As established financial services brands look to accelerate transformation, it’s time to scrutinise the real impact of outsourcing.
The digital age has had a huge impact on financial services, with FinTech start-ups chipping away at market segments long dominated by more established players. Unencumbered by legacy systems, they’re better able to offer products and services that put the customer first. This gives them the edge when it comes to tapping into growing demand for convenience, personalisation and added-value.
As the market becomes increasingly fragmented and complex, traditional financial services brands have to find new ways to compete. Business leaders know they need to transform how they operate, to foster agility and customer-centricity. But it’s not an easy task. Especially when you consider the wider context, with issues such as cybersecurity and data privacy demanding attention.
The rise and rise of outsourcing
These combined factors have created a perfect storm in the financial services sector, which is partly responsible for its steep increase in IT outsourcing. The Arvato UK Outsourcing Index regularly cites an uptick in financial services spend in its quarterly updates. And the last full annual report showed that IT outsourcing contracts worth £2.7 billion were signed by the sector in 2017, up from £208 million in 2016.
While IT outsourcing is regularly associated with cost-saving initiatives, benefits can extend far beyond this. It allows in-house IT professionals to focus on new software developments instead of ‘keeping the lights on’. It enables scalability and agility. It enhances efficiency.
Today’s businesses are facing multiple, unprecedented challenges. Outsourcing certain processes seems like an effective way to relieve the strain and increase capacity for growth-driving initiatives.
So, what’s not to like?
Last year’s Accelerate: State of DevOps report from DevOps Research and Assessment (DORA) indicates that there’s a hidden cost to the outsourcing trend. After surveying 1,900 IT professionals about organisational throughput (frequency of new software developments) and stability (change failure rate and time taken to restore a service) it found a clear link between poor performance and functional outsourcing.
This is a problem, because financial services brands wanting to transform the way they operate, or begin transforming at scale, really need to excel in both these areas.
The trouble is, while outsourcing can deliver cost savings and efficiencies, syphoning off work to various third parties inevitably creates silos. From a software engineering perspective, this predisposes managers to favour large releases and long release cycles. Important updates that should be pushed through quickly end up getting batched with low-value work.
All of this compromises agility, stability and throughput. In business terms, it puts an organisation at a major disadvantage. Especially if competitors are reacting swiftly to satisfy evolving customer needs with new products and services delivered via reliable platforms.
Is there another way?
If you’ve already signed up to outsourcing, it’s important to assess the true impact, interrogating benefits versus potential costs of development delay.
DORA’s Accelerate: State of DevOps report concedes that it’s not outsourcing per se that causes problems, but its tendency to create silos and multiple handoffs which slow a business down. This can be countered with good project management that insists on transparency and breaks down silos with active collaboration. The embedded model, where internal and external staff work cohesively as part of the primary organisation’s team, can be very effective. DevOpsGroup’s work with online investment service Wealthify also shows how well-managed outsourcing can be conducive to improved agility and throughput. First, we helped the business rebuild its cloud infrastructure to embrace cloud-native principles, and we now maintain and update the infrastructure on an ongoing basis. It means the in-house team has increased capacity and capability to build products aligned with customers’ evolving needs. You can read the full case study here.
If you suspect outsourcing might be hindering your organisation’s transformation efforts, our white paper The hidden cost of outsourcing is worth a read. It explores various sourcing models and shares learnings from BAE Systems’ successful transition to cross-functional multi-sourcing. And it considers important cultural elements that need to be addressed to enhance collaboration and agility.
With a new decade on the horizon, leaders of all business sizes and sectors are reviewing their game plan and setting priorities. The pace of change shows no sign of slackening, and traditional financial services firms face challenging times. But transformation is achievable when time and resources are properly focused.
Today, every financial services brand is a digital brand. And it’s up to the IT leaders to achieve pole position for future success.