IT Outsourcing in the Financial Services Industry

2007-11-14 17:23:39 Source: http://www.accenture.com

IT outsourcing among financial services providers has been successful and is likely to be expanded, an Accenture-funded survey has shown. Quality is coming to overshadow price as Financial Services institutions evaluate their IT offshoring practices in striving for high performance.

A worldwide survey of financial services executives has shown that their industry too—banks, insurers and capital markets firms—is turning to IT outsourcing.

The survey covered 29 countries in North America, Europe, and the Asia-Pacific region. Of the 231 financial services executives interviewed, over a third (35 percent) were from banking, around one fifth (21 percent) were from capital markets firms, and 10 percent and 14 percent were, respectively, from life insurance and non-life insurance companies. C-level executives such as chief executive officers, chief financial officers and chief information officers made up 37 percent of those canvassed, while the other 63 percent consisted of IT directors and senior IT managers.

Operations and internal management:
Quality is becoming more important than price in financial services firms' evaluations of their IT offshoring practices. While most respondents said their outsourcing arrangements met or exceeded expectations in cost savings, quality, supplier flexibility and transparency, 28 percent said they would select a higher quality vendor—even if more expensive—should they get the chance. A lack of internal expertise to manage outsourced functions was given as the chief difficulty in establishing and managing those functions. Companies new to IT outsourcing need to understand that adequate internal resources—particularly management time—need to be dedicated to managing these functions.

Negotiating better service level agreements (SLAs) is the key to more effective outsourcing contracts. They need to be better defined, and have more effective governance structures. Thirty one percent of respondents said SLAs should include a significant bonus or penalty mechanism.

Trends and direction:
The outsourcing of core applications and systems is set to grow. Financial services firms most actively outsource secondary systems such as human resources and marketing applications, but they also indicated a greater level of comfort in entrusting core systems to the outsourcing process: 35 percent of respondents said they will increase the outsourcing of "strategic/primary" applications. Outsourcing strategies are evolving toward a multi-vendor approach. There will be a steady shift to "multi-sourcing" as firms not only outsource more activities, but use offshore providers more frequently to complement their domestic outsourcing arrangements. China is emerging as an important outsourcing destination, though India remains the top overseas destination for 57 percent of the respondents.