Offshoring – the process of relocating business processes from one country to another, is a growing activity within the service sector. In recent years, US businesses have highlighted the cost benefits of offshoring, which has subsequently put pressure on UK businesses to follow suit, perhaps to the detriment of UK accountants.
Basic accounting, transactional and lower-level bookkeeping processes are certainly ideal functions for offshoring. These are standardised areas which can be codified and easily conducted abroad, since face to face client interaction is not required. In broad terms, any area within accounting not involving face to face relations can be offshored (Rudiger, 2007).
Because of the current wage differential between the UK and other countries ideal for offshoring, UK accounting firms could save millions from implementing the change. Illustrating this further, net cost savings could be in the region of 20 to 40 percent (Myers, 2007), which, for an accounting firm, is too good an opportunity to pass up. Overheads are lower in such countries, and their education systems are more than sufficient and constantly improving, meaning highly skilled and talented accountants are in abundance. Research carried out has also shown that in India for example, the work conducted by accountants is of a particularly high quality (O’Donnell, 2007).
In an era of globalisation, where English is spoken at an advanced level on a global scale, and communications technology is particularly efficient, there has never been a more suitable time for offshoring. Understandably though, such change will have a negative impact on UK employment within the accounting sector.
Research conducted by PWC (PWC, 2005) has revealed that by 2008, the vast majority of financial services firms will offshore. Figures released by Forrester Research predict that over 3 million professional positions, a large proportion of which are financial service related, will move offshore by 2015 - a worrying statistic for UK accountants (Pinto, 2005). If such research is accurate, then as time progresses, a decline in UK based accountant positions will definitely occur, subsequently increasing competition for places.
It is predominantly lower-value added activities which are offshored. If such activities are relocated abroad, then an accountant’s job within the UK becomes more value adding, since more time can be spent on value-adding tasks. This not only benefits accounting firms, but also the accountants themselves, since the job becomes more attractive and enjoyable since trivial tasks would be generally avoided. Nevertheless, fewer tasks means fewer accountants required. Perhaps though, due to the current market demand for audit/consultancy (client-facing) work within the UK, the effects of offshoring on UK employment could infact be offset to an extent.
The effects offshoring would have on UK accountant salaries are difficult to predict. With equally skilled individuals abroad, willing to work for less, accounting firms may decide to pay their UK based accountants less. Adversely though, talented UK individuals could thereafter be more attracted to other professions with more lucrative salaries – an outcome the profession would surely wish to avoid.
Looking at things from a different perspective, accounting firms could actually afford to pay their UK based accountants more since fewer will be required. Subsequently, firms could focus their efforts on only hiring the very best individuals as well. Better individuals mean better productivity, better results, and more adherence to ethical standards – some obvious benefits to the firms involved. An increase in value-adding tasks means that getting the right work force is more critical for success, so paying better salaries for better individuals is a small price to pay.
Apart from removal of trivial tasks, offshoring provides some other benefits for the UK accountant. A reduction in recruitment within the UK could make career progression easier. Obviously, with fewer accountants employed, there are more opportunities to excel and be noticed, i.e. more chances of climbing the corporate ladder. Also, with fewer individuals working and training within the profession, the experience of an accountant within the UK may become more highly regarded and sought after, which again could lead to increased salaries within the UK.
Although offshoring is a desirable process from an accounting firm’s point of view, there are some factors which inhibit it to an extent. Firstly, the role of an accountant is a client-centric one, requiring on occasion face-to-face interaction. Also, the extensive audit process requires on-site attendance, often for substantial periods of time. Thus, geographical proximity is important. Many firms also offer consultancy services to clients, which again require face to face interaction between accountant and client.
Security issues also discourage the implementation of offshoring. Not so long ago, a security breech in an Indian call centre involving UK customer details being made available for sale occurred (Accountancy Age), significantly damaging client trust in the company involved. Although many security measures are in place to protect clients, there is still a public perception concerning data safety. Some accounting reforms may have to take place to eradicate this negative public perception. For example, a more thorough audit process could be made statutory so that internal controls in operation abroad are sufficiently analysed and tested. Perhaps some experienced UK accountants could be offered more senior supervisory type roles to oversee practice abroad.
In summary, it is clear that UK accountants will be effected by an increase in offshoring in the future. Unfortunately, it is difficult to predict the magnitude of this impact. However, what can be said is that an increase in offshoring activity within accounting firms will almost certainly lead to a decline in UK employment of accountants.
References
Accountancy Age., (2005), “Outsourcers play down security risk”, Accountancy Age, July (http://www.accountancyage.com/accountancyage/analysis/2139277/outsourcers-play-security-risk)
ICAEW, (2004), “From outsourcing to offshoring”, ICAEW online (http://www.icaew.co.uk/library/index.cfm?AUB=TB2I_70989)
Maher, K., “Now in Offshoring’s Sights: High-Level professionals”, The Wall Street Journal Online (http://www.careerjournal.com/myc/survive/20040324-maher.html)
Myers, R., (2007), “Offshoring benefits too good to pass up”, CFO Magazine, May (http://globaltechforum.eiu.com/index.asp?layout=rich_story&channelid=5&categoryid=18&title=Offshoring+benefits+too+good+to+pass+up&doc_id=10645)
O’Donnell, A., (2007), “A challenging environment for UK accountancy firms”, RCM Associates (http://www.rcmassociates.co.uk/files/accountancy_services_may_2007.pdf)
Pinto, L., (2005), “Swimming against the tide: The hidden costs of offshoring”, The Online CPA Journal, January (http://www.nysscpa.org/cpajournal/2005/105/perspectives/p9.htm)
PWC, (2005), “Offshoring in the financial services industry: Risk and rewards”, PWC.com (http://www.pwc.com/extweb/pwcpublications.nsf/docid/2711A28073EC82238525706C001EAEC4/$FILE/offshoring.pdf)
Rudiger, K., (2007), “Offshoring: A threat for the UK’s knowledge jobs?”, The Work Foundation, June (http://www.theworkfoundation.com/Assets/PDFs/ke_offshoring.pdf)
Websites
http://www.accountancy.com.pk/articles.asp?id=161
http://agonist.org/ian_welsh/20070512/accounting_offshoring_within_10_years
Sunday, 18 November 2007
Assignment - Case Study 1 - Geneva ERP implementation
In previous years, Geneva Pharmaceuticals' information systems were unable to operate effectively with each other. This caused data entry errors, higher costs and 'dirty data'. In an effort to eradicate these problems and improve efficiency of business processes, the company implemented the SAP R/3 Enterprise Resource Planning (ERP) system provided a comprehensive set of integrated, cross-functional business processes. What was particularly important to Geneva was to have an integrated system whereby data entered is instantaneously updated across all business units, subsequently improving operational efficiency and preparing the company for technological innovation. Choosing to introduce this holistic package was an important decision for the company to take which would potentially yield significant benefits both in terms of revenues and market position. Many key decisions had to be made during the three phase project, some of which had a significant impact on the success of the project, as discussed below.
Phase I
Phase I focused on improving the supply side processes, transferring them from a manual system to the automated ERP system. This was necessary because previous processes were both manual and labour intensive, i.e. time consuming and costly. Such change could only be beneficial since overall efficiency would be improved. To ensure success, Whitman-Hart, a consultancy firm with relevant experience, were hired during this phase to assist in the implementation of the new system. Although their assistance was considered crucial, since Geneva had no internal relevant experience with this type of system, these technical specialists had little or no knowledge of the pharmaceutical industry. This led to various design problems forming. So much so, that after 4 months of the 6 month Accelerated SAP implementation cycle, appropriate progress had not been made. It should have been ensured well in advance that the consultants involved had sufficient knowledge of Geneva's business requirements. This lack of planning is a serious error which both we and Geneva can learn from.
Obviously, Geneva had to act quickly to rectify the situation. The decision was taken to appoint Randy Weldon, an experienced project manager, as CIO. The introduction of Weldon and his new project team was a pivotal decision which not only got the project up and running again, but undoubtedly contributed to its overall success. As well as this, Anna Bourgeois, with over 3 years relevant experience, was hired to lead Geneva’s internal IS team. This was another decision which proved to be highly successful within the next project phase. Ensuring that a project has the best individuals working on it is crucial for success. Geneva were lucky that changes in personnel took place early enough to salvage the project.
Overall, Phase I was not conducted in an efficient manner. The initial work in this phase was rushed, and thus did not allow the design team sufficient time to customise the software. There was a lack of communication between parties involved, and a lot of time was wasted. Communication in any line of business is always essential for success, an important point highlighted by the case. On the plus side, Geneva benefited from encountering problems at an early stage, effectively improving its approach in the next two phases. The team analysed problems and dealt with them accordingly, showing us that every problem has a solution.
Phase II
The objective of the second phase was to amend the demand side processes, subsequently improving sales and operations planning. Again, an important change to processes which would improve efficiency and reduce costs, two major benefits of an ERP system. However, this phase did prove to be far more complex than the first, due to Geneva’s advanced sales and service procedures.
Fortunately, this phase was far better structured and managed than the first, with Anna Bourgeois being assigned project manager. Perhaps the issues encountered during stage one were beneficial to the success of the project, since a more effective tactics were employed thereafter. Previous consultants Whitman-Hart were replaced with Arthur Andersen and Oliver White to assist with the final two phases. This change in personnel was a key decision at an important time during the design phase. Expectations for each consultancy firm were made clear from the outset, which allowed more effective collaboration and meant that there was a clear understanding of objectives between all involved.
As mentioned, Phase II was structured more appropriately than phase I, with three clear stages being defined - the first of which being conceptual design. This stage consisted of collaboration by a number of relevant groups, most importantly Geneva employees, who would be the main users of the application. This highlights an effective approach, since those consulted sufficiently aided in the design configuration of the new system. Through an exhaustive process, many problems were identified in current procedures, and several new and useful ideas were generated. These ideas were developed into prototypes which were tested by employees and then further refined by Oliver White, before formal implementation. Using Geneva employees was obviously a good decision, since potential problems were subsequently eradicated, as well as new creative ideas being formed.
In the final stage, labelled ‘change management’, functional managers and ‘super users’ of current company systems helped Oliver White train users of the new system. The training team took the decision to seek help from those within the company as they felt that the users of the new system would benefit from being mentored by a familiar face. The judgement to include employee interaction at every stage in Phase II proved to be one of the key successes of the entire R/3 implementation. It solved cultural issues and helped define employee roles, which the company felt would lead to greater productivity, and uncovered the need for customer education programs, which would ultimately lead to a greater number of sales. Such decisions on the grand scale of things would significantly contribute to improving Geneva's position within the global market place.
Phase III
The purpose of the final phase of the project was to integrate both supply and demand side processes. The key point during this phase concerned the design team discovering that the SOP (Sales and Operation Planning) module supplied by the new package was not intelligent enough to generate the necessary production plan. Although, the future decision made by the project team to combine the R/3 SOP with an APO (Advanced Purchase Optimizer) module, which was not previously available, provided the optimal solution to Geneva’s complex requirements - clearly an excellent decision made by the team.
Conclusion
It is obvious that during the implementation of a major project, set-backs often occur. However, from reviewing the Geneva case, we learn that such problems can be overcome through good management and better planning. Emphasised also is the significance which people have on the outcome of a project. With Geneva, human failures disrupted the project significantly during the initial stages. Although, through the subsequent appointment of more suitably experienced individuals, the importance of having the right project team was highlighted.
This assignment was prepared in collaboration with Robbie Innes.
Phase I
Phase I focused on improving the supply side processes, transferring them from a manual system to the automated ERP system. This was necessary because previous processes were both manual and labour intensive, i.e. time consuming and costly. Such change could only be beneficial since overall efficiency would be improved. To ensure success, Whitman-Hart, a consultancy firm with relevant experience, were hired during this phase to assist in the implementation of the new system. Although their assistance was considered crucial, since Geneva had no internal relevant experience with this type of system, these technical specialists had little or no knowledge of the pharmaceutical industry. This led to various design problems forming. So much so, that after 4 months of the 6 month Accelerated SAP implementation cycle, appropriate progress had not been made. It should have been ensured well in advance that the consultants involved had sufficient knowledge of Geneva's business requirements. This lack of planning is a serious error which both we and Geneva can learn from.
Obviously, Geneva had to act quickly to rectify the situation. The decision was taken to appoint Randy Weldon, an experienced project manager, as CIO. The introduction of Weldon and his new project team was a pivotal decision which not only got the project up and running again, but undoubtedly contributed to its overall success. As well as this, Anna Bourgeois, with over 3 years relevant experience, was hired to lead Geneva’s internal IS team. This was another decision which proved to be highly successful within the next project phase. Ensuring that a project has the best individuals working on it is crucial for success. Geneva were lucky that changes in personnel took place early enough to salvage the project.
Overall, Phase I was not conducted in an efficient manner. The initial work in this phase was rushed, and thus did not allow the design team sufficient time to customise the software. There was a lack of communication between parties involved, and a lot of time was wasted. Communication in any line of business is always essential for success, an important point highlighted by the case. On the plus side, Geneva benefited from encountering problems at an early stage, effectively improving its approach in the next two phases. The team analysed problems and dealt with them accordingly, showing us that every problem has a solution.
Phase II
The objective of the second phase was to amend the demand side processes, subsequently improving sales and operations planning. Again, an important change to processes which would improve efficiency and reduce costs, two major benefits of an ERP system. However, this phase did prove to be far more complex than the first, due to Geneva’s advanced sales and service procedures.
Fortunately, this phase was far better structured and managed than the first, with Anna Bourgeois being assigned project manager. Perhaps the issues encountered during stage one were beneficial to the success of the project, since a more effective tactics were employed thereafter. Previous consultants Whitman-Hart were replaced with Arthur Andersen and Oliver White to assist with the final two phases. This change in personnel was a key decision at an important time during the design phase. Expectations for each consultancy firm were made clear from the outset, which allowed more effective collaboration and meant that there was a clear understanding of objectives between all involved.
As mentioned, Phase II was structured more appropriately than phase I, with three clear stages being defined - the first of which being conceptual design. This stage consisted of collaboration by a number of relevant groups, most importantly Geneva employees, who would be the main users of the application. This highlights an effective approach, since those consulted sufficiently aided in the design configuration of the new system. Through an exhaustive process, many problems were identified in current procedures, and several new and useful ideas were generated. These ideas were developed into prototypes which were tested by employees and then further refined by Oliver White, before formal implementation. Using Geneva employees was obviously a good decision, since potential problems were subsequently eradicated, as well as new creative ideas being formed.
In the final stage, labelled ‘change management’, functional managers and ‘super users’ of current company systems helped Oliver White train users of the new system. The training team took the decision to seek help from those within the company as they felt that the users of the new system would benefit from being mentored by a familiar face. The judgement to include employee interaction at every stage in Phase II proved to be one of the key successes of the entire R/3 implementation. It solved cultural issues and helped define employee roles, which the company felt would lead to greater productivity, and uncovered the need for customer education programs, which would ultimately lead to a greater number of sales. Such decisions on the grand scale of things would significantly contribute to improving Geneva's position within the global market place.
Phase III
The purpose of the final phase of the project was to integrate both supply and demand side processes. The key point during this phase concerned the design team discovering that the SOP (Sales and Operation Planning) module supplied by the new package was not intelligent enough to generate the necessary production plan. Although, the future decision made by the project team to combine the R/3 SOP with an APO (Advanced Purchase Optimizer) module, which was not previously available, provided the optimal solution to Geneva’s complex requirements - clearly an excellent decision made by the team.
Conclusion
It is obvious that during the implementation of a major project, set-backs often occur. However, from reviewing the Geneva case, we learn that such problems can be overcome through good management and better planning. Emphasised also is the significance which people have on the outcome of a project. With Geneva, human failures disrupted the project significantly during the initial stages. Although, through the subsequent appointment of more suitably experienced individuals, the importance of having the right project team was highlighted.
This assignment was prepared in collaboration with Robbie Innes.
Sunday, 4 November 2007
Taurus & Crest case - why did Taurus fail and Crest succeed?
If a stock exchange is to function well, then having the right technology in place essential. For the London Stock Exchange (LSE), the largest stock exchange in Europe, implementing new technology has proven to be problematic over the years.
The LSE has had somewhat contrasting fortunes in selecting a computer system to handle the settlement of trading transactions. TAURUS, a well publicised technical failure set the LSE back years and cost millions. On the other hand, CREST was a fantastic success and for a time was widely regarded as the best securities processing system in the world.
(http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html)
Why though did CREST succeed and TAURUS fail?
TAURUS was designed to tackle the back office function of the LSE. Its purpose was to handle the settlement of trading transactions in a more efficient cost effective way.
The new settlement process provided by TAURUS once live would dematerialise stock certificates, reducing stock ownership to a simple entry in a computer database, which in turn would eliminate masses of paper work and hundreds of jobs, saving the LSE millions. Unfortunately though, the project failed miserably for the reasons outlined below.
The most significant issue which led to failure was the fact that the system was designed to do too much. TAURUS had to be “all things to all men” (Head, C., (2001), “TAURUS and CREST, Failure and Success in Technology Project Management”, Henley Management College), and as a result, was overly complex. Implementing a standard system meant that standardised working was imposed on member firms, who each ensured that the system was specifically tailored to their needs. On top of this, the government produced an extensive legal document detailing masses of complex regulations with which the system had to comply. Not surprisingly, the design team were unable to get to grips with the sheer complexity of all the requirements. The project was almost certainly doomed from the beginning.
Secondly, the package solution selected required significant modification to meet the various demands referred to above. This led to further delays and increased costs, as well as an increased level of risk stemming from the use of unproven software.
Even the computer trade press publicly reported problems. The TAURUS project and its shortcomings became well documented, to the extent that Computer Weekly even published an extensive expose, adding to the onslaught which helped kill TAURUS off.
When it became clear that the LSE was in serious danger of losing its position in Europe, it was decided that the TAURUS project was to be terminated. The collapse in 1993 was a catastrophic disaster for the LSE, resulting in a public inquiry which concluded that TAURUS had been fundamentally misdesigned. (http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html).
It was crucial for the LSE to rectify the situation and move forward once again. The Bank of England decided to step in to resolve the problem. A new design team of talented civil service individuals was formed and a new system named CREST was designed. CREST was thought of as the simple solution which provided the London market with the settlement facilities required to remain competitive into the next century (http://www.practicallaw.com/7-100-4206).
In contrast to TAURUS, the CREST team adopted a minimalist approach, and used tried and tested technology. Because this system was designed by the Bank of England and deemed as optional (in terms of usage purposes), there was no requirement to consider LSE member needs – something which was detrimental to the outcome of the TAURUS project.
CREST was designed to perform just two vital business processes. Comparing this to the twenty-one specified by TAURUS highlights the clear difference in complexity between the two systems. The CREST system was similar to other systems which the design team had worked on, meaning they kept to what they knew, rather than experimenting with the unknown. This was a safer option, which paid off.
On the whole, CREST was far better managed than TAURUS was. A senior level team was put in place to overview all aspects of the project, and the main team consisted of a small number of experienced individuals, in contrast to the over crowded, less experienced and less efficient team who worked on TAURUS. Any requests to add more business functions to the CREST system were only recognised if 80% of customer representatives within a business area demanded it, as opposed to the constant adhering to member needs implicit with TAURUS.
CREST, unlike its predecessor, was a fantastic success which proved that less is definitely more. Delivered on time and on budget, this system was at one point classed as one of the best securities processing systems in the world. Fundamentally, the minimalist approach employed by CREST was the critical factor which led to its success. TAURUS, as previously stated, was too ambitious. Constant modifications combined with a high level of complexity and poor management ultimately led to its downfall.
The LSE has had somewhat contrasting fortunes in selecting a computer system to handle the settlement of trading transactions. TAURUS, a well publicised technical failure set the LSE back years and cost millions. On the other hand, CREST was a fantastic success and for a time was widely regarded as the best securities processing system in the world.
(http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html)
Why though did CREST succeed and TAURUS fail?
TAURUS was designed to tackle the back office function of the LSE. Its purpose was to handle the settlement of trading transactions in a more efficient cost effective way.
The new settlement process provided by TAURUS once live would dematerialise stock certificates, reducing stock ownership to a simple entry in a computer database, which in turn would eliminate masses of paper work and hundreds of jobs, saving the LSE millions. Unfortunately though, the project failed miserably for the reasons outlined below.
The most significant issue which led to failure was the fact that the system was designed to do too much. TAURUS had to be “all things to all men” (Head, C., (2001), “TAURUS and CREST, Failure and Success in Technology Project Management”, Henley Management College), and as a result, was overly complex. Implementing a standard system meant that standardised working was imposed on member firms, who each ensured that the system was specifically tailored to their needs. On top of this, the government produced an extensive legal document detailing masses of complex regulations with which the system had to comply. Not surprisingly, the design team were unable to get to grips with the sheer complexity of all the requirements. The project was almost certainly doomed from the beginning.
Secondly, the package solution selected required significant modification to meet the various demands referred to above. This led to further delays and increased costs, as well as an increased level of risk stemming from the use of unproven software.
Even the computer trade press publicly reported problems. The TAURUS project and its shortcomings became well documented, to the extent that Computer Weekly even published an extensive expose, adding to the onslaught which helped kill TAURUS off.
When it became clear that the LSE was in serious danger of losing its position in Europe, it was decided that the TAURUS project was to be terminated. The collapse in 1993 was a catastrophic disaster for the LSE, resulting in a public inquiry which concluded that TAURUS had been fundamentally misdesigned. (http://commentisfree.guardian.co.uk/daniel_davies/2006/09/dont_just_do_something_stand_t.html).
It was crucial for the LSE to rectify the situation and move forward once again. The Bank of England decided to step in to resolve the problem. A new design team of talented civil service individuals was formed and a new system named CREST was designed. CREST was thought of as the simple solution which provided the London market with the settlement facilities required to remain competitive into the next century (http://www.practicallaw.com/7-100-4206).
In contrast to TAURUS, the CREST team adopted a minimalist approach, and used tried and tested technology. Because this system was designed by the Bank of England and deemed as optional (in terms of usage purposes), there was no requirement to consider LSE member needs – something which was detrimental to the outcome of the TAURUS project.
CREST was designed to perform just two vital business processes. Comparing this to the twenty-one specified by TAURUS highlights the clear difference in complexity between the two systems. The CREST system was similar to other systems which the design team had worked on, meaning they kept to what they knew, rather than experimenting with the unknown. This was a safer option, which paid off.
On the whole, CREST was far better managed than TAURUS was. A senior level team was put in place to overview all aspects of the project, and the main team consisted of a small number of experienced individuals, in contrast to the over crowded, less experienced and less efficient team who worked on TAURUS. Any requests to add more business functions to the CREST system were only recognised if 80% of customer representatives within a business area demanded it, as opposed to the constant adhering to member needs implicit with TAURUS.
CREST, unlike its predecessor, was a fantastic success which proved that less is definitely more. Delivered on time and on budget, this system was at one point classed as one of the best securities processing systems in the world. Fundamentally, the minimalist approach employed by CREST was the critical factor which led to its success. TAURUS, as previously stated, was too ambitious. Constant modifications combined with a high level of complexity and poor management ultimately led to its downfall.
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