IT outsourcing, business process outsourcing and offshore outsourcing make good economic sense. But there is a danger: if so many of an organisation’s skills are external, how will they grow the next generation of internal expertise? By Chris Skinner
Outsourcing is well understood but its long-term consequences may not be. Outsourcing may make sense in the cost equation of banking but is it good business sense? In the early 1970s, facilities management and bureau services were the embryo of what has become an outsourcing industry. During the 1980s, ‘glass house’ outsourcing grew, in which the data centre – the hardware – was run by an outsourcing company. The argument was that technology was not part of the core business of banking so why keep it in-house? This extended through the 1990s to cover all aspects of application development, maintenance, software and networking. Then business process outsourcing (BPO) became de rigueur, extending the argument of core competency further: why push paper around and process cheques? Surely that is not a core part of the business of banking, so outsource it. More recently, offshore outsourcing has emerged. Although offshoring has been done since the 1970s, particularly in India, it has only been in the past four years that wholesale BPO of call centres and other operations has been done, sparking the typical round of media scare-mongering about losing jobs. Come on. Offshore makes good economic sense, so why stop it? Well, there is an interesting side to this debate: if all an organisation’s skills reside externally, how will they grow the next generation? The answer is succession planning. Look around the IT department and at the chief information officer: those who report directly to them have probably spent their whole careers in the bank, understand the core systems, can talk to vendors knowledgeably about the business and how and what technology is required to underpin it. Fast forward 20 years. Where will those who understand the bank’s technologies be? Overseas. School leavers find there are no jobs available in bank technology locally because the department is now run overseas. Who is managing the offshore contracts? Someone overseas. Who can ensure the delivery of differentiation and innovation through technology? Someone overseas. Who can ensure the alignment of technology strategy and business strategy? Someone overseas. The danger of outsourcing so much is that it could create a missing link: a generation of banks with no technology knowledge or resources internally. That would mean that the bank could become totally dependent on the outsourcer for everything and, for a business that is based on technology, that might be a little bit dangerous. Chris Skinner is founder of Shaping Tomorrow and chief executive of Balatro Ltd. Find out more at www.ShapingTomorrow.com or e-mail Chris at chris.skinner@shapingtomorrow.com
