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Banks must not fall into the 'outsourcing is a technology issue' trap says Bluerock Consulting

Outsourcing has become more attractive to the City because of the recession, but senior executives must ensure they don't fall in to the trap of thinking that it is simply a technology-based cost-cutting venture, warns management consultancy Bluerock Consulting.

Chris Beer, Head of Investment Banking at Bluerock said: "It is vital to remember, throughout any programme, that outsourcing is really about business processes and people - both of which can be overlooked during cost-cutting initiatives. It should not be ghetoised as purely about IT."

According to a recent Bluerock survey on outsourcing in the wholesale banking sector, a vast majority of senior decision-makers across the sector are looking to cut costs and increase efficiencies through outsourcing.

Beer added: "At such a delicate time, the benefits of outsourcing need to be carefully weighed against the costs and risks. The challenge is getting a clear and comprehensive picture upon which to base the decision.

"Cost-saving initiatives may only lead to short-term gains. Improving business processes must be the primary focus - the question to ask must be about which functions you do best, and which ones somebody else could do better, delivering better value to your clients. The rigorous development of strategic intent and a business case will provide the solid foundations to make the right decisions on whether to outsource key aspects of your business.

"However, this question is complex because suppliers providing complete back office outsourced propositions to wholesale banks are only slowly emerging. There is also often a lack of clear consistent baseline information from which buyers can properly assess the outsourcing service offerings."

In Bluerock's experience, outsourcing arrangements typically fail to deliver expected benefits due to inadequate preparation. Beer said: "It is imperative that an organisation undertakes due diligence on its own business prior to engaging discussions with potential new suppliers to enable a clear baseline to be developed."

Bluerock has recently released a management white paper which focuses on the first two steps of its approach to facilitating successful outsourcing delivery. Beer added: "The process is straightforward, logical and pragmatic, taking a business through the necessary steps required to gather the information and make the assessment and is not time-consuming nor costly if managed correctly.

"Unless the process is followed, an organisation will not have understood its own internal case for outsourcing which results in decisions often being made with the wrong supporting data and therefore often either the wrong decision or no decision is made."