An outsourcer for all seasons

The benefits of lenders outsourcing non-core operations to specialist firms remain valid whatever the economic backdrop, says Jeff Quilter, director of strategy at HML

A longside the downturn in the economy and the lending market there has been an opposing upward trend towards outsourcing. But if the economy is cyclical, might this mean that when times are good again organisations won’t be so inclined to outsource? In this article I will show why I am confident this will not be the case.

It’s true that relatively recently there was little demand for outsourcing. The 1980s was a good time to be in the money business. Lenders big and small did everything themselves and there was no outsourcing industry to speak of.

But fast-forward to the present day and outsourcing is accepted in many circumstances. Before the credit crisis lenders started to look more strategically at outsourcing as a value creator rather than just a cost reduction exercise. In the depths of the downturn the strategy became more about keeping costs down to survive – an outsourced business strategy in a downturn provides a variable cost base.

Further demand for outsourcing has come from the rise in the number of new lender entrants. On their own, many of these firms do not have the infrastructure to manage their books efficiently. Also, there’s been a rise in bank and building society mergers, bringing integration challenges.

We are now at a point in the economic cycle where lenders starting to look on the bright side again, preparing to throw themselves back into a more competitive market. As a result a strategic attitude is returning. More lenders are outsourcing for long-term competitive advantage to keep pace in a fast-moving marketplace.

But whether they are doing it to rationalise and save costs or as part of a growth strategy lenders are seeing the benefits of outsourcing and I believe the operational efficiencies and savings it offers will remain attractive regardless of the economic backdrop.

I know this from experience as we outsource some non-core operations. For example, we used to produce all customer statements inhouse – a considerable job. Now we outsource this we benefit from cost savings such as bulk discounts on mailings.

Also, it may come as a surprise to some that a business the size of ours only has a marketing team of four but this again reflects becoming a trend. In this age of multi-channel, multi-platform communications most businesses know that in order to compete it is necessary to outsource to experts.

We own our marketing strategy and message but our brand and the way we communicate through advertising and print, events, PR, digital and social media have been revolutionised by appointing a specialist agency.

Similarly, with our staff of more than 2,000 we do not handle all our own learning and development requirements. Of course, we see our people as core to our business and therefore manage the majority of their training because of the requirement for day-to-day insider business knowledge.

And the 170 people on our leadership programme are being trained inhouse, deliberately to keep the process as closely integrated as possible with our everyday business. But much of our specialist training – such as involving the whole company in lean management techniques – is outsourced.

Times have changed
So outsourcing is on the up, and outsourcers themselves are putting their money where their mouths are.

The reasons are clear but how can I be so sure this trend will remain on an upward slope rather than become a cycle? In short, times have changed. Not everything is cyclical like the economy, and many other factors affecting the financial services market have moved on, the two main ones being technology and regulation.

With regard to technology, it is easy today for an outsourcing partner to integrate seamlessly with a business. Telephone calls and emails can be routed from one location or company to another with ease, making an outsourcer a convenient part of the team.

Also, given the technology required to compete in the modern lending market such as automation, self-service and the plethora of communications channels customers demand it is more likely that lenders will need to seek outside expertise. Few lenders would claim to be as skilled in IT as professionals who live at the cutting edge.

Regulation is another area that’s not likely to get any easier to deal with. The cost of compliance is going up and no future government is likely to relax regulations on lenders much given the high profile lessons we have learnt of late. An outsourcing partner can ease the burden of compliance so there will always be a demand.
Part of our strategy for showing the effectiveness of outsourcing involves encouraging lenders not to outsource certain functions if they don’t need to. Although this may sound counterintuitive it is part of our philosophy that a quality outsourcer’s service should not be a ’one size fits all’ thing.

Our relationships with clients involve complicated equations. In some cases we work together towards a goal over an agreed period of time whereby we create for the client an infrastructure within which it can take a particular process back inhouse.

We don’t see this process the end of a relationship though, nor do we discourage it. By showing that we can be flexible and scale our involvement up and down we build a win-win relationship with clients.

In fact, as they grow we often see them coming back to us for different services or recommending us to other players in the market who may be facing the same challenge we once resolved for them. Either way, the benefits of outsourcing remain clear.