This article appeared in the August 07 issue of the Compliance,
Risk & Opportunity (CRO) published by Finsight Media, India. It is authored by me and examines
process outsourcing by
banks. A summary follows.
Traditionally banks have been avers to outsourcing of any kind, except infrastructure requirements. This was on account of their overriding concern about secrecy of customer data. However the advent of I.T. changed the picture as, initially, skills in this area were scarce in-house. Some
outsourced tedious balancing and interest application work on the sly and despite cautions to the contrary. The next job that got outsourced was master creation for computerization of accounts. Technology that started it all, has now become the enabling factor in outsourcing many other non-technological processes too.
The reasons for outsourcing business processes are - a) quickly building capabilities by leveraging external expertise, b) efficiencies, and c) cost savings. Though the last one may not always hold true or savings may not be substantial.
The way developments in IT architecture are getting mirrored in the structure of business organizations, is indeed remarkable. The evolving structure where the ultimate product / service for the consumer is produced using a network of B-2-B services, bears striking resemblance to SOA and web-services in the IT sphere.
Though many favor outsourcing everything except what constitutes an organizations’
core competence, it is not easy to put your finger on exactly are your core competencies. It is somewhat like peeling layers of onion and deciding on the last layer before the core! Perhaps the temptation to peel off yet another layer is what Gartner refers to as "compulsive outsourcing" in its report titled "Stop Compulsive Outsourcing."
Offshoring, i.e., outsourcing to partners in other parts of the world, introduces additional risks to those already inherent in outsourcing. These include political, legal, and also logistics issues on account of differences in time zones. Regulators have been persistently emphasizing the fact that banks remain accountable for whatever they outsource. This has been succinctly verbalized by one of the top officials of the Reserve Bank of India as follows - "While banks cant outsource risk, outsourcing itself is a risk that needs to be managed."
Many practitioners have also cautioned about the temptation to take the last penny off the table when negotiating an outsourcing deal. Such lowball techniques ultimately prove to be counterproductive.
Vendor Management becomes a key issue when an organization decides to outsource. Vendor management calls for making all SLAs (Service Level Agreements) as exhaustive and explicit as possible, defining precise metrics for the purpose, and ensuring correctness and reliability of measurements. All this calls for a knowledge base on the subject matter of outsourcing within the outsourcing organization, lest they should be taken for a ride by the vendor. Also while negotiating commercials it must be ensured that the deal makes sense to both the parties.
The article concludes with a checklist of 14points for outsourcing. A couple of interesting ones are as follows:
1. Has the organization identified the core tasks that must NOT be outsourced?
2. Will it be proper to outsource a customer-facing function? To paraphrase, which customer-facing activities are not core functions?
Published: February 08, 2008
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