Act like your Outsourcer - Elixirr · Final customer Service to external customer Outsourcer...
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Act like your Outsourcer
How can Financial Services institutions learn from Outsourcers to transform their own support functions?
Elix-IRR: Act Like Your Outsourcer
From Back Office to Service Provider Lessons from Outsourcers in effective service provision
2 | Page
Since the financial crisis, banks have been caught
in a negative cycle of falling returns on equity, and
a need to do more for less. The pressure on cost
has raised a fundamental question for Financial
Services (FS) support functions – how can service
quality and productivity be maintained or improved
against a backdrop of cost reduction? In seeking
to answer this question, banks are increasingly
looking to learn from other industries.
The outsourced services industry provides an
interesting comparison for banks. The business
process outsourcing market in financial services
alone is now worth $143bn per annum and
between 2009-12 grew at an average rate of 3%.
Crucially this growth, while seemingly modest, has
been achieved in spite of the continued crisis in
the financial services market and in the context of
falling arbitrage value of the low cost locations the
outsource providers originally based their
economic models on. Clients are increasingly
looking to Outsourcers not only for lower cost but
also for higher service levels, certainty of outcome,
capability enhancement and to turn capex-hungry
operations into variable costs. This paper seeks to
examine the key differences between how in-
house FS support functions and Outsourcers
operate.
Our research shows that across all the areas
examined Outsourcers are viewed as being able to
deliver more efficient and effective services than
their FS counterparts – as illustrated by our
benchmarking exercise (figure 1). The widest gap
being in service delivery, financial management
and service management. This clearly indicates
that Outsourcers are more effective at conveying
the scope, quality and price of their services to
their customers.
This gap can be explained through the different
customer relationship and commercial dynamics
that exist. Whereas FS institutions view their
support functions as cost centres, Outsourcers
deliver competing services for profit. This has led
to Outsourcers adopting a more commercial and
customer centric approach, as revenue growth is
dependent on continued customer satisfaction and
an appreciation of the value of services delivered.
As a result, Outsourcers have developed unique
characteristics and capabilities which define the
way they operate.
How do Outsourcers differentiate themselves?
Our study identified four key building blocks which
Outsourcers combine to deliver differentiated
service whilst incurring lower cost:
1) A service management layer which acts as a
single point of integration for the customer
(see page 6)
2) A standardised and optimised production
capability which leverages low cost locations
and process optimisation techniques
(see page 7)
3) A number of further enabling capabilities
which enable excellent service across the
organisation (see pages 8-11)
4) A strong focus on people and culture, instilled
throughout the organisation (see pages 12)
In the context of the structural changes banks are
undergoing, the continued pressures on cost and
the aggressive expansion of Outsourcer offerings
into core FS capabilities, we believe there will
need to be a material shift in the way FS support
functions operate to remain competitive.
Figure 1. Performance benchmarking of FS support
functions against Outsourcers based on Elix-IRR interviews
and survey
0
1
2
3
4
5
ChangeManagement
People & Culture
Strategy andplanning
VendorManagement
Service Delivery
ServiceManagement
FinancialManagement
FS Support FunctionsOutsourcers
5 = High Performance
0 = Low Performance
Elix-IRR: Act Like Your Outsourcer
Having a direct and commercial relationship with a customer materially impacts the dynamics, and in-turn
the quality, of service provided. Outsourcers always interface with a customer, which drives a number of
behaviours that support the delivery of differentiated service.
The Dynamics of Service Comparing Outsourcers to FS support functions
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Service
Dynamic What do Outsourcers do? Why do they do it?
Customer
Centric
• Outsourcers seek to have strategic
relationships with their customers and gain an
intimate understanding of their needs
• This is delivered through investing time to
develop an in-depth understanding of the
customer’s business and being responsive to
the customer’s needs
• The success of outsourcing service providers
necessitates an understanding of customer
needs – responding to customers needs is the
only way to secure new business and maintain
existing revenue
Commercially
Minded
• Outsourcers always interface directly with an
external customer, which necessitates a clear
link between services and value
• Customers understand what they are getting
for their money and Outsourcers seek to
deliver efficiencies wherever they can
• Continued revenue and growth is predicated on
customer satisfaction; if customers don’t
appreciate the value of the services being
provided they will change providers
• The focus on delivering efficiency is driven by
the need to maintain market competitiveness or
maintain/increase profit margins
Organised for
Success
• Service provider organisations typically have a
clear separation of management responsibility
between managing delivery and managing
customer and commercial relationships
• Customer and account management roles are
the most important in the organisation
• Organisations able to leverage shared
capabilities and services, and deploy a
dedicated or bespoke service
• Ensure effective responsiveness and
accountability to the customer
• Ability to effectively deliver efficiency and
standardisation where appropriate while also
being able to tailor offerings to ensure delivery
of the right service at the right price
Service Service to external
customer
Service
Support
function
Internal
function
Customer
facing function
Final
customer
Service to external
customer
Outsourcer Customer
FS support functions have limited visibility of the customer
FS support functions often lack a commercial relationship
with the final customer due to being internally focused.
External customers are often more than one layer away.
Outsourcers are by their nature customer centric
Outsourcers whilst providing similar services always
have a direct link with a customer – this materially
impacts the service dynamics.
Payment
Figure 2. Understanding how Outsourcers leverage the key dynamics of service
Elix-IRR: Act Like Your Outsourcer
The dynamics of commerciality and customer centricity necessitate a number of characteristics and
capabilities that an Outsourcer must have to provide differentiated services to their customers. We have
defined four key building blocks which all service organisations require. Against this framework we have
assessed the maturity of Outsourcers against their counterparts within Financial Services.
How do Outsourcers Achieve This?
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Service Management
Service
Delivery
Enabling Capabilities
People & Culture
Why it is important? What it is?
A Service Management layer acts as the
interface between the organisation’s
production capabilities and their customers,
with Service Managers acting as a single
point of contact and a defined Service
Catalogue supported by transparent
reporting and pricing
Service Delivery involves the business
and technology processes providing
the ‘engine’ of the organisation, with
process improvement acting as a
point of differentiation for the
business and a hybrid operating
model giving optimised service and
cost
Enabling Capabilities are
those that help all elements
of an organisation line up to
deliver excellent service,
such as clear strategy and
planning, and strong
change, financial and
vendor management
Enables differentiation to the customer through
services tailored to their needs and sustains
“execution mastery” within operations by
encouraging a service driven approach
A strong focus on
training and
development, with
well defined routes
for professional
growth, and clear
knowledge transfer
pathways, as well
as incentives for
innovation
Simplify and standardise process as a
‘production line’ capability, optimised for
quality and efficiency to deliver
consistently ‘one best way’ and allow
reuse of process components
Ensures the control,
frameworks, capacity and
leadership are in place to
make all components of the
design adhere to a single
vision of excellent service
Sustains the right
values, behaviours
and mind set in
staff to support the
delivery of
excellent service
Customer
The customer as focal point of everything Outsourcers do
Strategy and Planning
Change Management
Financial Management
Vendor Management
Elix-IRR: Act Like Your Outsourcer
Research and analysis approach
Our assessment of FS support functions and
Outsourcers involved:
A market survey
• A survey distributed to management level
participants from leading global Financial
Services Institutions and Outsourcers
(Figure 2)
• Survey respondents were asked to rate
themselves from 1 (strongly disagree) to 5
(strongly agree) for over 30 questions relating
to the key areas of focus listed below
Elix-IRR expert panel benchmarking
• Comparative assessment and scoring of
Financial Services Institutions and
Outsourcers based on the insight of a panel
of Elix-IRR industry experts who have been
on both the buy side and sell side of
outsourcing deals
• The Elix-IRR expert panel were asked to rate
both Financial Services Institutions and
Outsourcers from 1 (low performing) to 5
(high performing) against the key areas of
focus based on their personal experiences
• These results were collated and used to
provide a score from 1-5 for each of the
characteristics and capabilities which define
the building blocks service organisations
require, to highlight the gap in performance
between FS institutions and Outsourcers
Areas of focus
This research focused on the following key areas,
which Elix-IRR view as crucial to the delivery of
differentiated service:
• Organisational Structure
• Strategy and Planning
• Service Management
• Cost/Value Management
• Creating/Managing Change
• Sourcing
• Vendor Management
• People and Culture
Our Approach Defining the key characteristics of differentiated service
5 | Page
Financial Services Providers Outsourcers
Survey
Participants
Elix-IRR Industry
Expert Panel
CIOs, MDs and Heads of banking operations of
major financial organisations including:
• Credit Suisse
• Deutsche Bank
• Lehmann Brothers
• Nomura
• NS&I
• Santander
Managing Partners, Executive Directors of
leading outsourcing firms, including:
• Accenture
• Capgemini
• CSC
• IBM
• Serco
Figure 2. The participants in the market survey and the Elix-IRR Industry Expert Panel
Elix-IRR: Act Like Your Outsourcer
FS Support Functions Outsourcers
Org
an
isati
on
an
d G
overn
an
ce
• Often a lack of a consistent, credible
Service Management layer, leading to an
inconsistent approach and gaps in
execution and integration across the
areas of service provision
• Roles and responsibilities are frequently
not fully communicated and they are not
fully engaged in participation with the
businesses they support
• Service Managers tend to represent
individual functions and responsibility for
issues is aimed at the service delivery
team
• This leads to multiple points of contact,
and service delivery is often in silos
rather than integrated
• A clear and defined Service Management
layer is in place, separate from service
delivery roles
• Clearly defined roles and responsibilities
– Service Managers are the owner of the
customer relationship, functional leads
report into them
• Service managers are nominated as a
single point of contact between the
business and service provider
• Has responsibility for the P&L of the
account and owns the commercial
relationship with the customer
Agree or strongly agree
that Service
Management principles
are applied consistently
across all the support
functions provided to
their business
Ro
le o
f th
e S
erv
ice M
an
ag
er
• Service Managers are either not in place
or are not fully embedded within the
organisation
• Services or products tend to be offered in
a fragmented manner
• Service Managers are usually not senior
enough to have authority or influence
• If Service Managers are in place, they
tend not to have responsibility for change
• The Service Manager is one of the most
senior positions in an outsourcer’s
organisation
• Solutions are presented to the customer
rather than products and processes
• Provide seamless interaction across all
services and take an active role in the
businesses they support, regularly
interacting and proactively offering
solutions rather than products
• Typically own the change agenda for the
customer’s services and work with
customers to understand their
requirements for change
Agree or strongly agree
that Service Managers
represent cross
functional
responsibilities rather
than individual function
Agree or strongly agree
that Service Managers
interact regularly and
often with the business
areas that they support
Serv
ice C
ata
log
ue
an
d R
ep
ort
ing
• Service catalogue often incomplete or
lacking completely
• Service reporting and performance
measurements are not always in place,
and responses to problems are reactive
rather than pre-emptive
• Costs tend to be allocated using basic
methods or not at all leading to a lack of
transparency over what the business is
paying for
• Formalised service catalogue which
documents all services and processes
and is actively managed
• Service reporting is embedded into
contracts with customers and
performance measurements are a part of
daily activities, encouraging a “front office
mind set”
• Flexible pricing models with clear cost
allocation linked to SLAs
Agree or strongly agree
that reporting lines are
often matrixed to the
businesses their
functions support
Service management is the interface between the organisation’s production capabilities and their customers, and acts
a single point of contact for the business.
FS support functions often lack a consistent Service Management layer, Service Catalogue and Service
Managers, if they are in place, have a tendency to be disconnected from the organisation.
Service Management
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Low Performing = 1 High Performing = 5
2.1 3.5
Elix-IRR Expert
Benchmarking
Only
38% of FS providers
“Our client executives are the key
relationship owners and are expected to
be trusted advisors to our clients on
their strategic challenges” - Outsourcer
“We have leaders who focus on clients
and everything they need to excel.
Other leads focus on products and
functions. We rarely blend the two”
– Outsourcer
82% of Outsourcers
33% of FS providers
58% of FS providers
Only
57% of FS providers
Elix-IRR Survey
Results
Elix-IRR: Act Like Your Outsourcer
Service Delivery is the “engine” of the organisation, driven by process improvement and an efficient, hybrid operating model.
This is the area where FS support functions are weakest in comparison to Outsourcers in the benchmarks, as
Service Delivery is not viewed a point of differentiation for FS support functions, who typically have business
aligned operations rather than a hybrid operating model, and tend to make less use of low cost locations.
Service Delivery
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Low Performing = 1
2.2 4.1
High Performing = 5
FS Support Functions Outsourcers
Op
era
tin
g M
od
el an
d
Org
an
isati
on
• Most FS companies have made some
progress towards centralisation and shared
services models but there are typically
significant areas of operations that are
business-aligned
• This often leads to a fractured approach
with little account management and
repetition of processes across multiple silos,
leading to unnecessary inefficiency and cost
• Clear segregation of service delivery from
relationship and client management roles
• Combined business aligned and shared
services operating models allow for
service optimisation and cost efficiencies
• Combine efficient, scaled operations with
high value customised solutions through a
common services layer with the customer
Agree or strongly agree
that support or service
delivery functions in
their organisations are
part of a single support
services division rather
than reporting directly to
the business or industry
they support
Pro
cess I
mp
rov
em
en
t • Process improvement tends not to be seen
as a priority, as production is not always
viewed as a point of differentiation
• Any changes that do occur often happen on
an ad hoc basis, in reaction to need or crisis
rather than customer or industry demand
• Services delivered are mostly standardised,
with some customisation for larger
customers
• Process capabilities are built around Lean
and Six Sigma methodologies
• Process improvement is seen as a point
of differentiation as it leads to improved
service and therefore profit
• Process automation and centralisation
are used where appropriate and cost
effective
Agree or strongly agree
that their organisation
incentivises continuous
improvement from
support services staff
Lo
cati
on
Str
ate
gy
• Typically centred on a single location with a
number of satellite operations
• Use of alternative locations largely based on
lowest cost
• Impact of location strategy on services to
customers are generally a secondary
consideration
• Location strategy is rarely reviewed or
optimised, leading to inefficient labour costs
• Overall lower use of offshore locations than
Outsourcers
• Leverage low cost locations and make
use of labour arbitrage, moving work to
areas of optimal cost and skill levels
• Established global delivery networks,
which allow services to be delivered from
multiple locations, minimising effects of
political issues and natural disasters on
delivery
• Regularly review networks and locations
to ensure optimal location strategy
Elix-IRR Expert
Benchmarking
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Accenture
Wipro
Capgemini
Infosys
IBM
TCS
FS Support Functions
Low Cost High Cost
Use of low cost versus high cost locations by FS Institutions and Outsourcers*
Elix-IRR Survey
Results
Source: Elix-IRR surveys,
interviews, industry
research and experience
“Organic evolution of service rather than
commoditisation” - FS Institution
“This varies by business line but there is
an increasing emphasis on centralisation”
– FS Institution
“Whilst we operate comprehensive
governance and control… it is the way that
we organise and empower our service
teams that ensures quality is achieved”
– Outsourcer
*Low cost would include offshore (e.g. India,
Phillippines, Bangladesh) or near shore (e.g.
tier 2 European or North American cities)
High cost includes major metro centres and
western countries (e.g. US, UK or Germany)
81% of Outsourcers
56% of FS providers
100% of Outsourcers
24% of FS providers
Elix-IRR: Act Like Your Outsourcer
Strategy and planning is service and customer led leading towards differentiated product solutions, and is integrated
across the organisation giving seamless delivery to the customer.
As part of a single organisation this is the area where FS support functions are closest to the outsourced
competition in our benchmarking but there is still evidence of silo mentality and ad hoc planning processes.
Strategy and Planning
8 | Page
Low Performing = 1 High Performing = 5
2.7 3.3
FS Support Functions Outsourcers
Cu
sto
mer
led
Str
ate
gy
• Often seen as “order takers” rather than
strategic partners to the business
• Typically base strategic planning on
customer requirements, but alignment is
poor leading to reactive rather than
proactive strategies
• Lack of regular review and forecasting
updates, resulting in strategy becoming
outdated and unfocused – targets are
tactical and focused on the short term
• Strategy is customer driven
• An active role is taken in directing
customer strategy
• Act as a strategic partner to the
customer, helping to guide and mould
strategy
• Strategy routinely reviewed to ensure
relevance and alignment with long term
goals
Agree or strongly agree
that the businesses
they support view their
organisation as
strategic partners for
future success
Inte
gra
ted
Str
ate
gic
Pla
nn
ing
• As part of the same business this is one
area where the internal functions should
have the advantage over the 3rd parties
• However, there is evidence that some
support functions that focus on domain
led strategy lose connection to the
business
• Some participants indicated planning is
still ad hoc, with little attempt to
understand market drivers or redirect
strategy after internal or external
incidents
• Integrated planning across all functions
and services allows seamless delivery to
customers
• Effective communication and
collaboration between senior leadership
across delivery functions ensures a
consistent approach, and allows
objectives and priorities to be decided in
an inclusive manner, rather than within
individual functions
Agree or strongly agree
that strategic planning
for their support
functions is closely
aligned to the strategy
of the businesses they
support
Serv
ice o
r C
os
t b
ased
Str
ate
gy
• Cost reduction is often the main focus of
strategy, leading to a “do more for less”
culture
• Services are stretched to perform and
customer experience can suffer as a
result
• Strategy is led largely by service
improvement rather than cost reduction,
resulting in leaner, more effective
processes and a perpetual drive to meet
customer expectations
Agree or strongly agree
that their support
functions are most
focused on cost
reduction rather than
service improvement
So
urc
ing
Str
ate
gy
• Outsourcing is generally undertaken on
an ad-hoc basis, rather than a strategic
‘Make vs Buy’ decision and is used as a
cost reduction tactic
• The customer relationship is frequently
not effectively managed, allowing
interaction between outsourcing service
and customer, often leading to
disintermediation
• Outsourcing is viewed as a strategic
choice, not a cost play, and is used to
supplement and complement existing
offerings
• Any outsourced services are fully
integrated, and offered seamlessly to
customers, with no disintermediation
from outsourced parties
Agree or strongly agree
that their organisation
proactively considers
outsourcing as an
important aspect of any
future growth strategy
Elix-IRR Expert
Benchmarking
Elix-IRR Survey
Results
“Staff do no necessarily have a
customer orientation, they are
focused on meeting the service
catalogue rather than delivering the
best service” – FS Institution
“We aim to be a trusted advisor to our
clients and help them shape and
deliver on their strategies”
- Outsourcer
100% of Outsourcers
71% of FS providers
94% of Outsourcers
71% of FS providers
35% of Outsourcers
48% of FS providers
82% of Outsourcers
43% of FS providers
Elix-IRR: Act Like Your Outsourcer
Change management focuses on defining the change process, as well as the change portfolio and transition of people
and employee development.
Change is often not separated from BAU within FS support functions, change management is often reactive
rather than proactive, and successful transition of personnel is not seen a priority during change programmes.
Change Management
9 | Page
Low Performing = 1 High Performing = 5
2.4 3.8
FS Support Functions Outsourcers
Ch
an
ge M
an
ag
em
en
t P
rocess
• Change management process is typically
not well defined or implemented
• If change and delivery are separated, the
best people and capabilities are usually
not aligned to the change process
• Measurements are not in place and there
is little consideration for the downstream
impact of change
• Generally strong practitioners of change
management processes, and often
thought leaders
• Change is usually contractual and
separate from delivery, meaning there is
additional revenue available
• Key metrics are in place to ensure
change obligations are met and benefits
are realised
Agree or strongly agree
that their organisation
clearly defines and
implements a change
planning and
prioritisation strategy
Ch
an
ge P
ort
foli
o M
an
ag
em
en
t
• Many FS support organisations show
mature change capabilities, however
change in some organisations is reactive
rather than planned, and is driven by cost
cutting or crisis, on a project by project
basis, rather than by customer priorities
• Lack of visibility between change
programmes is commonly reported,
leading to interdependencies not being
effectively managed or co-ordinated
• Change is proactively managed and
prioritised to fulfil customer needs
• Project portfolios are governed and
overseen by change management
functions, who ensure alignment and
have the ability to adapt the portfolio and
stop unaligned projects
• Standardised methodologies are used
throughout the organisation
Agree or strongly agree
that change is well
managed and
coordinated across the
support or service and
delivery functions in
their organisations
Peo
ple
Ch
an
ge
• Transition management often has little
focus on the people element of change,
and does little to integrate transitioned
personnel into the organisation
• Basic tools may be in place to aid
transition, however capability building is
not a key objective
• Invest time and effort into integrating
people into culture of the organisation,
through creating a clear transition plan
and providing dedicated change
specialists
• Employee development and capability
building is promoted through provision of
appropriate tools and technologies
Agree or strongly agree
that their organisation is
effective at transitioning
people and capabilities
into their organisation
Elix-IRR Expert
Benchmarking
Elix-IRR Survey
Results
“BAU staff often shoulder managing
change” – FS Institution
“Successfully managing changing
customer expectations, priorities and
requirements …is critical to our success
and therefore we have a robust approach
to managing and coordinating this within
the delivery function” - Outsourcer
“Portfolio planning and prioritisation is
an ongoing activity” – FS Institution
88% of Outsourcers
57% of FS providers
94% of Outsourcers
38% of FS providers
Only
52% of FS providers
Elix-IRR: Act Like Your Outsourcer
FS Support Functions Outsourcers
Tra
ns
pare
nc
y a
nd
Rep
ort
ing
• Costs are not clearly linked to service
agreements or drivers, resulting in lack of
transparency to the customer
• Little financial reporting means that the
customer does not have a clear idea of
which services are good value, or how
costs can be effectively influenced
• Customers are engaged in a dialogue
over service for value, to ensure that
costs and pricing are transparent and
flexible
• Costs are clearly mapped to services and
SLAs, and service drivers are indicated
to help customers understand how costs
can be affected by altering service usage
and requirements
• The customer drives the level of
transparency they wish to have not the
other way round
Agree or strongly agree
that the businesses
they support consider
the financial reports
they provide to be a
clear and transparent
account of costs
allocated to them
Pri
cin
g M
od
els
• Rely on basic pricing models, but tend
not to vary or customise models to suit
individual requirements
• Typically, many FS support functions use
a cost allocation model – consumption
does not affect total cost just changes
distribution. Internal customers don’t
really have a ‘choice’ over these costs
• The maturity of this approach varies
across banks and typically between
functions and departments – for
example, basic IT services like desktops
may be charged as a variable cost on a
per user basis, whereas finance functions
still typically use allocation methods
• Have a full suite of pricing models which
can be combined and tailored to
customer or project requirement
• Prices are variable, SLA or value based
• Clear and transparent cost allocation
linked to SLAs
Agree or strongly agree
that their pricing is
effectively linked to
SLAs
Pro
fit
cen
tre n
ot
co
st
cen
tre
• Support functions usually seen as a cost
not a revenue creating business unit
• Normally little incentive to exceed
budgetary targets
• Emphasis on cost not profit can often
drive empire building mentality; perceived
importance based around the biggest not
the most efficient unit
• A tendency towards cost mentality pricing
over service for value
• Difficult to make an internal ‘profit centre’
model work and there is typically
management resistance to such models
• Incentives to drive efficiency and
measures to achieve profitability
• Competitive landscape drives continual
focus on efficiency to remain competitive
or increase market share
• Clear link between service and value:
service providers incentivised to do more
for the customer not the same for less.
However this can present concern from a
customer perspective as they may
perceive this as an expansionist agenda
Agree or strongly agree
that their clients value
quality and
responsiveness of
service over cost
efficiency
Effective financial management is delivered by transparent costs and reporting, a flexible suite of pricing models and
viewing service provision as a revenue generator not a cost.
As cost centres Financial Services support functions have typically spent much less focus on reporting and
allocating costs to their internal customers. Outsourcers have been forced to develop appropriate reporting
and measurements to explain their fees to their customers.
Financial Management
10 | Page
Low Performing = 1 High Performing = 5
2.1 3.9
Elix-IRR Expert
Benchmarking
“Reporting and allocation
methodologies are often criticised for
lack of transparency”
– FS Institution
“Our job is to offer a range of
commercial models and be flexible and
supportive of our clients needs”
- Outsourcer
100% of Outsourcers
18% of FS providers
85% of Outsourcers
6% of FS providers
71% of Outsourcers
38% of FS providers
Elix-IRR Survey
Results
Elix-IRR: Act Like Your Outsourcer
Vendor management should be a centralised and coordinated function which builds strategic partnerships with key
vendors who are clearly incentivised through strong performance management.
A frequent lack of centralised vendor management means FS support functions tend to struggle in forming
strategic partnerships with key vendors, however, vendor performance management is seen as a strength.
Vendor Management
11 | Page
Low Performing = 1 High Performing = 5
2.5 3.8
FS Support Functions Outsourcers
Str
ate
gic
Part
ne
rsh
ips
• There is often little consideration of the
overall value of partnerships with
vendors, who are largely viewed simply
as suppliers
• Clear incentives for vendors to become
preferred suppliers are not commonly in
place, and principal criteria is level of
spend rather than maximising
competitive advantage
• Two way interaction between vendor and
provider, with financial incentives in place
to encourage vendors to act as partners
not just suppliers
• Partnerships are utilised to form
combined offerings and vendors are
leveraged to gain a competitive
advantage over the market
• Focus on managing a small number of
key strategic partnerships
Agree or strongly agree
that their organisation
incentivises third party
vendors to act as
strategic partners
rather than traditional
suppliers
Cen
trali
sati
on
an
d C
oo
rdin
ati
on
• Procurement is often centralised but
there is a lack of centralised or
coordinated vendor management
• Contract management is often not seen
as a priority, and regular reviews are not
always scheduled
• Contract renewals are not normally
managed pro-actively
• A central management function for
procurement and vendor management
allows an end to end approach to service
delivery, ensuring vendor service levels
match or exceed customer requirements
• Act as service integrators, to deliver a
consistent service to the customer and
avoid disintermediation
Agree or strongly agree
that relationships with
third party vendors of
outsourced services to
their organisation are
managed centrally by a
company wide
oversight function,
rather than a
decentralised basis
Perf
orm
an
ce M
an
ag
em
en
t
• Vendor management policies and
relationships often based on legacy
• If formal SLAs or performance metrics for
third party vendors are in place, these
are not always linked to incentives
• Performance management has a
tendency to be reactive not proactive,
without regular review meetings
• Performance management often
devolved to line managers
• Capabilities, guides or tools for vendor
performance management not always
centralised or standardised
• Full range of metrics in place to measure
performance of third party vendors, such
as satisfaction surveys and 360°
feedback
• Data is evaluated and published along
with performance reviews
• Recognition programmes incentivise
vendors to continuously improve and
ensures service levels are matched
across the organisation
Agree or strongly agree
that their organisations
have formal
SLAs/performance
metrics in place with
third party vendors who
provide outsourced
services
Elix-IRR Expert
Benchmarking
“Little adoption of best practice vendor
management principles such as
consequence management”
- FS Institution
88% of Outsourcers
33% of FS providers
100% of Outsourcers
48% of FS providers
100% of Outsourcers
81% of FS providers
Elix-IRR Survey
Results
Elix-IRR: Act Like Your Outsourcer
People and culture focuses on embedding the purpose and values of the organisation throughout their staff through
regular training and development, and clear knowledge transfer.
Outsourcers have a strong focus on people and culture, however FS support functions also scored well. There
are opportunities for FS support functions to improve in knowledge management, encouraging innovation and
staff empowerment.
People and Culture
12 | Page
Low Performing = 1
2.9 4.0
High Performing = 5
FS Support Functions Outsourcers
Ow
ne
rsh
ip a
nd
Acco
un
tab
ilit
y
• FS support functions often feel
disconnected from the business
• The purpose and identity of the
organisation is not always clearly defined
or well communicated, meaning that staff
are not aware of the overall direction of
the business and feel detached from the
company vision
• This leads to a lack of ownership or
accountability for business outcomes as
staff struggle to connect business
achievements with personal success,
and are not encouraged to exceed
requirements
• The purpose and values of the
organisation are embedded in the
culture, and staff are aligned behind the
business strategy
• This drives to a commercial culture
where people feel empowered and
accountable for the business
• This results in staff taking ownership for
outcomes and will “go the extra mile” to
make sure they deliver
Agree or strongly agree
that there is a highly
embedded commercial
culture throughout their
organisation
Perf
orm
an
ce M
an
ag
em
en
t an
d
Develo
pm
en
t
• Motivation and reward are not clearly
linked to profit, and those measures that
are in place are not closely aligned to
customer needs
• There is poor investment in training and
development in comparison to
Outsourcers, meaning staff are not easily
integrated or aligned behind the purpose
and identity of the organisation
• Performance measures are closely
aligned to business strategy and are
linked to feedback process from both
customers and employees which drives
reward scheme
• Training and personal development are
seen as a key elements to ensuring staff
are well equipped with the best skills and
continue to progress throughout their
career, e.g. 15-20 % of first year salary is
earmarked for training and development
Agree or strongly agree
that their organisation
incentivises continuous
improvement from
support services staff
Kn
ow
led
ge
Sh
ari
ng
an
d
Inn
ov
ati
on
• Innovation is not seen as a differentiator,
meaning there is little investment in
dedicated research
• Lack knowledge management capability
and knowledge embedded in individuals
leads to lack of knowledge transfer or
sharing
• Little incentive for staff to innovate or
contribute, as no measures or reporting
in place to link innovation or knowledge
sharing to performance
• Strongly focused on innovation as a
differentiator and driver of business, and
continually seek to bring new solutions to
customers as part of service offering
• Invest heavily in knowledge sharing and
management, with dedicated internal
teams focusing on knowledge
management
• Knowledge transfer across functions is
incentivised
Agree or strongly agree
that there is a culture of
innovation amongst
their staff
Elix-IRR Survey
Results
Elix-IRR Expert
Benchmarking
“There is no incentivisation for
continuous improvement or innovation”
– FS Institution
“Service Delivery staff typically have an
operator mind set rather than a mind set
of ownership” – FS Institution
“Our commercial model and
transparency around it are one of our
key differentiators in the market place
that we operate in” – Outsourcer
“Formal measures such as the Customer
Satisfaction Interview Programme form a
part of all staff objectives” – Outsourcer
82% of Outsourcers
33% of FS providers
94% of Outsourcers
19% of FS providers
88% of Outsourcers
33% of FS providers
Elix-IRR: Act Like Your Outsourcer
Lessons from Outsourcers
The challenge for support functions within
Financial Services organisations is to instil a
sense of commerciality as a fundamental core of
their set up. In the case of Outsourcers, there is a
clear commercial relationship between provider
and customer, and the constant threat of
customers going elsewhere if the service provided
is not of the expected standard. This perpetual
drive to provide value for the customer promotes a
culture of continuous improvement leading to
innovation and efficiency. For this to occur
successfully in the internal support functions of
banks, a sea change in the culture will be
required. Support functions must attempt to
recreate the commercial tension present in an
outsourced service environment through the
formation of a synthetic company mind set that
measures internal support functions against the
same service quality benchmarks as outsourced
functions.
This culture is underpinned by the embedding of
the organisation’s values and identity within staff,
through focused training and development. Staff
are motivated to deliver high performance through
clearly linked incentives, making people feel
accountable for the success of the business.
Continuous improvement is further developed
through effective management of the key enabling
capabilities; strategy and planning, change
management, financial management and vendor
management. These capabilities are constantly
reviewed to ensure processes and services are
optimised, efficient and delivered seamlessly to
the customer.
This commercial, service oriented relationship is
managed by a dedicated Service or Account
Manager who acts as a single point of contact for
the customer, and who has line of sight service
ownership to ensure a consistent service to the
customer.
The key areas for success that have been
highlighted in the survey cannot be taken in
isolation; each must work in conjunction with the
others to deliver a truly differentiated service.
Banks as Outsourcers?
The implications of not taking on these lessons
are obvious – Financial Services houses will
increasingly look to Outsourcers as a strategic,
not just a tactical, solution to their needs to reduce
operational costs and improve service levels.
Outsourced services to the Financial Services
industry have continued to grow over the last five
years in the face of unparalleled industry
pressures (see fig 3), as Financial Services
Institutions aim to shed fixed costs in favour of the
variable costs and structure they achieve from
utility providers. This trend is set to continue or
accelerate.
Already Outsourcers have moved into core FS
processes like payments and mortgage
processing, and are increasingly looking for ways
into core capital markets operations, buying or
building technology assets – the recent Accenture
tie up with Broadridge and SocGen is a clear
statement of intent in this direction.
However, there is a corresponding opportunity for
the FS Institutions who get this right. For example,
the securities processing outsourcing market is
now worth over $40bn and forecast to grow by
over 20 % by 2016. As more institutions look to
variabilise and reduce costs, the creation of
transaction utilities presents a significant
commercial opportunity for those banks who have
the appetite to play Outsourcers at their own
game.
Conclusions What does this mean for Financial Services organisations?
13 | Page
$B
n
2016
176
2015
166
2014
158
2013
150
2012
143
2011
137
2010
131
2009
130
Figure 3. Financial Services Business Process outsourcing
Market 2009-2012 Source: Nelson Hall
Forecast
The results of the survey have highlighted important distinctions between the way Outsourcers
and FS support functions operate, manage and deliver their services. A number of lessons need
to be taken on board if FS support functions are to improve their position.
Elix-IRR Partners LLP
Level 3, 20 Abchurch Lane
London
EC4N 7BB
www.el ix- irr .com
About Elix-IRR:
Elix-IRR is a strategic advisory firm, offering
bespoke, differentiated advice to plan and execute
achievable transformation that creates
demonstrable business value. We provide
inspiration and drive at every step of the process,
from defining business strategy, through operating
model design and strategic sourcing, to the
alignment of major change initiatives. Our team is
comprised of senior professionals from top-tier
consulting and services firms, as well as
experienced practitioners from industry.
We provide insightful, practical and pragmatic
advice that leads to real results.