Credit Crunch Boosts Demand for Outsourcing and Offshoring in Finanical Services

Management Consultancies Association (MCA) and British Bankers’ Association (BBA) survey identifies the current state of play in outsourcing and offshoring in financial services and examines the lessons learned…
A new report from the Management Consultancies Association (MCA), based on a survey of members of the British Bankers’ Association (BBA), has found that the credit crunch will drive a new wave of outsourcing and offshoring in financial services as cash becomes tighter. However, only just over half (54 per cent) of respondents felt that their organisation understood how to get good value from outsourcing and only 24 per cent thought they adequately understood the offshoring industry.

Countering some of the negative publicity typically associated with outsourcing and offshoring, the MCA report also found that the majority of respondents to the MCA/BBA survey (89 per cent) do not think that many jobs in their organisations have been lost as a result of either outsourcing or offshoring and almost two thirds (58 per cent) also think that outsourcing has made the organisation more competitive.

The MCA report, sponsored by Navigant Consulting, a specialised independent consulting firm, looks at the current state of play in outsourcing and offshoring in financial services and examines the lessons learned so that they can be applied to the next generation of outsourcing and offshoring deals. The MCA/BBA survey of around 70 organisations in the financial services sector also found:

  • Over 90 per cent of financial services’ organisations had outsourced and almost a third had offshored some part of the business
  • 90 per cent stated that outsourcing is now an accepted way of doing business and just over half agreed the same about offshoring
  • Nearly half (41 per cent) of financial services’ organisations expect to increase their level of outsourcing

Andrew Stewart, Head of Financial Services – Europe, Navigant Consulting said:
“Outsourcing is now an acceptable part of the armoury of business executives. Five years ago it was either seen as an admission of defeat or a wild and wacky option, now nearly everyone has done something.”

Fiona Czerniawska, author of the report and Director of the MCA Think Tank commented:
“While innovation and creativity is exciting, the credit crunch has also created something of a wake-up call to the financial services sector. Many institutions which have so far ignored the benefits of outsourcing are being forced to revisit it because of financial constraints and liquidity problems. Often they have failed to integrate and are still lumbering under a weight of legacy systems and processes and carrying both unnecessary variable cost and balance sheet assets.”

Banking lags behind
Apart from a small number of banks that outsource ‘religiously’ and have succeeded in building common platforms for functions like IT and finance, the MCA report also found that insurance and investment are ahead of retail banking in their use of outsourcing, with many banks still yet to achieve the standardisation and economies of scale that their size would suggest.

Another source of difference across the financial services sector is the extent to which different functions within the organisation have been outsourced. The MCA/BBA survey suggests that finance and HR outsourcing are not growing any faster than IT outsourcing despite the marketing activity by outsourcing suppliers.

Lessons learnt and recommendations
The MCA Report also identifies several common factors that have limited the potential savings achieved through outsourcing and offshoring deals. It goes on to detail the following changes of approach that are taking place:

  • Re-evaluating the skills and knowledge to keep or acquire
  • Changing the procurement process
  • Adopting a more sophisticated approach to financing
  • Taking a less adversarial stance in negotiations
  • Creating a more collaborative relationship
  • Ensuring commitment
  • Improving the management of suppliers

In conclusion, Lesley McLeod, Communications Director at the BBA said:
“Outsourcing is an accepted part of financial services today but this report demonstrates there are still important lessons to be learned in terms of getting the best possible value from such an arrangement. We need to ensure the buying side is more informed and better at building more collaborative relationships.”

For more information please contact:
David Pippett
DWP Public Relations Limited
Tel: 01225 833745/07899 798197

About the Management Consultancies Association

The MCA was formed in 1956 to represent the consultancy industry to its clients, the media and government.  Management consultancy is an increasingly important industry for the UK economy with management consultancy revenues for 2007 estimated at around £8bn.  MCA members represent around 70% of the UK consulting sector, employ around 30,000 consultants and work with most of the FTSE100 and all government departments. Eight of the top ten UK-based consulting firms (by consulting fee income) are members.        

The MCA supports its member firms with a range of services including events, publications, interest groups and public relations. The Association also works with its members to attract the top talent into the industry. The MCA provides advice on the selection and use of management consultants and is the main source of data on the UK market

About the report
This report is partly based on a survey of around 70 financial services managers, 35 per cent of whom came from retail banking, 29 per cent from investment banking, 17 per cent from insurance and 17 per cent from other areas.  More than three quarters of respondents worked for UK-headquartered companies, 13 per cent for companies headquartered in Europe and 10 per cent for companies based elsewhere in the world.  The vast majority of respondents had been directly involved in outsourcing part of their organisation.

About the report sponsor – Navigant Consulting
Navigant Consulting, Inc. (NYSE: NCI) is a specialised independent consulting firm providing litigation, financial, healthcare, energy and operational consulting services to government agencies, legal counsel and large companies facing the challenges of uncertainty, risk, distress and significant change. The Company focuses on industries undergoing substantial regulatory or structural change and on the issues driving these transformations.

“Navigant” is a service mark of Navigant International, Inc. Navigant Consulting, Inc. (NCI) is not affiliated, associated, or in any way connected with Navigant International, Inc. and NCI’s use of “Navigant” is made under license from Navigant International, Inc.