Increased offshoring augurs well for India: Capco- LBS joint study

Bangalore: The financial services industry is going down the same offshoring and outsourcing route pioneered by the manufacturing industry according to new research findings conducted jointly by Capco and the London Business School.

According to the survey's authors, Dr Phanish Puranam, assistant professor at London Business School Dr Suresh Gupta, head of sourcing at Capco, the results of this offshoring and outsourcing in financial services for Indian companies and employees could be continuing rapid growth in opportunities — and not just in call centres and transaction processing.

Financial services is one of the most important industries in both the UK and the US and is one of the biggest employers, but it has historically lagged behind manufacturing industries in exploring the opportunities of outsourcing and offshoring — key components of what are known as "global sourcing models".

This new and in-depth research, was presented at the Indian School of Business (ISB), Hyderabad, last Friday, May 19. It explores the experiences and sourcing strategies revealed by 62 executive respondents from the world's top financial services organisations.

The authors have identified a growing willingness to outsource and offshore more complex and multi-process activities and have dispelled many of the myths surrounding outsourcing and offshoring in the financial services industry today.

Some of the key findings of the research are as follows:

  • The 'global sourcing model' is well established amongst the world's leading financial services organisations even for "vertical business processes" often assumed to be too difficult to outsource or even offshore. Indeed, 58 per cent of survey respondents who outsource business processes already use alternative sourcing strategies for these vertical processes.
  • These companies no longer think about "whether to outsource" or "whether to offshore" in terms of single functions and a single vendor; instead they are beginning to manage sophisticated sourcing frameworks that integrate multiple-vendors, multiple-geographies and vertical, business specific processes. Nearly 25 per cent of the respondents reported that they already use a combination of resources onshore and offshore, in-house and outsourced.
  • While cost savings continue to be the dominant motivation for the transition to global sourcing models, other factors are emerging as important drivers; over 40 per cent of respondents cited quality improvements as a key objective while 25 per cent cited increased flexibility as a priority, especially in outsourcing.
  • Experience confers sophistication; the more experienced among the survey respondents outsource and offshore more challenging processes, report experiencing fewer hidden costs, claim to manage multiple sourcing models with fewer difficulties, and report more effective collaboration with their suppliers.
  • Respondents are not overly deterred by the spectre of 'negative press' when offshoring — among the top 10 potential obstacles to offshoring, this factor appeared as only the 9th in the list — only 8 per cent of the respondents cited negative press as a "very significant factor" in making offshoring decisions.
  • The most significant management challenges in global services sourcing are often at the operational level. Good project management capabilities were cited as the single most important ingredient to a successful global sourcing capability. In ongoing research at London Business School, Dr Puranam is studying project management capabilities in offshoring services.

at a seminar hosted by the ISB Dr Puranam, who co-authored the analysis of the survey, said, "The survey highlights that financial services companies are finally adopting what can truly be described as a 'global services sourcing model'. They are doing what the manufacturing sector did years ago, breaking up the supply chain and breaking free of geographical and organizational boundaries."

Capco's Dr Gupta, the other co author, added, "Despite the myths and media headlines surrounding offshoring, the leading financial services organisations are already far along the path of implementing sophisticated Global Sourcing Models. It is no longer a question of whether to outsource or offshore a generic process like IT maintenance; instead they are already moving complex, business-specific processes offshore."

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