Outsourcing: Keeping the Competitive Edge in Banking

Yanire Braña. Professor. IE Business School

2 October 2006

To remain competitive, banks must increase profitability and fuel growth. Outsourcing non-vital services can enable banks to focus on meeting these goals.

Changes in Spain’s financial landscape are forcing domestic banks to review their business models and organisational structures.

Banks realize they face the twin challenge of boosting profitability and fuelling growth. This goal requires corporate structures that are both flexible and efficient, enabling them to respond to the needs of a mature market with increasingly demanding clients.

As part of the effort to increase competitiveness, outsourcing is proving to be an optimum means of reducing costs. It also helps render an organization flexible enough to respond to changing business requirements.

Outsourcing is when a company subcontracts processes that are not of vital importance to a client. By subcontracting, organisations can concentrate all their efforts and resources on areas of greater economic value—a move that benefits everyone, from clients and shareholders to employees.

Furthermore, outsourcing allows a bank to redesign its value chain, enabling it to better fulfil its objectives. However, outsourcing is not a universal panacea. Indeed, it requires careful analysis of both the outsourced services and their providers.

To determine which processes should be outsourced, each bank needs to consider its core activities. The most frequently outsourced services often include technology and support, although newer more innovative services are also being added to the list, such as talent management.

Once the services for outsourcing have been identified, the bank must then find a provider. When searching for the best, the bank must seek the following features: A level of trust backed by previous experience, sustainability and service quality that can be guaranteed by the corresponding SLAs (service level agreements)

Because competition and standardisation are on the rise in the banking sector, a growing number of outsourcing companies have succeeded at carving out a niche. They are specialists offering high quality and efficient services—tasks made possible by their reliability and the success of the economies of scale they achieve.

However, the companies likely to suceed are those offering services that are market-focused, professional and with a work system that adapts to their clients´ needs.

Finally, the limits of what services can be outsourced must be determined by each bank. Each entity must consider its strategic objectives and the activities that are key to satisfying the requirements of present and future clients´.

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