A new report from the Management Consultancies Association (MCA), based on a survey of members of the British Bankers Association (BBA), has found that the credit crunch will drive a new wave of outsourcing and offshoring in financial services as cash becomes tighter. However, only just over half (54%) of respondents felt that their organisation understood how to get good value from outsourcing and only 24% thought they adequately understood the offshoring industry.
Countering some of the negative publicity typically associated with outsourcing and offshoring, the MCA report also found that the majority of respondents to the MCA/BBA survey (89%) do not think that many jobs in their organisations have been lost as a result of either outsourcing or offshoring and almost two thirds (58%) also think that outsourcing has made the organisation more competitive.
The MCA report, sponsored by Navigant Consulting, a specialised independent consulting firm, looks at the current state of play in outsourcing and offshoring in financial services and examines the lessons learned so that they can be applied to the next generation of outsourcing and offshoring deals. The MCA/BBA survey of around 70 organisations in the financial services sector also found:
– Over 90% of financial services organisations had outsourced and almost a third had offshored some part of the business- 90% stated that outsourcing is now an accepted way of doing business and just over half agreed the same about offshoring- Nearly half (41%) of financial services organisations expect to increase their level of outsourcing
Outsourcing is now an acceptable part of the armoury of business executives. Five years ago it was either seen as an admission of defeat or a wild and wacky option, now nearly everyone has done something, says Andrew Stewart, head of financial services-Europe, Navigant Consulting.
While innovation and creativity is exciting, the credit crunch has also created something of a wake-up call to the financial services sector. Many institutions which have so far ignored the benefits of outsourcing are being forced to revisit it because of financial constraints and liquidity problems. Often they have failed to integrate and are still lumbering under a weight of legacy systems and processes and carrying both unnecessary variable cost and balance sheet assets, says Fiona Czerniawska, author of the report and director of Think Tank, MCA.
Apart from a small number of banks that outsource religiously and have succeeded in building common platforms for functions like IT and finance, the MCA report also found that insurance and investment are ahead of retail banking in their use of outsourcing, with many banks still yet to achieve the standardisation and economies of scale that their size would suggest.
Another source of difference across the financial services sector is the extent to which different functions within the organisation have been outsourced. The MCA/BBA survey suggests that finance and HR outsourcing are not growing any faster than IT outsourcing despite the marketing activity by outsourcing suppliers.
Lessons learnt and recommendationsThe MCA Report also identifies several common factors that have limited the potential savings achieved through outsourcing and offshoring deals. It goes on to detail the following changes of approach that are taking place:- Re-evaluating the skills and knowledge to keep or acquire- Changing the procurement process- Adopting a more sophisticated approach to financing- Taking a less adversarial stance in negotiations- Creating a more collaborative relationship- Ensuring commitment- Improving the management of suppliers
Outsourcing is an accepted part of financial services today but this report demonstrates there are still important lessons to be learned in terms of getting the best possible value from such an arrangement. We need to ensure the buying side is more informed and better at building more collaborative relationships, says Lesley McLeod, communications director, BBA.