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By Anthony Potter, Partner at Elix-IRR, UK for the “Business Process – managed and outsourced” Special Edition of the Outsourcing Journal

Since the financial crisis, banks have been caught in a negative cycle of falling returns on equity, and a need to do more for less. These pressures have inevitably increased the level of scrutiny on support functions within banks. After years of cost-cutting, restructuring and offshoring, financial services institutions continue to ask themselves the question – how can sustainable cost reductions be delivered while maintaining service levels in the context of ever more demanding customers and tighter regulation? As a result of this banks are increasingly looking to learn from other industries to see how their models can be applied.

The outsourced services industry is perhaps the most relevant example as banks are extensive users of their services and in many cases they provide direct competition to internal service providers. The business process outsourcing market in financial services alone is now worth $143bn per annum and between 2009 and 2012 grew at an average annual rate of 3%. Crucially, this growth has been achieved in spite of the continued crisis in the financial services market, and falling arbitrage value of the low cost locations on which the outsource providers originally based their economic models. Clients are increasingly looking to Outsourcers not only for lower cost, but also for higher service levels, certainty of outcome, capability enhancement and to turn capex-hungry operations into variable costs.

Assessing the market

Elix-IRR carried out a management level survey across 25 large global FS providers and Outsourcers in a bid to understand the key differences between how in-house FS support functions and Outsourcers operate. In addition an Elix-IRR expert panel also conducted a complimentary benchmarking exercise.

Our research showed that on every dimension surveyed Outsourcers are viewed as being able to deliver more efficient and effective services than their FS counterparts – as illustrated by our benchmarking exercise. The widest gaps were reported in service delivery, financial management and service management indicating that Outsourcers are more effective at conveying the scope, quality and price of their services to their customers.



The dynamics of service

This gap can be explained through the different customer relationship and commercial dynamics that exist. Whereas FS institutions view their support functions as cost centres, Outsourcers deliver competing services for profit. As revenue is dependent on continued customer satisfaction and an appreciation of the value of services delivered, outsourcers consequently adopt a more commercial and customer-centric approach, based around strategic relationships with their clients and delivery capabilities that offer differentiation from the competition in terms of service and/or cost. Their organisations are structured to reflect this. As part of our study, Elix-IRR identified four key structural organisational ‘building blocks’ for effective service and assessed the maturity and capability of Outsourcers against their counterparts within Financial Services. Our research shows that Outsourcers consistently outperform their internal counterparts across all of these areas.

Read the entire article in the “Business Process – managed and outsourced” Special Edition of the Outsourcing Journal, page 30-36. Download the PDF free of charge via the website of the German Outsourcing Association here: https://www.outsourcing-verband.org/outsourcing-journal-special-editions/