On-Shore vs Off-Shore Outsourcing
Can Investments Banks Learn from the UK Public Sector?
Return on Equity (ROE) in the banking sector remains challenged and is continuing to fall, 6.7% in 2015, down from 9.2% in 2014. Within Investment Banking, Fixed Income, Currencies and Commodities areas saw revenues fall to their lowest annual level since 2005. How can Investment Banks best carry on with their daily business, while implementing regulatory change, cutting costs and not crippling their service and profitability?
There may be a lesson to be taken from the UK Public Sector which itself has faced similar challenges. Since 2010, Whitehall has lost 100,000 people with the wider Public Sector down 300,000 and over the next 5 years a further 500,000 jobs will go according to the basic arithmetic of austerity. Despite the extreme job cuts, public services are still being provided. So how have they done it, where have those jobs gone and what can we learn?
One solution the Public Sector has used successfully since the early 1980’s is that of outsourcing its business processes (BPO) to UK on-shore outsourcers.
Arvato’s UK Quarterly Outsourcing Index for 2015 reported that BPO represented 57% of outsourcing deals that year, with a £2.5bn spend. From all outsourcing deals (BPO and ITO), 67% came from the Public Sector and 33% the Private Sector. A key point to note is that of all the outsourcing deals agreed in 2015, only 6% involved work being delivered entirely off-shore, compared with 9% in 2014, thus identifying the trend towards a preferred UK on-shore delivery model.
As the 2015 figures show, the UK Public Sector confidently continues to take full advantage of outsourcing its business processes, using on-shore outsourcers, who offer the required advantages of operating within the same legal and regulatory frameworks which the sector requires. Could this also work for Investment Banks, who are under the same regulatory and cost cutting pressures as the Public Sector?
Investment Banks often represent their processes as being too complex and specialised for outsourcing, but the UK Public Sector outsource some of the most sensitive and high profile business processes in the UK: Disclosure and Barring Service (previously Criminal Records Bureau), Identity and Passport Service and Environment Agency’s Floodline. Each of these high profile, detailed processes have their own complexities, regulatory and legal requirements, none of which have prevented them being outsourced. It is in fact these complexities, regulatory and legal requirements that make the UK on-shore outsourcer the obvious solution for service delivery.
Traditional approaches to outsourcing have been to move processes to a cheaper off-shore location. Whilst off-shore outsourcing plays a key resourcing strategy for task defined processes there are many processes which do not lend themselves to such locations. There is frequent debate about restoring processes to captive sites for Investment Banking but this does not solve the FTE challenge or provide the flexibility and scalability that outsourcers provide.
In answer to the initial question ‘Can Investment Banks learn from the Public Sector’, when we use the benefit of hindsight, look to the Public Sector’s successful outsourcing model and the comparable complex and regulated business processes they regularly outsource on-shore, the response would have to be yes. The UK on-shore outsourcing solution which is working for our Public Sector offers not just a viable but a highly competitive and commercial solution for those Investment Banks and financial institutions wishing to streamline and drive up their ROE.
For further information on what on-shore outsourcing can do for Investment Banking, please contact FinTrU at email@example.com
Tara Martin has over 15 years' experience in a variety of client facing roles. Specialising in consultancy and programme management, Tara has public and private sector experience in business improvement, project management and service delivery.
Prior to joining FinTrU, Tara spent 11 years with Capita where she held a number of senior roles including Programme Manager, Business Consultant and Transition Manager. Previous to her role with Capita, Tara worked as Operations Manager at Teleperformance (MM Group), focusing on service delivery for blue chip clients across three UK sites.
Tara has a BSc in Mathematics from the University of Liverpool, a BA in Fashion Design from the University of Northumbria and is Prince II certified. Within FinTrU Tara is a member of the management team with specific responsibility for Consultancy Service Delivery.