Outsourcing as a Strategic Alternative

Bank Director recently asked Tim Ruhe, vice-president of strategic alliances for Intelidata, about outsourcing as a strategic alternative for financial institutions.

How can the board discern whether to invest in its in-house technology or outsource its technology needs? What criteria or benchmarks should it use?
Bank managers should ask themselves: Is an in-house solution an affordable choice? What impact would this decision have on technology resources, infrastructure demands, and prioritization of key business issues? Banks should look at the ROI variance between in-house and outsourced arrangements as benchmarks. They should also look at time to market and impact versus market dynamics, and compare relative product/ solution road maps for each option.

Are certain functions or areas more easily adapted to technology outsourcing? Which ones have been more successful in the past? Which ones have not been successful?
Internet banking, bill pay, and personal financial manager software support are easily adapted for outsourcing. Successful solutions are ones where the vendor partnership demonstrates a commitment to best practices, flexibility, and control. Most successful outsourced solutions allow the client to take advantage of a new application without significant effort from internal resources, while providing a path to bringing the application in-house as business needs evolve.

The least successful solutions are those that limit the financial institution’s ability to control its data or restrict flexibility in business operations.

When considering outsourcing, how do you overcome the psychological barrier of losing control?
The solution needs to demonstrate a level of flexibility that is specific to the customer’s business needs. By outsourcing the entire solution (or part of it), the customer should feel that it is driving business efficiency and improved financial performance through a partnership committed to ongoing communication and process fine-tuning.

What criteria should the board consider when choosing an outsourcing partner?

Boards should consider feedback from other clients and customer references. They should also ask:

• Does the vendor/partner have an in-house migration path?

• What is the speed to market?

• How much control and flexibility exists within the solution being implemented?

Overall, what are the pros and cons of outsourcing?
Benefits of outsourcing technology include having a proven system with demonstrated capability to support additional clients; quicker time to market; lower upfront cost; shorter implementation timeline; and reducing or eliminating the burden on internal resourcing and the need to manage changing priorities. The cons include perceived lack of control; no ownership of code; and the external dependency created by outsourcing. |BD|

QUESTIONS BOARDS SHOULD BE ASKING

• How are we managing current scalability?
  
• What are our plans to improve capacity?
  
• What are our current system performance metrics?
  
• What steps are we taking to enhance those results?
  
• What are we doing to improve feature functionality?
  
• How are we incorporating changing market needs?
  
• What kind of interaction do we have with our top clients?
  
• How are we incorporating client feedback into our development queue?
  
• What significant development projects do we currently have under way?
  
• How are those projects progressing against the schedule?
  
• How are we managing costs?

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