow. The legal contracts involving service-user

firms' use of such software emphasise a number of aspects which include the

licensing agreement, the maintenance and support service-user firms receive

during and after the implementation phases and the costs of procuring the

software. In general, these contracts are expected to be more straightforward

than outsourcing contracts, given the study finding that so many service-user

firms have raised legal problems:

(i) defining areas of responsibility with external service providers; and

(ii) determining ownership of accounting data processed.

Second, interviews were held with three accounting firms16 to identify their role

in assisting clients in the use of commercial accounting software capable of

17

processing the basic accounting functions.

77M? findings indicate that where service-user firms were satisfied to use

commercially available software, the accounting firms could benefit by

educating their clients on application of the software and capitalise on their

expertise accounting skills which would be required for value-added services

such as Management Accounting and Budgeting. These accounting firms have

16 For brief details of interviews conducted, refer Appendix J (Interview Nos. 9, 10 and 11) 17 Basic accounting functions refer to General Ledger, Accounts Receivable, Accounts

Payable, Payroll, Inventory Accounting, and Fixed Assets.

159

also indicated that commercially available software packages offer service-user

firms several benefits. These software packages are becoming increasingly

affordable, allow firms to maintain control of their processing efficiency as well

as the confidentiality of the accounting information processed.

To conclude, no matter what the trend may be in future in relation to the

outsourcing of typical accounting services, service providers need to be flexible

and prompt to capitalise on their expertise skills. A major factor which impacts

on the way businesses are managed in this information era is technology, which,

in turn, creates uncertainty in the role of service providers. Where service-user

organisations choose to run their typical accounting functions in-house by using

commercially available software, service providers with professional accounting

skills would most likely be the best advisers for business. Service providers

w h o possess accounting skills and are capable of servicing specific industries

due to their industry knowledge, need to invest in promoting client awareness in

the aspects of good business management and control.

160

GLOSSARY

Contractual Impact Refers to service provider's flexibility to manage change, their acceptance of risk and financial arrangements.

Financial impact Refers to net financial benefits expected to be gained by the accounting department or the service-user organisation.

IT Abbreviation for Information Technology.

Risk Risk levels associated with typical accounting functions. Risk include the possibility of errors or problems associated with carrying out the accounting function. For instance, a risk associated with Accounts Payable is the failure to generate cheques on time. For Payroll, the risk may be the miscalculation of pays and the loss of confidentiality of payroll information.

S A C Statement of Accounting Concepts. The conceptual framework set by the Australian accounting profession consist of five SACs. The conceptual framework was developed to ensure that the objectives and quality of financial reporting undertaken by reporting entities were of a standard adequate enough to serve the purposes for which accounting information reports were intended for.

Service-provider capability Refers to service provider's business strength, quality of staff, experience and flexibility in service provision.

161

GLOSSARY (cont'd)

Staff Impact

TAF

TAS

Technical and service assessment

Refers to service-user organisation's ability to retain existing employees and their skills, and avoiding unnecessary staff disruption or redundancies.

Abbreviation for typical accounting functions. The nine accounting functions which are the focus of this study have been collectively termed as typical accounting functions. These functions include general ledger processing, accounts receivable, accounts payable, payroll processing, fixed assets accounting, inventory accounting, budgeting, costing and management accounting.

Abbreviation for typical accounting services. The services relate specifically to the nine accounting functions which have been collectively termed as typical accounting functions (refer 'TAF').

Refers to service quality, efficiency of service migration plans and service provider's capacity to meet changes in work volumes.

162

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169

APPENDICES

APPENDIX A SERVICE-USER SURVEY: INDUSTRY CLASSIFICATION OF ORGANISATIONS IN SURVEY SAMPLE

APPENDIX B

APPENDIX C

SURVEY INSTRUMENT: SERVICE-USER SURVEY

SURVEY INSTRUMENT: SERVICE-PROVIDER SURVEY

APPENDIX D SURVEY RESPONSE RATES: - SERVICE-USER SURVEY - SERVICE-PROVIDER SURVEY

APPENDIX E SERVICE-USER SURVEY: OUTSOURCING LEVELS PERFORMED IN 1992, 1997 AND THE PERIOD BEYOND 1997

APPENDIX F-l SERVICE-USER SURVEY: PEARSON'S CORRELATION TEST RESULTS

APPENDIX F-2 SERVICE-USER SURVEY: RESULTS OF CROSS-TABULATIONS BETWEEN TAF OUTSOURCING LEVELS AND VARIOUS ORGANISATIONAL FACTORS

APPENDIX G SERVICE-USER SURVEY: DEGREE TO WHICH OUTSOURCING RATIONALES WERE MET

APPENDIX H SERVICE-USER SURVEY: OUTSOURCING CONCERNS

APPENDIX I

APPENDIX J

SERVICE-USER SURVEY: FIRMS OUTSOURCING TAFs AND THEIR OUTSOURCING CONCERNS

RECORD OF INTERVIEWS CONDUCTED

170

APPENDIX A

SERVICE-USER SURVEY:

INDUSTRY CLASSIFICATION OF ORGANISATIONS IN SURVEY SAMPLE

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SURVEY INSTRUMENT: SERVICE-USER SURVEY

173

OUTSOURCING OF TYPICAL ACCOUNTING FUNCTIONS To be completed by the Head of the Accounting/Finance Department in your organisation.

This research study is being conducted as a requirement towards a Master of Business degree through the Victoria University of Technology. The aim of this survey is to ascertain the needs of service-user organisations in the outsourcing of typical accounting functions.

This questionnaire will take approximately 15 minutes to complete. Your assistance in answering all questions is appreciated. However, do not feel obliged to respond to those questions where you feel the answers may compromise the interest of your organisation.

Should you require clarification on the contents of the questionnaire, please contact the following person:

Frances Hayes Lecturer Accounting and Finance T A F E Business Victoria University of Technology (Werribee Campus) Tel: (03) 9216 8181 Fax: (03) 9216 8209 Mobile: 015 833 642

Earnings Before Interest and Tax (EBIT)

Outsourcing

P/f/y

Revenue

Risk level

Typical accounting functions

Glossary of Terms

Refers to Operating Profit before charging interest expense and tax for the year. This figure represents profit from normal trading operations and does not include Abnormal nor Extraordinary items.

The contracting out of functions to external service providers, rather than having the functions performed by internal staff.

Previous financial year.

Refers to your organisational annual turnover generated from operations in Australia-

Refers to the risks associated with each type of accounting function. Eg. for accounts payable, a risk may be failure to generate cheques on time; for payroll processing, risks may include the untimely processing of pays and loss of confidentiality in

payroll information.

These functions include basic processing tasks and value-adding tasks. Basic processing tasks are those which are capable of being computerised and include General ledger processing, accounts receivable, accounts payable, payroll processing, fixed assets and inventory accounting. Value-adding tasks include budgeting, costing and management accounting, all of which require analysis and interpretation skills. Sections B, C, D and E of the questionnaire refer specifically to these tasks. Typical accounting functions mentioned in these sections refer to functions which are based, and are used to support your organisation's operations performed in Austral^.

Please return this questionnaire as soon as possible,

but no later than Friday 31 October 1997

QUESTIONNAIRE

SECTION A: ORGANISATIONAL PROFILE To be completed by all respondents

1. What is your organisation's industry classification as used by the Australian Bureau of Statistics?

a. Agriculture, Forestry and Fishing b. Mining c. Manufacturing d. Electricity, Gas and Water Supply e. Construction f. Wholesale Trade g. Retail Trade h. Accommodation, Cafes and Restaurants i. Transport and Storage j Communication Services k. Finance and Insurance 1. Property and Business Services m. Government Administration and Defence n. Education o. Health and Community Services p. Cultural and Recreational Services q. Personal and Other Services

2. For how many years has your organisation been operating? a. Less than 10 years b. 11 - 20 years c. 21-30 years d. 31 - 40 years e. 41 years and above

3. What is the range of your organisation's annual revenue in financial year ending xx/xx/1997? a. Under $1 m b. $ l m t o < $ 1 0 m c. $ 1 0 m t o < $ 1 0 0 m d. $ 1 0 0 m t o < $ 5 0 0 m e. $500 m and above

4. Using information from your published reports, please indicate on the following table, the percentage change (from the previous financial year) in your organisation's annual revenue over the last three financial years:

Financial

year

ending

xx/xx/95

xx/xx/96

xx/xx/97

Has revenue increased or , decreased from p/f/y?

Enter

I - Increase

or D * Decrease

% change

from

p/f/y

5.

6.

Using information from your published reports, please indicate on the following table, the percentage change (from the previous financial year) in your organisation's annual Earnings before Interest and Tax (EBIT) over the last three financial years:

Financials year -

ending j-

• .:••:. >..- \.i • .;••?;

xx/xx/95

xx/xx/96

xx/xx/97

i^HasiEBnfiincreased.or+-' • decreased ffoirf p/f/y?

• :

• TTTTT: TT ;tt_K_

Does your organisation maintain any of the administrative functions shown in the table below?

;• Adrfimi~cjiT<e '" : ;. fur.".

. ' •. T':;;^ ft "V;tp^

functions 'exist? '

i_ -

astm|* funcnans&S?

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a. Accounting •

b. Information • technology

c. Legal •

d. Superannuation •

e. Other (specify):

• D •

7. H o w many times has your organisational structure significantly changed over the last 5 years (eg. change in staffing structure, reduction of staff numbers, etc.)? a. None b. Once c. Twice d. Over twice

8. Please provide employment details within your organisation:

Organisation as a whole

Accounting department

(based in Australia)

Employment numbers

Full-time Part-time

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Thank you for your participation in this survey.

Are you prepared to be contacted for any follow-up to this questionnaire? Yes/No

If you wish to receive a synopsis of the findings of this study, please indicate a mailing address:

COMPANY MAILING ADDRESS

APPENDIX C

SURVEY INSTRUMENT: SERVICE-PROVIDER SURVEY

181

QUESTIONNAIRE

OUTSOURCING OF TYPICAL ACCOUNTING FUNCTIONS YOUR INTEREST AS SERVICE PROVIDER

To be completed bv the PrincipaVManaging Executive of vour Firm

This research study is being conducted as a requirement towards a Master of Business degree

through the Victoria University of Technology. The aim of this survey is to ascertain the

interest amongst firms/organisations (within the accounting services industry) in becoming

service-providers of "typical accounting functions" outsourced by businesses in Australia.

"Typical accounting functions" include basic processing tasks and value-adding tasks. Basic .

processing tasks are those which are capable of being computerised and include General Ledger

processing, accounts receivable, accounts payable, payroll processing, fixed assets and inventory

accounting. Value-adding tasks include budgeting, costing and management accounting, all of

which require analysis and interpretation skills.

This questionnaire will take approximately 10 minutes to complete. Your assistance in answering

all questions is appreciated. However, do not feel obliged to respond to those questions where you

feel the answers may compromise the interest of your firm.

Should you require clarification on the contents of the questionnaire, please contact:

Frances Hayes

Lecturer Accounting & Finance

T A F E Business

Victoria University of Technology (Werribee Campus)

Tel: (03) 9216 8181 Fax: (03) 9216 8209

J Please return this questionnaire as soon as possible,

but no later than Friday 29 M a y 1998

«_:

1 •:S:.

1 • . • > * • :

— i

O

V) _ 0)

cn

C/3

CU _= _

>

O

'isM.

V. .

Why?

(Tick one or

mo

re boxes

to

indi

cate

reasons)

Which TAS

would you

attribute low

priority or

would

consider

removing from

the range of

services

currently

offered7

(Tick where

applicable)

If so, has the

escalating costs for

these expenditure

types affected you

r ab

ilit

y to com

pete

in

each

service area?

(Tick the appropriate

columns

- refer codes below)

Has you

r firm

experienced

esca

lati

ng costs in

any of

the

expenditure types

shown below

in th

e provision of TAS?

(Tick the

appropriate co

lumn

s - refer codes below)

What

sort of

addi

tion

al cost will

you need

to incur to

pursue

business

opportunities in

these areas?

(Tick boxes to

indicate type of

costs, where

applicable)

Why?

(Tick boxes to

indi

cate

reasons, where

applicable

-refer codes

below)

Which TAS

would you

like to

provide

more

of?

(Tick where

appropriate)

What %

does each

listed TAS

contribute

towards

your

firm's

turnover?

(Enter %

only

where

applicable)

Typi

cal

accounting

services

(TAS)

T

C"l

<N

~

o

£

X

H

OT

O

£ X

H

OT

O

£ X

H

OT

"<»•

m

es

-

-

a. General Ledger

processing

b. Accounts

Receivable

u

is cS CL, m _ P O o o <

_ ) c m

_ Cc

"o

CS a. •a e.

Fixed Assets

accounting

f. Inventory

accounting

60 C=

• _ t

u oo •o o

m 00

_) c •a i/>

O

u _;

—

i. Management

accounting

a as >o

w returns

jowdemanc

)ecreasing

em and

-ackof

ost effective

•chnology

•— _i — -o -J o JS

I I I 1 — M r> •v

Expenditure Type

StaffNufhbers

StaffTraining

Hardware

Software

Occupancy

n n n u e

S

o O

Recruitment of

more

staff

Staff training

Acquisition/

upgr

ade of

hardware

Acquisition/

upgr

ade of

software

Occupancy

i n n » 11 in H X £ O

<_

s o

a **

i s §•_••*& _ C I_ _! Ji o E'BjS tt _; fa "5 "Si"— _ E S tt -2 I I I i

S E C T I O N B . Benefits of outsourcing typical accounting services ( T A S )

Q2. What do your consider to be the greatest benefits to your client in their outsourcing of typical accounting services?

Benefits

Better focus on core business Better cost control

Access to skilled staff Better service delivery Access to technology

Improved accountability/control of accounting functions Meet requirements of special project-Greater ability to cope with changes in staffing structure

Rank the top three benefits (where applicable) 1 = most important

Q 3 . If cost savings is one of the outsourcing benefits enjoyed by your clients, estimate how large the savings are on average. 0-10%rj 11-20% • 21-30% • Above 3 0 % • No idea rj N/A Q

SECTION C Profile of Your Firm

Q 4. What is the total number of staff in your firm? (Enter appropriate numbers)

Principals Accountants (non-principals) Other staff Total

IStaffLNa

Q 5 . Are you or any of the other principals in your firm or organisation a member of any of the following associations? (Tick appropriate box where applicable)

Association • Institute of Chartered Accountants • Australian Society of Certified

Practising Accountants • • National Institute of Accountants fj • Other (please specify):

•

Q6.

Client Category

Government-owned enterprises Privately-owned enterprises

Pic—sc tick thr box that [q»ic%ails The _zx- of thr majority ofyour clients mench of the two client

1-10

staff

11-100 staff

101-1000 staff

1001-10000 staff

Above 10000 staff

Thank you for your participation in this survey.

Are you prepared to be contacted for any follow-up to this questionnaire? Yes/No

If you are prepared to be contacted or wish to receive a synopsis of the findings of this study, please complete the detail below:

FIRM :___ MAILING ADDRESS :

APPENDIX D SURVEY RESPONSE RATES

The response rate for each question in the survey instruments used in the Service-User and Service-Provider Surveys are provided in Table D-l and D-2, respectively.

SERVICE-USER SURVEY

The Service-User Survey had a response rate of 21.7 % based on 281 questionnaires which were presumed to have been received. However, a very small proportion of the 61 returned questionnaires were not completed properly. This rendered a usable rate of less than 100% for some questions. Table D-l indicates the percentage of usable responses for each specific question with references to Chapter 7 of the thesis (Findings of Service-User Survey) and the actual Questionnaire.

Table D-l

Thesis Section

Reference

7.1

Service User Survey - Response Ra

Thesis Section Heading

Profile of Respondents

tes Percentage

usable responses

(%)

100 100 100 100 100 100

Questionnaire Section

Reference

0.1 Q.2

Q.3 Q.4

Q-5 Q.8

185


Table D-l (cont'd) Service User Survey - Response Rates

Thesis

Section Reference

7.2

7.5

7.5.1

7.5.2

7.5.3


Trends in the outsourcing of Typical Accounting Functions

General Ledger

Accounts Receivable

Accounts Payable

Payroll

Fixed Assets


Budgeting

Association between Accounting Infrastructure and Degree of

Outsourcing Performed

Size of Accounting Department

Strategic Importance of Typical Accounting Functions

General Ledger

Accounts Receivable

Accounts Payable

Payroll

Fixed Assets


Budgeting

Costing


Risk Levels associated with Typical Accounting Functions

Rate of useable

responses

(%)

100 97 98 98 98 88 98

98

97 90 97 97 95 82 95 87 95


Reference

Q.9

Q.8

Q.9

Q.9

186

Table D-l (cont'd) Service User Survey - Response Rates

Thesis Section

Reference

7.5.4

7.6 7.6.1

7.6.2

7.7

7.8

7.9

7.10

7.11


General Ledger

Accounts Receivable

Accounts Payable

Payroll

Fixed Assets


Budgeting

Costing


Cost of Typical Accounting Functions as a Ratio to Total

Revenue

Rationales for Outsourcing

Most Significant Rationales

Degree Outsourcing Objectives were Achieved

Continuity in Outsourcing

Practice

Awareness of Key Success Factors in relation to TAFs

Firms' Evaluation of the Outsourcing Option

Criteria for Selection of Service

Providers

Outsourcing Concerns

Rate of

useable responses

(%) 95 89 93 95 95 81 93 85 94

98

25

25

3-28

23

2-5

28

100


Reference

Q. 10

Q. 11 Q. 11

Q. 11

Q.13 Q.12

Q.14 Q. 15

Q. 16

187


SERVICE-PROVIDER SURVEY

The Service-Provider Survey had a response rate of 25.6% based on 83 questionnaires which were presumed to have been received. However, a very small proportion of the 83 returned questionnaires were not completed properly. This rendered a usable response rate of less than 100% for some questions. Table D-2 indicates the percentage of usable responses for each specific question with references to Chapter 8 of the thesis (Findings of Service-Provider Survey) and the actual Questionnaire.

Table D-2 Service Provider Survey - Response Rates Thesis Section

Reference

8.1

8.2

8.3

8.3.1

8.3.2

8.4

8.4.1

8.4.2


Profile of Respondents

Service-Provider Firms' Interest in the Provision of Typical Accounting Services (TAS)

Impact of Provision of Typical Accounting Services on Cost Structure of Service-Provider Firms

Cost factors in the pursuit of attractive accounting services

Escalating costs and impact on firms'

ability to compete

Service-Providers' Perception of

Outsourcing Benefits

Perception of most significant

outsourcing benefits

Magnitude of cost savings achieved

Percentage usable

responses

(%)

100 100 99

99

100

100

100

95 98


Reference

Q.4 Q.5 Q.6

Q.l

Q.l

Ql

Ql

Q.2 Q3

188

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APPENDIX F-l SERVICE-USER SURVEY

PEARSON'S CORRELATION TEST RESULTS

Table F-l Association between general characteristics of firms and their outsourcing behaviour

Thesis

reference section

7.4.1

7.4.3

7.4.4

7.4.5

7.4.6

General Characteristics of Firms

Annual revenue

Experience (measured by period of operation)

Size (measured by full-time employment)

Outsourcing of administrative functions: - Information Technology

- Legal - Superannuation

Organisational change (measured by number of organisational restructures)

Pearson's Correlation Test

Results

.1183

.0088

.0298

.0892 -.0051 -.1084

-.0129

The results in Table F-l indicate that there is no correlation between the listed

characteristics and the degree of outsourcing performed.

190

APPENDIX F-l SERVICE-USER SURVEY

Table F-2 Association between accounting infrastructure of firms and their outsourcing behaviour

Thesis

reference section

7.5.1

7.5.2

7.5.3

7.5.4

Accounting infrastructure characteristics

Size of accounting department

Strategic importance of TAFs: - General Ledger

- Accounts Receivable - Accounts Payable - Payroll - Fixed Assets - Inventory Accounting - Budgeting - Costing - Management Accounting

Risk levels associated with TAFs: - General Ledger - Accounts Receivable - Accounts Payable

- Payroll - Fixed Assets - Inventory Accounting

- Budgeting - Costing - Management Accounting

Cost of TAFs (as a ratio to total revenue)

Pearson's Correlation Test

Results

-.1183

.2431

.2289

.1293 -.2253 -.1565 -.1104 .1242 -.0131 -.0960

.2054

.1777 -.2250 -.0438

-.2206

-.1970 .2297

-.1936 .0587

.1867

The results in Table F-2 indicate that there is no correlation between the listed

accounting infrastructure characteristics and the degree of outsourcing

performed.

191

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APPENDIX F-2 SERVICE-USER SURVEY

OUTSOURCING OF FIRMS' LEGAL FUNCTION

Table F-4 Degree of Legal outsourcing undertaken by firms which

Degree of Outsourcing Performed (TAFs) High Low Nil

TOTAL

Degree of outsourcing Lesal (%)

Nil

11.3 17.0

28.3

Outsourced Partially/Fully

5.7 24.5 41.5 71.7

Total (%)

5.7 35.8 58.5

100

OUTSOURCING OF FIRMS' SUPERANNUATION FUNCTION

Table F-5 Degree of Superannuation outsourcing undertaken by firms which outsource TAFs at various degrees

Degree of Outsourcing Performed (TAFs) High Low Nil

TOTAL

Degree

Nil

1.8 9.1 9.1

20.0

t of outsourcing Superannuation (%)

Outsourced Fully/Partially

29.1 47.3

80.0

Total

(%) 1.8 38.2 56.4 100

193

APPENDIX F-2 SERVICE-USER SURVEY

FREQUENCY OF ORGANISATIONAL RESTRUCTURE

Table F-6 Organisational restructure frequency of firms outsourcing at various degrees

Degree of

Outsourcing

Performed ( TAFs)

High

Low

Nil Total

Frequency of organisational restructure

None

6.9 15.5

22.4

Once

3.4 17.2

20.7

41.3

Twice

3.4 19.0

22.4

> Twice

1.7 6.9 5.2 13.8

Total (%)

5.1 34.5

60.4

100.0

COST RATIOS (TAFs)

Table F-7 TAF cost ratios of firms outsouricng at various degrees

Degree of Outsourcing

TAFs High Low

SUBTOTAL

Nil TOTAL

TAF cost ratios

< 1 0 %

1.7 27.8

29.5

55.6

85.1

11-20%

1.7 3.3 5.0

3.3 8.3

21-30%

3.3 3.3

3.3 3.3

31-40% 41-50% Above 50%

Total

(%)

3.3 34.4

37.8

62.2

100.0

194

APPENDIX G SERVICE USER SURVEY

DEGREE TO WHICH OUTSOURCING RATIONALES WERE MET

Frequency analysis was performed on firms' rankings of eight listed rationales to identify how well these rationales were satisfied. The results of this analysis is shown in Table G-l.

Table G-l

Rationales

Better cost control Better focus on core business Better service delivery Ability to meet requirements of special projects Access to skilled staff Improved ability and control of accounting functions Access to technology Greater ability to cope with changes in staffing structure

Degree to which rationales were met *

(% firms) A

7 22

7

7

B

72 73 64

86 86

86 72

79

C 14 13

7

7

7

D

14 7 14

14 7

14 14

7

* Note: A - Rationales were met above expectations B - Rationales were met as per expectations C - Rationales were met below expectations D - Rationales were not met

195

APPENDIX H SERVICE USER SURVEY

OUTSOURCING CONCERNS Table H-l

Management and control

• Lack of control over processing in general • Lack of control over timeliness in processing • Loss of control over accuracy of data processed

• Lack of service provider accountability in the handling of service-user assets • Lack of suitable and timely assistance to resolve problems • Poor service provided by external service providers in payroll • Lack of disaster recovery plans with outsourcing • Loss of quality of service in the longer term

H u m a n Resource • Redundancy of full-time staff • Loss of morale amongst internal staff when forced to consider outsourcing of

functions performed in-house (due to the possibility of staff redundancy) • Difficulty in establishing good communication lines with external service

providers • Difficulty in managing relationship between external service provider and

operational management Difficulty in obtaining reliable and experienced service providers

• Service providers lack understanding of service-users' business and their operations

• The depth of knowledge and experience provided by external service providers is insufficient to meet outsourcing needs of a large organisation

• Inability of external service provider to have full and current knowledge of the internal affairs of the service user due to the limited amount of time spent with the service users

• Loss of in-house skill base due to dependence on external service providers

Technological

• Outsourcing of certain functions are less effective than a fully integrated accounting package

• Technology provided by external service providers is not necessarily superior to in-house technology which already exists

• Lack of compatibility between external technical systems (used by service providers) and in-house systems

196

Table H-l (cont'd)

Financial

Higher costs were calculated in the review of potential outsourcing of some areas Cost of outsourcing was higher than anticipated Costs do not justify benefits of outsourcing Need for costs to be monitored and analysed on a regular basis to ensure costs are justified Inability to reduce costs as desired Lack of control over cost of outsourcing Lack of control over cost of outsourcing Costs of processing was too high Difficulty in knowing cost of outsourcing in the longer term Lack of control of outsourcing cost in the longer term

Legal

• Ownership of data associated with the functions outsourced • Difficulty in establishing clear lines of responsibility in contractual agreements

197

APPENDIX I SERVICE USER SURVEY

FIRMS OUTSOURCING TAFs AND

THEIR OUTSOURCING CONCERNS Table 1-1

Typical Accounting

Functions (TAFs)

Payroll

Accounts Payable


Accounts Receivable

General Ledger


Budgeting

No. of firms outsourcing TAFs

10 2 2 2 1 1 1

No. of concerns expressed

25 8 6 3 3 2 2

Table 1-1 indicates the number of firms which have expressed concerns on the outsourcing of TAFs while actually having outsourced TAFs. As shown, the number of concerns associated with outsourcing are highest amongst firms which have expressed Payroll.

198

APPENDIX J RECORD OF INTERVIEWS

A number of interviews were conducted at various stages of this study.

Prior to the implementation of the Service-User Survey in 1997 and the Service-Provider Survey in 1998, interviews with Government Offices, accounting firms and private organisations were conducted to provide a general understanding of the trends in outsourcing within Australia. The list of organisations and firms interviewed are shown in Table J-l.

Table J-l

GOVERNMENT OFFICES No.

1

2

Contact

M r Norman Jordan Consultant Victorian Purchasing Board 1 Treasury Place Melbourne Victoria

M r Bruce Williamson Assistant Director Outsourcing Evaluation and Contract Management Unit ( O E C M ) Department of Treasury and Finance 5th Floor 1 Treasury Place Melbourne Victoria

Topic of Discussion

• General information on Victorian government's tendering guidelines

• Victorian Government tendering requirements

• Outsourcing trends within Government departments

• Accountants' role as service-providers in outsourcing practice

• O E C M guidelines in the evaluation of outsourcing decision

Date

27/2/96

28/2/96

199

Table J-l (cont'd)

3

4

Contact

M s Nancye Livingstone Senior Consultant

Outsourcing Evaluation and Contract Management Unit ( O E C M )

Department of Treasury and Finance 5th Floor

1 Treasury Place Melbourne Victoria

M s Margaret Livingston Manager

Service Industries Output Australian Bureau of Statistics 485 La Trobe St Melbourne Victoria

Topic of Discussion

• Rate of outsourcing accounting services undertaken within Government sectors, as documented in 1996 Issues Paper by Industry Commission

• Overview of O E C M outsourcing methodology

• Outsourcing concerns associated with human resource within the public sector

• Identification of different categories of service-provider firms within the accounting service industry

Date

21/5/96

16/8/96

ACCOUNTING FIRMS

5 M r Laurie Toovey Partner

Mann Judd

Level 32 80 Collins St Melbourne Victoria

• Rate of growth in the outsourcing of accounting

functions

• Interest and capacity of accounting firms to become service-providers of typical accounting

functions • Competitive position of

accounting firms in provision of typical accounting services

2/7/96

200

Table J-l (cont'd)

ACCOUNTING FIRMS (cont'd

6

7

8

M r Daniel McMahon Partner

M c M a h o n & Associates Station St

Sunbury Victoria

• Contents of Service-User Questionnaire (feedback using pilot questionnaire)

• Accountants' future roles in the servicing of basic and value-added accounting functions


13/11/97

PRIVATE ORGANISATIONS

M r Tony Alleva Accounting Department Coles Myer Ltd 800 Tooronga Rd Malvern Victoria

M r Ting Tiong Pong Financial Controller

Intervath Australia Pry. Ltd.

35/23-25

Bunney Rd South Oakleigh Victoria



25/8/97

26/8/97

201

APPENDIX J RECORD OF INTERVIEWS (cont'd)

A number of interviews with accounting firms and accounting software houses were also conducted in 1999 prior to the conclusion of this study. These interviews were performed in order to ascertain whether the trends in the outsourcing of typical accounting functions in 1999 were still representative of the trends in 1997 and 1998 when the Service-User and Service Provider Surveys were conducted.

The list of firms contacted are shown in Table J-2.

Table J-2

ACCOUNTING FIRMS No.

9

10

11

Contact

M r Ting Tiong Pong Partner

K S T Partners

Level 5 118 Queen St Melbourne Victoria

M r Damian Quinn Damian Quinn and

Associates 56 York St Coorparoo Queensland

M r Collin Hopper

Thomas Hopper and

Partners

68 Alfred St Milsons Point N e w

South Wales

Topic of Discussion

• Accountants' roles in the servicing of basic and value-added accounting functions

• Commercial accounting software for basic accounting

functions



functions



functions

Date

8/10/99

11/10/99

11/10/99

202

Documents

OUTSOURCING OF TYPICAL ACCOUNTING FUNCTIONS : IMPACT …vuir.vu.edu.au/18170/1/HAYES_1999compressed.pdf · Outsourcing of typical accounting functions : impact on the accounting