Global Financial Services Offshoring Report 2007
Key Findings:
Offshoring is maturing rapidly. It has unleashed a new competitive dynamic within the financial services industry. Economies of scale and unit costs have for the first time become the watchwords for success.
For many years, commentators suggested financial institutions could share operations around duplicated business processes, but there have been few successful examples of collaboration. However offshoring could enable shared back-office functions to become a reality.
Offshoring??s new dynamic is being driven by three factors. Firstly, the emergence of the giant Indian offshore vendors has emphasized the importance of re-engineering processes. Several global outsourcers are significantly altering their delivery model by building scale in low cost delivery locations across the globe. Secondly, the industrialization of processes is taking place across the financial services industry. Recent research shows 91 percent of financial services companies are simplifying processes and 74 percent have centralized operations16. Finally, major captive operations of financial institutions now match the scale of large third-party outsourcers.
All these pose a major challenge for those responsible for offshoring programs within the financial institutions. It is possible that in the next three to five years a number of specialized processors will dominate certain sectors of the financial services industry, such as mortgage processing, credit-card administration, and trade finance
activities. The key questions the board should address are: What role should the institution play in this evolving environment? How might this vary by process? Which centers of excellence could in future act as an operational processing hub? Which centers could be sold to release shareholder value?
Executives need to evaluate how their operational efficiency plans compare to the competition. The quickening pace of change and sophistication of offshoring strategies means it is imperative for the board to have clarity on the long-term plan. Further, limited clarity of purpose on the contribution of these initiatives means that making improvements in operational efficiency is difficult to achieve. Many financial institutions require a wake-up call, as they lack a clear vision of their offshoring programs.
Just a handful of financial institutions are setting the pace in offshoring. They are beginning to outshine their offshoring competitors and achieving stellar performance through the application of best practices. This improvement in performance is conferring significant competitive advantage on these institutions. The test for the rest of the industry, both large and small players, is to rise to this challenge by optimizing their offshore operations.
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