Saturday, June 09, 2007

Outsourcing demands on the rise in financial services industry


Financial services companies have greater future outsourcing investment plans than do other industries, according to research by EquaTerra. The higher spending reflects, in part, plans for expanding outsourcing into new geographies, business units, and process areas. EquaTerra found that organizations in this industry are among the heaviest users of IT outsourcing (ITO) and business process outsourcing (BPO). New investments areas include knowledge process outsourcing (KPO).

According to EquaTerra research, IT is the back-office process most commonly outsourced by financial services organizations, followed by call centers and then HR. Other industry specific processes commonly outsourced include claims, transaction (e.g., credit card, equity trading) and check processing activities.

The firm’s research also identified emerging trends in financial services outsourcing, including an increase in the outsourcing of content and document management. This is an important issue for financial services organizations since they generate huge amounts of electronic and paper documents particularly when undertaking capital markets and M&A work for their clients, and stringent regulatory requirements around the management of these documents drives up costs. Financial services firms, therefore, are exploring all options, including the use of third party service providers to help support these efforts.

According to John Boyle, EquaTerra’s Managing Director, Financial Services, "The growth in KPO is intriguing because it involves work that was traditionally viewed as too strategic to outsource, or where outsourcing was not viable because candidate services providers lacked the skills or experience required to perform the work. But these perceptions are changing. While in most cases KPO today involves rote work and number crunching, the breadth and depth of work being performed is expanding as buyers gain comfort with the model and suppliers’ skills and levels of context improve. However, KPO work, particularly in the financial services industry, is not always outsourced in the true sense. Larger financial services companies are at the forefront in establishing captive operations to perform KPO and related work."

EquaTerra research studies also found that:

1) 36% of financial services respondents whose firms had outsourced one or more of the defined process areas planned to expand outsourcing into new geographies or business units, as compared to 30% overall.

2) 28% planned to expand outsourcing into new process areas.

3) Plans to continue investing in multiple forms of service delivery models including shared services operations, captive centers and the use of outsourcing providers.

EquaTerra believes the most innovative financial services firms will lead the way by showing innovation in their strategies around service delivery models and balancing that innovation with execution excellence and cost efficiency.