Banks fail on outsourcing, says Gartner

1 Sep 2005

EMEA financial service providers (FSPs) are expected to spend US$46.2bn on IT services this year, a report from Gartner claims. However, less than 30pc of these firms will outsource any strategic projects by the end of 2006, it states.

Analysts at the research firm warned that FSPs are failing to make the best strategic use of IT and are not making a good job of ingraining outsourcing within their corporate culture.

Typical problems that can be incurred by financial players that struggle to win support of staff when rolling out strategic outsourcing projects were witnessed in Ireland in 2002 when Bank of Ireland awarded a €700m contract to Hewlett-Packard to manage its IT systems and in the process fuelled a labour relations dispute.

“Most FSPs currently use outsourcing tactically to augment staff for faster-project turnaround or to reduce operational costs, rather than for strategic value,” said Kimberly Harris-Ferrante, research vice-president at Gartner. “FSPs should now begin outsourcing strategic projects in order to gain larger-scale, enterprise-wide value.

“Strategic projects have different dimensions than normal, tactical projects,” she continued. “They are more complex in that they focus on blending the use of IT outsourcing and business process outsourcing to enhance and transform the organisation. The nature of the project requires a different structure of contracts, relationship model and metrics.”

For outsourcing projects to be successful, outsourcing must be considered strategic, and it needs to be part of the corporate culture, Harris-Ferrante said. The company must embrace its use and develop strategies on when and how to use outsourcing effectively, she added.

“Outsourcing success is based on risk mitigation, so FSPs must build a strong strategy to facilitate the use of outsourcing for strategic projects,” Harris-Ferrante said. “FSPs should develop strategies that stipulate how and when outsourcing should be used across the enterprise. Then, proper governance of the outsourcing projects should be established by designating and empowering leadership of the outsourcing project.”

To gain maximum benefit from outsourcing, FSPs must fully understand the opportunities and challenges associated with IT outsourcing and business process outsourcing, she stated. FSPs should know: when to use outsourcing; how to use outsourcing tactically and strategically; what the best types of projects and processes are to outsource; how to balance onshore, nearshore and offshore alternatives; and how to select the best sourcing partner based on project scope, pricing model, risk tolerance and business outcome, she advised.

“If used properly, outsourcing can be a strategic tool to help FSPs transform their organisations, gain operational efficiencies, respond to shifting industry conditions and better meet top-level business objectives, such as increased profitability,” Harris-Ferrante said. “However, if outsourcing is used incorrectly or not properly managed, it is a risk endeavor and can lead to wasted time, money, project failures and business failures.”

By John Kennedy