OPINION: Financial Services organisations need to outsource to innovate
Over the last ten years, financial sector firms have made increasing use of outsourcing to drive down costs whilst giving them a more agile and flexible infrastructure. Banks and financial services companies are struggling to control costs in the current recession whilst at the same time seeking to keep up in a fast-moving financial marketplace. One major tool which financial companies can rely upon is the use of outsourcing.
The outsourcing trend is strong and is likely to continue, as companies look to concentrate on their core competencies and offload the headaches of day-to-day administration, which will allow corporate focus to be maintained on innovating products and services to keep ahead of the market, whilst providing certainty around the costs of providing and administering said products and services.
However, on the innovation side, the outlook is not great. One reason for this is that many professionals underestimated the extent of technology-driven change in consumer behaviour that has occurred over the last decade.
As consumer demand grows for new products and better access to existing products, in a world that is becoming increasingly focused on personal mobile technologies, the financial sector is no more immune to the need to adapt their offerings than other sectors.
All financial services firms are going to have to embrace new consumer models or stagnate. Unfortunately, financial services usually lag other sectors in adapting to new consumer habits. And the rigidity of their IT infrastructure and architecture is commonly given as a major reason for failing to respond rapidly to the changing business environment.
Many financial firms are now taking a better approach by involving their outsourcing partners more in the innovative side of their business. This means separating out the basic service provision side of the contract and ensuring some of the contract is left for the outsourcer to ‘earn’ by pitching new ideas at the firm or by involvement with the product / service development side and offering new services to support the emerging new ideas.
This model of working more closely together is going to become more common as financial firms try to increase the level of products and services they supply to the mobile “i-Generation”. It refocuses the supplier away from a purely cost-driven approach that has supplied the bulk of their revenues to date, and onto broader thinking about new ways to offer value.
Outsourcing companies can add real value to financial organisations
Over the next two years, we can expect to see a whole new approach to outsourcing as more financial sector firms seek to move beyond pure cost control and start to partner with their outsourcers in order to achieve the levels of innovation required in the market. Outsourcers need to be proactive in seeking to show that they can provide this level of value to the financial sector.
Those who succeed will be able to move up the value chain by increasing the level of services they provide and the value of those services to their customer base. Those who don’t will be left behind as financial firms find that pure cost control is not a compelling enough offering to make them include outsourcing as part of their future strategic plan.
About the Author
Tom Murray is head of product strategy at Exaxe, a Irish-headquartered solution provider specialising in the European financial services sector – in particular insurance and pension organisations. For more information see www.exaxe.com