by Ajay Kotkar I CEO Asia Pacific & Global BFSI Practice Head , Omnitech Services
It all started in the 1980s when Outsourcing first come into sight in the IT industry. This was the time when companies acknowledged the benefits of having IT service partners in development of complex systems, and improved the way that a business process or service is managed. It paved the way for advent of a new genre of business approach, termed “Outsourcing” and in today’s world it has become an entity, important at that, enhancing every business system.
But how much beneficial has outsourcing grown in today’s business world? The drivers behind growth of outsourcing may help us to ascertain that which comprise the economic and competitive pressures that have made it a requisite for organizations of all sizes to equip their products and services with highly competitive quality. The other main driver for outsourcing is cost reduction. Resource cost savings overseas are extraordinary and just too great to be ignored. By availing access to high-quality services at a cost-effective price, companies can save 40-50% by offshoring in knowledge-intensive industries such as Information Technology, Analytics and Data Mining Services and Research and Development. Many countries such as India, China and Russia have emerged as outsourcing hubs as they provide a large pool of engineers and other intellectuals at a substantially lower cost.
Considering the current economic uncertainty, specifically in the Banking and Finance sector, outsourcing becomes even more relevant as companies look to leverage alternatives that could deeply reduce cost and renders an efficient operating environment. But banks are unable to fully outsource their services to a supplier due to various challenges from the regulatory bodies and due to the need of having a better control on how the operations are run in their environment.
Having said that, Banking and Finance Sector is witnessing many changes in the way outsourcing engagements are carried out. There are new areas opening up where the banks are looking to outsource their project work which they call “fixed time-fixed cost” scope of work based outsourcing, which can be done project by project. This approach gives a lot of predictability in running projects and also control over the budget and not having to manage resources on the books as the resources come and go as per the project schedule.
Another area where outsourcing is still thriving in the BFSI sector is application testing and development which can be done in a near shore model where better control on the actual deliverables can be maintained. This allows banks to gain flexibility and scalability to translate better resource utilization in the longer run with better management. There is also an urge among Banks to outsource routine, monotonous type of work like basic Level 1 support such as password resets, routine data additions and changes, to an external service provider at much lesser cost compared to in-house resources for the same function.
Thus, with introduction of new offshoring models, businesses are compelled to review their outsourcing strategies. Outsourcing companies have learnt from past mistakes by acknowledging 100% of services cannot be sent offshore to locations like India, Philippines, Hungary and like and that some level of local management, resourcing and services is a must to ensure client satisfaction, as well as engagement success. Also it helps organizations to shift costs from CapEx to OpEx. This smart investment provides actual benefits to the organisation in providing contracting staff for shorter periods, projects, flexible sizing and niche areas that permanent staffing cannot justify.
Thus, we could see, outsourcing does not only uphold quality service but economic aides as well. With its ability to drive compelling business value, it will evolve as a coveted form of business collaboration and economic paradigm a country could benefit from.