Insourcing v outsourcing - how can firms decide?

The issue of whether to outsource a transformation project or lean on in-house expertise is a question many Executives wrestle with. It may seem safer to keep control and offer personal development to in-house teams – after all they have the legacy system knowledge. But will playing it safe differentiate you from your competitors?

True innovation relies on deploying the latest thinking and technology, which offer unique experiences. Existing in-house resource can often be pulled in different directions across multiple conflicting projects. This can make delivering a growth agenda whilst running BAU difficult, to almost impossible. However, for many the default option remains managing these projects in house. Whilst there are advantages to this approach, it also has limitations.

Why does in-house resource struggle to deal with disruption?

Incumbents like tier one and tier two banks are often slower to respond to new technology and trends, usually thanks to the constraints of their legacy systems. This feeling of being behind the curve then leads to focusing on the wrong areas. Typical concerns are driving out cost, digitising existing processes and maintaining systems and processes to keep pace with technology and regulatory change. Customer experience is on the to do list but doesn’t get prioritised. A change in attitude and ambition is needed to deliver the disruptive innovation the customer needs, but also demands.

We’ve already seen established brands all but disappear – Yahoo and Myspace being prime examples; their brand loyalty eroded by Google and Facebook, offering superior, friction free, customer-first experiences. In financial services, challengers like Starling and Monzo have changed the game. There’s a greater demand for customer centric products, platforms, and services, all whilst balancing a changeable regulatory landscape, alongside continued pressure to improve margins and reduce the cost to serve. Transformation gains can be passed to the consumer, earning early adopters more market share through more competitive rates.

You also can’t win tomorrow’s customers with yesterday’s technology

Compromise may mean choosing to digitise existing processes rather than reimagine or reengineer the experience…however, prolonging platform life delays risky, lengthy, and costly migration programmes. The difficulty of offering hybrid services, mixing Cloud with On Premise and new on demand technologies can be a risk, especially when revenue and reputation is on the line. This transformation uncertainty inevitably makes the customer a secondary consideration.

In-house teams may know your infrastructure like the back of their hands. But it’s this knowledge which can limit innovation, leading to the TTWWADI effect (This is the way we’ve always done it). Solutions are designed based on their knowledge of system limitations rather than the art of the possible. The ambitions of internal teams can also cloud judgement giving an overinflated view of in-house capability.

But what will outsourcing get me?

Let’s explore the advantages of both approaches:

Insource

Greater control

Maintain IP

Reputational ownership

Organisational culture

Deep knowledge of technology estates

Outsource

Scalable and cost efficient

Challenge conventional thinking

Access to experts

Diverse capabilities

Share liability and risk

Emerging technologies

It’s clear each has a place in the business ecosystem. For niche, specialised or maintenance of existing services you’d look to insource. But, if you’re looking for disruptive, complex transformation at speed and scale you need to look externally.

There are four key drivers behind this rationale:

• Customer experience - Driving the best outcome for customers
• Cost - Increasing pressure to improve margins and remain competitive
• Conduct - Remaining compliant in an ever-changing regulatory landscape
• Capability - Gaining access to increased technological and operational capabilities to drive diversification and competitive advantage.

With a growing number of market forces impacting the industry, enterprises can’t solely rely on the same make-up to deliver differentiation and disruption. Outsourcing to a provider with the right industry knowledge, domain expertise and resource could save you a lot of time and money in the longer term and be a valuable return on investment. And, it doesn’t need to be an all or nothing approach. Partial outsourcing to compliment your insourcing is an equally viable and valuable option.

Disrupt or be disrupted - easier said than done

To digitally transform you need access to world class experts across a huge variety of disciplines, technologies, and industries. Outsourcing can provide the technology and resources available, across multiple geographies and horizontals.

This is because an innovative partner challenges conventional thinking, deploying emerging technologies to solve everyday challenges. Outsourcing gives you the ability to harness this fundamental capability to deliver large scale complex solutions. Simultaneously, it provides the freedom to focus on core in-house activity or pivot to new areas of focus, like product manufacture.

So, is it worth the investment? The answer is yes, as it can:

• Significantly reduce your cost to serve
• Enhance your customer experience
• Unlock new revenue streams, and
• Help you explore new commercial models.

Outsourcing can help you move to a direct digital solution, one that uses Open banking, API, and data insights. This gives the customer greater ability to self-serve, reducing your own cost to serve, therefore creating a deep understanding of the customer. Harnessing this data allows you to create a solutions-based proposition rather than a product based one. This enables third party integrations to create personalised offerings that promote customer acquisition and retention, opening up new revenue streams, providing long term sustainability and growth.