The vast majority of organizations are looking to introduce change by outsourcing, says Blake Hanna, partner, Financial Services, Accenture, commenting on a study the consulting and technology services firm released earlier this year.
Entitled Outsourcing: Shared Risks and Shared Rewards, the study was conducted for Accenture by IDC Canada who surveyed 177 senior executives from across Canada from December 2002 to January 2003, inquiring about their current and anticipated outsourcing practices. The executives represented companies with annual revenues exceeding $100 million and spanned a range of industries.
About 95 per cent of the surveyed executives said they were looking to affect some kind of change within their organizations. Gaining access to skilled resources was cited by 42 per cent as one of the biggest benefits for businesses looking to outsource. For 34 per cent of respondents, outsourcing was seen as an effective method for improving business processes.
Although only 12 per cent of the survey respondents were in the financial services sector, Hanna says his duties as head of Accenture’s financial services practice in Canada leads him to believe that the general findings of the study would resonate widely with this sector.
“If you look at the bank in terms of wealth management, multi-channel retail (Internet, online, telephone, branch), and if you look at what they’re doing with their securities and their online brokerage firms, I think you’ll see that a number of the financial services providers or banks and insurance companies have tried an aggregator play and are trying to bring together a group of in some cases disparate skills and strategy. I think people are going back to basics in today’s economy and they are asking the question: what is it that we are in essence really in business to do?”
He points out that mergers, acquisitions and integrations bring components of different businesses together. “Outsourcing provides them with a tool to streamline and make cost effective and improve quality of service.”
While the survey revealed many reasons companies are turning to outsourcing, an attractive return on investment is the opening ante for outsourcing providers to be in the game.
“Make no mistake: cost will always be part of the equation,” he stresses. “I don’t think anyone’s going to get away without demonstrating a bottom line return on these investments. Outsourcing increasingly is being used as a catalyst driving change into organizations. I think [outsourcing services buyers] are expecting as a by product to find with that commensurate cost efficiencies and effectiveness.”
Meeting industry pressure
Hanna suggests that outsourcing has a role in helping to address a pressure the financial services sector faces that other industries don’t. That pressure is the need to remain relevant in the global marketplace by having large, prosperous capital players in the world capital market. That prompts financial services firms to look to grow their business, resulting in a higher rate of mergers and integration in this sector than in others.
“Hence you’ve seen banks trying to swallow banks. You’ve seen insurance companies and banks doing mating dance rituals. The challenge is that when you do that, there are certain parts of the organization that fit like a hand and glove but other parts that may not be as complementary.”
He suggests that outsourcing addresses the need to augment skills. “Sometimes the skills that you have today through the aggregator play may not be the skills you need in the optimization phase of business.
“Regardless, you need to drive out some of the costs so you can achieve some of the operating efficiencies. One of the things you’re looking at with large financial services providers as they talk about merger or growth focusing on core business is: are there other organizations that can take on some of these functions and responsibilities on our behalf while we focus on areas of core business relevancy?
“When you bring two organizations together that have an overlapping area of focus such as customer care, sometimes you evolve an organization where you have functions performed internally but they aren’t competing at world-class levels and standards and you have an opportunity to augment them.”
He notes that a challenge in large organizations is that CRM has not provided the ROI that was originally envisioned. He says teaming with an outsourcing provider can augment existing customer contact and call centre capability, as well as identify and follow through on ways of adding value to customers. For instance, a customer making a deposit which is twice as much as her normal deposit might be could prompt a message to the customer highlighting available investment products. “Suddenly real-time intelligence can help the financial services institution identify opportunities for cross-selling or up-selling products and providing (customers) a better rate of return. Sometimes the in-house capability has been so focused on integrating the pieces of mergers and acquisitions that the skill sets may not be in-house to provide the additional level of capability. That’s where I see outsourcing as another way of augmenting and supplementing existing skill sets.”
Sharing bigger risks
The study also revealed that organizations are prepared more and more to share risks and share rewards with their outsourcing partners. It indicated a growing desire among executives for outsourcing providers to become business partners by sharing the risks and rewards within outsourcing arrangements. In fact, 64 per cent of respondents said they consider an outsourcing provider’s willingness to share risk when selecting an outsourcing partner.
Hanna notes that the wagers have become bigger.
“You’re betting technology, business processes, business functions and you’re going to be held accountable for business outcome so you want someone who’s got a little more skin in the game.
“That speaks to a changing or evolving nature of the relationship from the service provider/customer relationship – ‘I want that, this is what I’ll pay you, you give it to me at this level’ – to ‘Here’s what I think I’d like to have, here are some capabilities that I think you’ve got, I’d like to structure the arrangement so that we get the services that we want at the right point but are there opportunities that the two of us when we team together create that we might not otherwise be able to capitalize on?'”
The study found that organizations are expanding beyond traditional IT outsourcing and outsourcing business processes closer to their core competencies. For example, 19 per cent of the executives surveyed said they outsource some human resources (HR) processes. Call centres, primarily customer care, are already outsourced by 11 per cent of respondents. HR is a function which 18 per cent say they would consider outsourcing in the future, the study reports.
“Call centres typically have high turnover,” Hanna explains. “The body of knowledge to master in a large financial organization like a bank or insurance company – is an awful lot, so using outsourcing HR functions such as training and e-learning… the ability to get people up that learning curve and proficient sooner translates into real cost savings for the financial institution. It also translates into improved customer service.”
Shifting the focus
The study also showed that day-to-day control over outsourced activities is no longer a significant issue for the majority of Canadian businesses. More than 80 per cent of executives surveyed say they want to control strategy, business outcomes and service levels and are not concerned about leaving for the service provider other daily business issues, such as those involving process design and people.
“When you have to go through the process of defining a customer outsourcing relationship, it focuses time and attention of the organization on: what are the types of things that are important for us to specify in a contract?” Hanna adds. “Like moving a plant closer to the window, it gets a little more light and tends to do better. What you’ll actually find in some cases is the control and objectives around safety, security and integrity of data is increased in an outsourcing arrangement because you had a chance to deliberately sit down, consider it, implement policy and affect change. Sometimes internally, other priorities leap to the fore and it’s not as well cared for.
“There’s an expression in the industry: your back office becomes my front office of outsource,” he continues. “So what used to be treated as a cost centre internally in the organization suddenly becomes the service provider’s profit centre. When something’s a profit centre, sometimes you take a little different focus or perspective in terms of is it relevant; is it providing the highest level of quality customer service that it can at the price point? It gets a special level of attention when somebody else is earning the revenue stream and sometimes when it is managed internally as a cost centre, it tends not to have that same degree of focus.
“Outsourcing speaks to the heart of ‘how do we cut our costs and improve the quality of services so that we can really focus on competing for the customer?’ It is a custom solution for each and every organization to be aligned with their vision, strategy and objectives.”