Outsourcing in the Banking Sector

Santosh Patnaik of the United Bank of India reminds us that the idea of outsourcing has its roots in the 'competitive advantage theory' ..... by Adam Smith in his book 'The Wealth of Nations', published in 1776.

A hundred years ago, the automotive industry was so vertically integrated that the largest car companies owned vast ..... of fields on which they grazed their own sheep to produce wool for use in car seats!

In the 1970s, the industry realised that it simply couldn't be good at everything; it then began to consolidate, converge and sell off those parts of the business that could be better sourced externally, especially where external suppliers could ..... greater economies of scale by supplying multiple manufactures.

Business process outsourcing involves a third party managing the entire business process, such as accounting, financing, customer support and human resources; BPO is a strategy offering a ..... business value proposition for companies to gain operational efficiency, focus on core expertise, save time and reduce costs.

If one doesn't have the time, money or skill to do the job internally, or if there is a function that is a burden or is ..... affecting other parts of the business, outsourcing is worth considering.

When companies first started thinking about outsourcing non-strategic functions, such as payroll, facilities management and logistics, their goal was to reduce costs; today, however, there is a far wider range of reasons why these organisations regularly ..... outsourcing core operations to third-party specialists.

Since the 1990s, banks have been improving their efficiency ratios by acquiring or upgrading technology, cost cutting and consolidation; but now that further improvements are proving ....., costs have been trimmed to the minimum and consolidation gains have waned, banks are under pressure to improve earnings.

Outsourcing has thus becomes a way of moving banks' ..... resources away from trivial operations to value-added services, such as business strategy and execution, new opportunity identification and pricing, business results and interpretation, and M&A planning.

With investor expectations growing day by day, banks are forced to re-examine their core functions; in effect, the distinction between core and non-core is ..... but surely diminishing, thereby increasing the number of functions that could be outsourced.

Outsourcing can be a huge success story but there are challenges; poorly-planned deals have ..... shortcomings - companies overestimate the economic benefits, fail to establish the right baseline for price negotiations and performance tracking, or are not prepared to manage the transition and post-deal situation.