Putting billions back on the bottom line?

Finextra recently reported the Management Consultancies Association research, which asked 70 members of the British Bankers Association about their outsourcing plans. The results included two surprising responses:

“41% of respondents expect to increase outsourcing levels”

but at the same time;

“Only 54% felt their organisation understood how to get good value from outsourcing”.

So, 46% don’t understand how to get good value? It seems that almost half of this research sample is receiving poor value from outsourcing! If the European IT outsourcing industry is worth $171.4bn as Forrester predicts[1], then nearly $80bn of that is poor value. Making this 10% more efficient would put over $8bn back on the bottom line of Europe’s businesses which, in today’s economic climate would be a great fillip to the collective balance sheet! So, is now the time to outsource that expensive division or tricky operation and focus on core business?

Despite the economic conditions, outsourcing spend is still being driven by compliance issues and management and delivery of middle and back office processes. Certainly banks can keep costs down by outsourcing, removing the need for increased headcount.  A strategic approach to outsourcing can also offer them improved flexibility enabling the resourcing requirement to change as operations develop.

But, getting good value from outsourcing does not mean plumping for the cheapest option. These questions should always be asked before outsourcing, but in a downturn the answers become even more critical. Financial institutions should ask themselves: What exactly are the businesses needs? How complex is the operation or project? Who do I need? Where can I get the specialists and can I have them onsite if I need them? Is it better to have a combination of people in various locations, can I vary this over time?

Only then should price be considered; given the above, have I got the best price rather than just the cheapest option?

The focus, in this new era, must surely be on being clever and shrewd; getting the right people, in the right place, at the right price. Only then will British bankers improve their chances of getting good value from outsourcing.

Graham Underwood, GFT

[1] European IT 2008 Market Outlook, Forrester Research, March 2008