Benchmarking Outsourced Activities Is New Challenge

Originally published November 14, 2005

COPENHAGEN — Outsourcing and offshoring are becoming an increasing part of the value proposition of investment firms as they seek a wide range of operational functions to complement complex trading strategies and new investment products, according to executives from service providers, and investment management and consulting firms attending the recent Sibos conference here.

Benchmarks are important as firms consider implementing outsourced or offshored functions, according to the executives. Sometimes, after outsourcing begins, customers call attention to errors and blame the move to an outsourcer. The executives say, however, that the number of errors is similar to or fewer than when the functions were handled internally. Firms implementing a new outsourced program or offshoring a function need to measure the results. Tom Bacchus, Head of Investment Banking Operations for India at ABN AMRO, suggests first measuring the current operation complete with error rates to provide an accurate benchmark.

While firms at first tended to outsource to save costs, they now look more at the value proposition, according to Chris Broyden, Head of Supply Chain Management at Accenture in London. Accenture advises clients on how to set up managed data services, and has 15,000 workers in India who support its clients because of lower costs, adds Broyden. Cost is definitely a factor in outsourcing, whether it is called outsourcing or offshoring, which is transferring some part of a firm’s operations to another country. Each can offer improved processing in a number of areas. Firms have moved beyond offshoring data entry and are beginning to offshore increasingly complex functions, including research and development and human resources.

HSBC began offshoring functions about 10 years ago, and now has 16,000 workers handling data and financial analysis in local centers in China, Sri Linka, India, The Philippines and throughout Asia, according to Colin Brooks, Executive Vice President of HSBC and formerly Chief Operating Officer for HSBC Securities Services in Asia-Pacific. The functions these workers perform vary, but all are offered to HSBC’s clients through HSBC Securities Services, he adds. The value proposition of outsourcing operations or offshoring in India is based on the fact that India has about two million graduates annually with the necessary degrees to work in the field, according to ABN AMRO’s Bacchus. “The workforce is very energetic,” he says. “We want to maintain customer service. We have no problem getting people to work any hours we choose.”

Rachelle Wilson, Manager of Financial Services Risk Management at Ernst & Young, notes that the Indian work force offers great flexibility in work hours. HSBC’s Brooks points out that while India is an obvious choice because of low cost and good English skills, HSBC is not necessarily looking only for the English language skills. “It depends on what you are doing and where,” he says.
ABN AMRO has a wide range of functions offshore, most recently 100 new positions in Malaysia for corporate actions. There are, however, some important distinctions between outsourced functions and offshoring, Broyden points out. “The number one reason they don’t want to outsource is that they have to give up control,” he says. Brand is very important.

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