3. Move Beyond Traditional IT Outsourcing
Outsourcing can seem like a hackneyed topic in the financial industry. But it still is a major part of the global financial scene, according Bill Huber, partner at Stamford, Conn.-based Information Services Group (ISG), an independent sourcing data and advisory firm. "We continue to see companies looking for ways to restructure for long-term competitiveness, especially in finding ways to reduce their cost structure while retaining core capabilities," he says.
At the beginning of 2012, ISG released the 2Q11 Global TPI Index, which measures commercial outsourcing contracts around the world valued at $25 million or more. Overall, the index reveals that 2011 was the busiest year ever in terms of outsourcing contracts. It also indicates that the financial services sector signed more large outsourcing deals in 2011 than ever before. Yet, Huber contends, "Talented leadership that can lead and manage transformational outsourcing arrangements remains a relatively rare commodity."
It's that type of transformational outsourcing -- building strategies that go beyond cutting costs and into business outcomes -- that can give banks a competitive advantage, says IBM's Wagle. In some cases, he notes, successful global banks are taking advantage of outsourcing to develop their own in-house talent. "Banks are realizing that it's impossible for them to be world-class from a customer service and process perspective if they don't have a world-class in-house team," he says. "So banks are now looking at contracts that will infuse talent into banks."
This approach is different from traditional outsourcing or even consulting because it's geared toward improving in-house capabilities over a relatively short period of time. For example, "IBM personnel take leadership roles on various projects and programs at an institution for a two- to three-year period," explains Wagle. Over time, the IBM staff transfers knowledge, techniques and processes to the bank's staff, he says. "By the end of that period the responsibility shifts to the client, and the client is completely self-sustainable."
Citing similar reasoning, Wells Fargo's Holroyde says traditional outsourcing is "not fundamental" to the bank's global strategy. Although he acknowledges that banks must rely on third-party vendors when they're bringing in something new, he says they should not look at the process as offloading work, but as an integrated effort to bring in something new that adds value for the customer.
"I think of us as doing integrated delivery with partners that we determine help us advance delivery to the client," Holroyde comments. "We recognize a leader in a market and spend an effort integrating with them so that clients can get a consistent experience while we add value behind the scenes."
Holroyde also cautions that heavy BPO can interfere with customer experience. In terms of IT outsourcing, he notes, Wells Fargo has a "build" rather than "buy" attitude. "We really try to build talent there instead of relying on other talent. We get high-caliber IT folks and invest in them," he says. "Otherwise, IT operations can become too separate from business operations."
BBVA's Olalla says he still views business process or operations outsourcing as "one of the tools that help us compete on a global level." However, the bank is careful about the approach, focusing its outsourcing efforts on one layer of the bank's horizontal model that's based on activities instead of business products.
"The top layer helps the model evolve, the middle manages the processes and the bottom, which we have outsourced, executes the operations," Olalla explains. "Our goal is to keep the most valuable activities in-house, like the top layer that is focused on evolving the model. The combination brings BBVA speed and flexibility in addition to cost savings."