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Synopsis

Banco Nacionale (BN) is one of the few global players in the global financial services market and globalretail banking. BN is structured into separate operating structures among geographies and has presencein Central (Headquarters), Europe, Middle East, Asia Pacific, Americas (US and Canada). Each of the

operating divisions is supported by a finance function and led by its own Finance Director (FD). The FDsof each operating division report to the CFO based at the Headquarters and the financial issues andreports are discussed in the monthly meetings. The key functions provided by FDs are Banking

Operations, Financial Administration, Management Reporting, Financial Forecasting and Taxation.

The banking sector is settling into maturity phase after 5 years of growth and is showing signs of slowingdown. BN has followed a growth by acquisition strategy over the last five years and has acquiredcompanies having different financial systems. There is no common financial process among the FDs and

the reporting mechanism of each is different. BN is now facing the challenge of streamlining its financialprocesses as well as delivering the right quality of local services across geographies. The Board of

Directors at BN has to decide whether go for an outsourcing strategy or to create a shared service centreto meet this challenge.

A shared services environment consolidates processes spread across the enterprise. In a shared servicemodel a division becomes the internal service provider to the rest of the company. An organizationusing a shared service model has greater control over the processes and outcomes due to greater

transparency. The model is more responsive to business needs as well. Organization using a sharedservice model has the added advantage of keeping its knowledge base in house without having to shareit with anyone and to maintain its competitive advantage. But a shared service model is difficult to

implement and needs building considerable expertise. It is also a time taking process and requires

considerable investment as it requires changes in business processes, infrastructure and to some extentthe corporate culture. The problem becomes more severe when operating centers are spread across

different time zones. Banco Nacionale has to find a cost effective solution streamline its financialprocesses and needs to do it quickly too as well because of the expected slowdown in the industry. Theshared service model is not the ideal solution to implement for Banco Nacionale because of the time

and cost factors.

An outsourcing model provides organization economies of scale by providing greater cost savings. Anoutsourcing implementation is also faster to implement because of the expertise provided by theoutsourcing firm. It also solves the addresses of bureaucracy which pegs back organizational functions.

Moreover an outsourcing firm is more accountable than a shared internal division because of it is boundby a contract. Banco Nacionale has two broad options to implement an outsourcing model. The first of these is to outsource work of each FD separate outsourcing firms. The second option is to outsource all

operations of separate FDs to a single outsourcing firm.

A multiple outsourcing firm model reduces cost while fostering competition among vendors and takingadvantage of the technical expertise available across the firms. This model would provide Banco

Nacionale an order means of terminating and changing providers whenever required. However a

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multiple outsourcing model can be a strain on the management. The more the number of outsourcedfirms the greater would be the complexity.

A single outsourcing firm provides centralized solutions to an organization and would reduce the strain

on Banco Nacionale s management processes. A single outsourcing firm would mean that it will be

easier to standardize all reports and make them available for BN to use efficiently. This model is also acost effective model because of bundling of all required functions by a single outsourcing firm. For thesereasons BN should outsource its operations to a single outsourcing firm.

Banco Nacionale should decide which of the key processes of FDs should be outsourced and which of them should continue operations as they do now. Banking operations of the each FD will vary across thedifferent geographies. So it is recommended to not outsource the banking operations because of the

greater variability. Considerable caution is required for the financial forecasting system. Financialforecasting and its implications is a key strategy for BN which it would not like to share with theoutsourcing firm. So BN should outsource the Financial Administration, Taxation and Management

Reporting processes from each of its FDs to a single outsourcing firm.

BN should start its outsourcing strategy by first clearly defining the boundaries and create a frameworkto share the risks and rewards. Selecting an outsourcing firm is a very delicate task and past record of the outsourcer should be taken into account in addition to judging its expertise. Outsourcing firms arenow increasingly becoming strategic partners of the outsourcers. The processes and standards followedby the outsourcing firm is a good measure of its efficiency. The contingency plans of the outsourcingfirm should be judged for risk mitigation. A contract tracking system should be created to track key

milestones and timelines. A reliable escalation process should also be setup by the outsourcing firm.Finally, the model for fee structuring should be decided with the outsourcing firm while making the

contract.