The Second Wave of Sourcing

I must admit that I have been a proponent of globalization even though I have not and do not currently have any financial interest. I have, however, spent time overseas for the express purpose of enlarging my worldview and capturing an informed opinion.

Seeing the big picture

A few years ago several of our clients asked me to conduct a due diligence investigation into the leading providers of sourcing at that time. Upon returning from my first visit to India, I observed that sourcing is not about cheap labor but rather workflow systems and capacities that U.S. firms can utilize.

Keep in mind these companies have been instrumental in developing workflow software for corporations like UPS, Federal Express, Delta Airlines, Charles Schwab and others. They utilize quality talent, secure facilities and a progressive training and learning culture.

I also had the fortune of meeting K.N. Vaidyanathan in 1999.  He has ample sourcing experience with banks and wanted to explore the sourcing of tax returns in the United States, so in 2000 he met with some Boomer Technology Circle member firms. The implications for the accounting industry were clear.

Do you provide an employee with over 120 hours of training before you have him or her prepare 1040s?  Do you have employees complete 50 practice returns before they enter production mode?  Do you review their work in a timely manner and provide a grade on each return a preparer completes? Good sourcers do all of the above.

Getting it to work

What went wrong and why haven’t more firms experienced success with sourcing?  Some won’t like how directly I answer the question, but it’s this simple. Firms that do not want it to work make sure it does not work, and firms that do want it to work make sure it does work.   In other words, many firms put their toes in the water, but don’t commit to learning how to swim.

All indicators point to the reality that while more returns are partially prepared in India than ever before, fewer firms are taking part in this venture.  Before I go further, understand I do not believe the real value comes from using sourcing to do tax returns.  In the future, the value will be in the strategic relationships that are currently in development. Other services such as write-up, specialized auditing (data extraction and analysis), payroll and financial analysis will be completed using a global workforce.

Think again

Let’s review the reasons firms are sourcing and why your firm should consider it:

• Improved turn around time and client service
• Partners and current staff avoid burnout
• Improved leverage for partners and the ability to fill the void at the management level.
• Utilization of the workflow, data organization, capture tools and client portals for secure transmission of data
• Maintain or increase profitability
• Allows firms to move into higher value services

The approach firms take now will determine long-term results.  A majority have only sent excess returns rather than developing strategic processes to source the majority of them.  The commitment to a strategic initiative is far more rewarding than a half-hearted attempt to source a few returns if needed. 

Firms that take the strategic approach typically have a strong relationship with their sourcing company or have developed their own operations in India.  Leaders of these firms get involved rather than delegate the project to a manager who may or may not want to work through the issues.  They have also committed adequate resources to develop an efficient process.

The risk is much lower today, but our profession has made it more difficult to conform to the increasing number of regulations at the state and national level.  The bottom line is most clients don’t care, but many U.S. accountants have fought sourcing as though something was being taken from them. 

Now is the time

The opportunity to move up the value chain has never been greater for U.S. accountants.  Compare what is happening today to what happened over 20 years ago.  At that time, the ability to run a ten-key adding machine and prepare a 13 column trial balance worksheet were valuable skills.  Everything changed with the emergence of the personal computer and electronic trial balance software. 

Today, the ability to accurately accumulate information for a tax return and enter it into preparation software is diminishing in value because of the scope of the digital age.  While most firms are changing, many have not totally embraced digital initiatives and lack the tools necessary to manage content (dynamic documents, static documents, email management, records management, knowledge management and portals). 

Other reasons risks are fewer today than five years ago:

• Sourcing companies have proven track records
• Workflow management tools have been tested and implemented effectively
• The U.S. accounting workforce does not want to work overtime
• Digital source documents are widely available

Why sourcing matters

Today, three people leave the profession for every one who enters. If they haven’t already, firms will address staffing and resource requirements in the coming years.  Keep in mind that less than 30% of U.S. accounting graduates go into public accounting.  

Those who have resisted sourcing in the past have been largely misinformed.  When firms mention security as a primary concern, I know they have not visited sourcing companies nor spent any time thinking about security in their own offices.  Some firms are also concerned about quality, but they truly do not understand the caliber of resources in India.

Visiting and talking to Indians brings home the reality that they have similar goals, ambitions and family responsibilities as we have in the United States.

During our visit, the Indian hosts expressed to my son Jim how thankful they are for their jobs, which help them avoid arranged marriages and gain independence.  They are highly educated accountants and determinedly motivated to become team members of a U.S. firm.

The greatest number of questions Jim answered related to the U.S. CPA exam and how quickly Indians might be able to take it online. (They were more worried about missing their flight connections to the U.S. for the exam than actually passing it.)  It's also worth noting that the India Chartered Accountant’s exam is one of the most difficult in the world.  

Interestingly, the ratio of male to female accountants in India is comparable to the United States. We observed this firsthand after receiving a standing ovation during a speaking engagement there. It was apparent that over 50% of the audience members were women.

Relationships, strategy and commitment

If the second wave is coming, what should firms do to take advantage of it and avoid past mistakes?  It’s all about relationships, strategy and commitment to making it work.  

First, select a project champion who wants it to succeed and name a sourcing task force.   Allow your people to meet members of the firm’s sourcing team in India.  Video conferencing and Voice over IP are powerful tools, so use them.  Commitment of a significant amount of work allows the sourcing company to establish a firm team.  Note that Indians love logo materials that identify them with their U.S. firms.  

Second, work with a proven sourcing company.  I recommend those that have a U.S. presence.

Finally, get your firm into the digital age with content management and workflow systems.