Going out

Patrick Molineux, Head of Market Development for CSC’s Financial Services sector in EMEA, tells FST about the valuable lessons financial services organisations are learning from IT Outsourcing.

Where would we be without outsourcing? It’s a serious question. For all the negative press, there can be no doubt that it’s played an enormous role in driving competition in a sector hard-hit by spiralling costs.

It is, however, important that we learn from our experiences. Whether it’s in-sourcing, offshoring, near-shoring, co-sourcing or multi-sourcing, financial services organisations need to be clear about the benefits they want to derive from an outsourcing contract and what type of outsourcing arrangement will work for them. Too often, short-term approaches have lessened cost savings and productivity gains. Working in partnership with your outsource supplier is critical to achieving the best results.

Take Schroders for example. As one of the UK’s most respected fund management houses, Schroders has expanded during the last two centuries to create one of the largest asset management networks in the world. It manages over €164 billion in assets for corporations, insurance companies, local and public authorities, charities, pension funds, high net worth individuals and retail investors. Schroders’ CFO, Stephen Brooks, said in a recent article in CSC’s ‘Smart Business’, “IT is also a market differentiator for us. An ability to execute on product innovation because we have the right IT infrastructure is absolutely critical. I’m sure that’s true for most financial institutions, but it’s absolutely true for us. We could not function if we did not have high quality IT systems in place. I think Schroders is moving out of a phase of remedial IT activity and is now moving onto the front foot.”

When outsourcing began, it was believed that only non-core processes could be shipped outside the business. However, companies are increasingly prepared to outsource anything, so long as it won’t jeopardise their competitive advantage. In fact, some very significant processes have been outsourced, even complex areas, such as medical underwriting.

Another critical success factor to an outsourcing partnership is commitment. Increasingly, our clients are looking for an organisation that has the required level of expertise when it comes to managing the relationship. One insurer we know of even recruited an executive with specific experience of working with offshore providers before it began the process of outsourcing negotiations.

Often our finance people liaise with our client’s finance people to structure a deal that fits well with the organisation’s working model and that stacks up financially. Creativity is required, to have a more sophisticated financial structure and look at other financial options, such as private equity. Open-book financing is becoming more common, and not just to ensure suppliers aren’t making excessive margins.

It’s also fair to say that no matter what sort of flexibility you think you’ve put in an outsourcing contract you can’t take that for granted, you have to invest in it with the commitment of senior people. With this, you get a much more successful engagement. Without it, you won’t have the people in the organisation to drive the right engagement and to drive the transformation in the company that outsourcing should bring.

As the economic situation continues to put the spotlight on spending, there are few signs that financial services organisations will reduce IT outsourcing. In fact, the reverse is the case. That’s because outsourcing is not always about reducing cost but also about securing competitive gains. However, cost considerations will always apply. For instance, if we can’t show our clients how to make a minimum 25% cost saving no one will take us seriously and we won’t win the contract. But, more importantly it’s the variability of cost. Access to new skills, greater capabilities and knowledge can bring a host of other very valuable benefits, as many financial services organisations have already found.