Risk Management Technology in Financial Services

Elsevier UK Jobcode:RTF Chapter:CH17-H8304 22-3-2007 5:13p.m. Page:323 Trimsize:165×234MM

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Being in charge of IT costs 323

*

**

STRATEGIES IN OUTSOURCING IN SEARCH

FOR COST-EFFECTIVENESS

LONE WOLF JOINT VENTURE

BUSINESS

SERVICE

PROVIDER (BSP)

BUSINESS

PROCESS

OPERATIONS (BPO)

APPLICATION

SERVICE

PROVIDER (ASP)

INTERNAL

UTILITY

EXTERNAL

UTILITY

PROVISION OF

TECHNOLOGY

AND

INFRASTRUCTURE

TAKING OVER

TECHNOLOGY

AND STAFF

INDEPENDENT

PARTY

CROSS-DIVISIONAL

CROSS-BORDER

PEER LEVEL

COMMON

INFRASTRUCTURE*

OR ALLIANCE

USUALLY BY

ANOTHER

FINANCIAL

INSTITUTION**

THIRD PARTY

OPERATING

CLIENT-

DEDICATED SITE

THAT MAY

MIGRATE TO

FIFTH SOLUTION

VENDOR OF

BUSINESS

PROCESSES

MANAGING FROM

OWN DATA

CENTRE

COMPETITORS AT FRONT DESK BUT PARTNERS AT BACK OFFICE

EXAMPLE: CUSTODIAN

Figure 17.3 Alternative paths to an outsourcing and insourcing solution



Cost savings,



Lack of internal skills,



Capitalization on a mass effect, and



Doing away with non-core business.

There is no a priori ‘yes’ or ‘no’ answer about achieving these goals. A great deal

depends on how well the outsourced functions have been defined, how the impact

was negotiated, as well as on how the insourcer/outsourcer relationship is managed

over its lifetime. Inherently, outsourcing is neither ‘good’ nor ‘bad’, and it is always

necessary. But do we really know what we outsource in IT?

17.5 Know what you want in outsourcing

Know yourself, know your products and know your business partner is a golden rule

in industry, commerce and finance. Do we really know what we want to obtain in

outsourcing, and which responsibilities we assume, before entering into an SLA?

Take as an example procurement, which is a classical outsourcing activity. Lack

of raw materials, along with the need for specialized components, has been an age-

old reason for outsourcing agreements. In hardware we buy platforms, switching

gear and other equipment. In software, we buy operating systems (OS) and database

management systems (DBMS); we don’t reinvent the wheel.

We also buy, or at least should buy, more than 50 per cent of our applications

software. This is not, however, the sense of ‘outsourcing IT’ in its present form.

What this term has come to mean is outsourcing systems functions, often with the

excuse that they are not ‘core’ to our business. That’s a fake, because IT is core to

all businesses in practically all its forms. This does not mean that IT should never be

outsourced, but the fact that it is core poses: