Credit crunch to boost demand for outsourcing - report

Credit crunch to boost demand for outsourcing - report

The credit crunch will drive a wave of outsourcing and offshoring in financial services as cash becomes tighter and banks look to cut costs, according to a UK study.

A survey of 70 British Bankers' Association (BBA) members, released by   Management Consultancies Association (MCA)  found 41% of respondents expect to increase outsourcing levels.

"The credit crunch has also created something of a wake-up call to the financial services sector," says Fiona Czerniawska, director, MCA. "Many institutions which have so far ignored the benefits of outsourcing are being forced to revisit it because of financial constraints and liquidity problems."

The Navigant Consulting-sponsored survey also found that over 90% of financial services firms have outsourced some of their business. This has led outsourcing becoming a more "accepted" way of doing business, according to 90% of those asked.

Offshoring is less popular, with just over half of respondents considering it an accepted way of doing business and a third saying they have offshored some part of their operations.

Despite the negative publicity associated with outsourcing and offshoring, almost two thirds (58%) of those surveyed think that outsourcing has made the organisation more competitive. Furthermore, the vast majority (89%) of respondents don't think many jobs have been lost at their firm as a result of the practice.

Andrew Stewart, head, financial services, Europe, Navigant Consulting, says: "Outsourcing is now an acceptable part of the armoury of business executives. Five years ago it was either seen as an admission of defeat or a wild and wacky option, now nearly everyone has done something."

But despite the popularity, only 54% of respondents felt their organisation understood how to get good value from outsourcing and only 24% thought they adequately understood the offshoring industry.

There are a small number of banks that outsource 'religiously' and have managed to build common platforms for functions like IT and finance, says the MCA. But on a more general level the survey found that insurance and investment businesses are ahead of retail banking in their use of outsourcing.

A report last year from Deloitte suggests financial services firms are well aware of the benefits of offshoring.

The practice saved the financial services industry an estimated £4.5 billion a year, up from around £2.5 billion the previous year, according to the 'Global Financial Services Offshoring Report'.

The industry's savings rose exponentially from around £250 million globally in 2003 as the average number of staff employed offshore increased from 150 to 2700 in just four years, says Deloitte. Over 75% of major financial institutions had operations offshore by 2007, compared to less than 10% in 2001.

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