The quality of offshore providers of finance and accounting services has never been higher. Many have made significant investments in the control and monitoring mechanisms needed for high-end functions, regulatory requirements, and complex finance processes such as valuation reviews, legal-entity control, and tax preparation. Some have even hired risk-and-control officers to deal with Sarbanes-Oxley, Basel II, and SEC reporting.

More sophisticated vendors enable companies to cut their labor costs by as much as 30 to 70 percent for offshored functions, to raise productivity by at least 5 percent a year, and to improve their control and risk management. What’s more, these vendors offer people-constrained finance operations flexibility—the ability to meet proliferating business needs quickly by tapping into a highly skilled workforce. Offshoring can also play an important role in even more comprehensive efforts to streamline the finance function (see sidebar, “Getting started and staying with it”).

Yet very few companies have come close to capturing the full potential of offshoring finance operations. Indeed, a majority of the companies that have offshored some of them did so only in the past 24 months and are thus just getting past the start-up stage. In our experience, the problem is the...