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Act like your Outsourcer

How can Financial Services institutions learn from Outsourcers to transform their own support functions?

Elix-IRR: Act Like Your Outsourcer

From Back Office to Service Provider Lessons from Outsourcers in effective service provision

2 | Page

Since the financial crisis, banks have been caught

in a negative cycle of falling returns on equity, and

a need to do more for less. The pressure on cost

has raised a fundamental question for Financial

Services (FS) support functions – how can service

quality and productivity be maintained or improved

against a backdrop of cost reduction? In seeking

to answer this question, banks are increasingly

looking to learn from other industries.

The outsourced services industry provides an

interesting comparison for banks. The business

process outsourcing market in financial services

alone is now worth $143bn per annum and

between 2009-12 grew at an average rate of 3%.

Crucially this growth, while seemingly modest, has

been achieved in spite of the continued crisis in

the financial services market and in the context of

falling arbitrage value of the low cost locations the

outsource providers originally based their

economic models on. Clients are increasingly

looking to Outsourcers not only for lower cost but

also for higher service levels, certainty of outcome,

capability enhancement and to turn capex-hungry

operations into variable costs. This paper seeks to

examine the key differences between how in-

house FS support functions and Outsourcers

operate.

Our research shows that across all the areas

examined Outsourcers are viewed as being able to

deliver more efficient and effective services than

their FS counterparts – as illustrated by our

benchmarking exercise (figure 1). The widest gap

being in service delivery, financial management

and service management. This clearly indicates

that Outsourcers are more effective at conveying

the scope, quality and price of their services to

their customers.

This gap can be explained through the different

customer relationship and commercial dynamics

that exist. Whereas FS institutions view their

support functions as cost centres, Outsourcers

deliver competing services for profit. This has led

to Outsourcers adopting a more commercial and

customer centric approach, as revenue growth is

dependent on continued customer satisfaction and

an appreciation of the value of services delivered.

As a result, Outsourcers have developed unique

characteristics and capabilities which define the

way they operate.

How do Outsourcers differentiate themselves?

Our study identified four key building blocks which

Outsourcers combine to deliver differentiated

service whilst incurring lower cost:

1) A service management layer which acts as a

single point of integration for the customer

(see page 6)

2) A standardised and optimised production

capability which leverages low cost locations

and process optimisation techniques

(see page 7)

3) A number of further enabling capabilities

which enable excellent service across the

organisation (see pages 8-11)

4) A strong focus on people and culture, instilled

throughout the organisation (see pages 12)

In the context of the structural changes banks are

undergoing, the continued pressures on cost and

the aggressive expansion of Outsourcer offerings

into core FS capabilities, we believe there will

need to be a material shift in the way FS support

functions operate to remain competitive.

Figure 1. Performance benchmarking of FS support

functions against Outsourcers based on Elix-IRR interviews

and survey

0

1

2

3

4

5

ChangeManagement

People & Culture

Strategy andplanning

VendorManagement

Service Delivery

ServiceManagement

FinancialManagement

FS Support FunctionsOutsourcers

5 = High Performance

0 = Low Performance


Having a direct and commercial relationship with a customer materially impacts the dynamics, and in-turn

the quality, of service provided. Outsourcers always interface with a customer, which drives a number of

behaviours that support the delivery of differentiated service.

The Dynamics of Service Comparing Outsourcers to FS support functions

3 | Page

Service

Dynamic What do Outsourcers do? Why do they do it?

Customer

Centric

• Outsourcers seek to have strategic

relationships with their customers and gain an

intimate understanding of their needs

• This is delivered through investing time to

develop an in-depth understanding of the

customer’s business and being responsive to

the customer’s needs

• The success of outsourcing service providers

necessitates an understanding of customer

needs – responding to customers needs is the

only way to secure new business and maintain

existing revenue

Commercially

Minded

• Outsourcers always interface directly with an

external customer, which necessitates a clear

link between services and value

• Customers understand what they are getting

for their money and Outsourcers seek to

deliver efficiencies wherever they can

• Continued revenue and growth is predicated on

customer satisfaction; if customers don’t

appreciate the value of the services being

provided they will change providers

• The focus on delivering efficiency is driven by

the need to maintain market competitiveness or

maintain/increase profit margins

Organised for

Success

• Service provider organisations typically have a

clear separation of management responsibility

between managing delivery and managing

customer and commercial relationships

• Customer and account management roles are

the most important in the organisation

• Organisations able to leverage shared

capabilities and services, and deploy a

dedicated or bespoke service

• Ensure effective responsiveness and

accountability to the customer

• Ability to effectively deliver efficiency and

standardisation where appropriate while also

being able to tailor offerings to ensure delivery

of the right service at the right price

Service Service to external

customer

Service

Support

function

Internal

function

Customer

facing function

Final

customer

Service to external

customer

Outsourcer Customer

FS support functions have limited visibility of the customer

FS support functions often lack a commercial relationship

with the final customer due to being internally focused.

External customers are often more than one layer away.

Outsourcers are by their nature customer centric

Outsourcers whilst providing similar services always

have a direct link with a customer – this materially

impacts the service dynamics.

Payment

Figure 2. Understanding how Outsourcers leverage the key dynamics of service


The dynamics of commerciality and customer centricity necessitate a number of characteristics and

capabilities that an Outsourcer must have to provide differentiated services to their customers. We have

defined four key building blocks which all service organisations require. Against this framework we have

assessed the maturity of Outsourcers against their counterparts within Financial Services.

How do Outsourcers Achieve This?

4 | Page

Service Management

Service

Delivery

Enabling Capabilities

People & Culture

Why it is important? What it is?

A Service Management layer acts as the

interface between the organisation’s

production capabilities and their customers,

with Service Managers acting as a single

point of contact and a defined Service

Catalogue supported by transparent

reporting and pricing

Service Delivery involves the business

and technology processes providing

the ‘engine’ of the organisation, with

process improvement acting as a

point of differentiation for the

business and a hybrid operating

model giving optimised service and

cost

Enabling Capabilities are

those that help all elements

of an organisation line up to

deliver excellent service,

such as clear strategy and

planning, and strong

change, financial and

vendor management

Enables differentiation to the customer through

services tailored to their needs and sustains

“execution mastery” within operations by

encouraging a service driven approach

A strong focus on

training and

development, with

well defined routes

for professional

growth, and clear

knowledge transfer

pathways, as well

as incentives for

innovation

Simplify and standardise process as a

‘production line’ capability, optimised for

quality and efficiency to deliver

consistently ‘one best way’ and allow

reuse of process components

Ensures the control,

frameworks, capacity and

leadership are in place to

make all components of the

design adhere to a single

vision of excellent service

Sustains the right

values, behaviours

and mind set in

staff to support the

delivery of

excellent service

Customer

The customer as focal point of everything Outsourcers do

Strategy and Planning

Change Management

Financial Management

Vendor Management


Research and analysis approach

Our assessment of FS support functions and

Outsourcers involved:

A market survey

• A survey distributed to management level

participants from leading global Financial

Services Institutions and Outsourcers

(Figure 2)

• Survey respondents were asked to rate

themselves from 1 (strongly disagree) to 5

(strongly agree) for over 30 questions relating

to the key areas of focus listed below

Elix-IRR expert panel benchmarking

• Comparative assessment and scoring of

Financial Services Institutions and

Outsourcers based on the insight of a panel

of Elix-IRR industry experts who have been

on both the buy side and sell side of

outsourcing deals

• The Elix-IRR expert panel were asked to rate

both Financial Services Institutions and

Outsourcers from 1 (low performing) to 5

(high performing) against the key areas of

focus based on their personal experiences

• These results were collated and used to

provide a score from 1-5 for each of the

characteristics and capabilities which define

the building blocks service organisations

require, to highlight the gap in performance

between FS institutions and Outsourcers

Areas of focus

This research focused on the following key areas,

which Elix-IRR view as crucial to the delivery of

differentiated service:

• Organisational Structure

• Strategy and Planning

• Service Management

• Cost/Value Management

• Creating/Managing Change

• Sourcing

• Vendor Management

• People and Culture

Our Approach Defining the key characteristics of differentiated service

5 | Page

Financial Services Providers Outsourcers

Survey

Participants

Elix-IRR Industry

Expert Panel

CIOs, MDs and Heads of banking operations of

major financial organisations including:

• Credit Suisse

• Deutsche Bank

• Lehmann Brothers

• Nomura

• NS&I

• Santander

Managing Partners, Executive Directors of

leading outsourcing firms, including:

• Accenture

• Capgemini

• CSC

• IBM

• Serco

Figure 2. The participants in the market survey and the Elix-IRR Industry Expert Panel


FS Support Functions Outsourcers

Org

an

isati

on

an

d G

overn

an

ce

• Often a lack of a consistent, credible

Service Management layer, leading to an

inconsistent approach and gaps in

execution and integration across the

areas of service provision

• Roles and responsibilities are frequently

not fully communicated and they are not

fully engaged in participation with the

businesses they support

• Service Managers tend to represent

individual functions and responsibility for

issues is aimed at the service delivery

team

• This leads to multiple points of contact,

and service delivery is often in silos

rather than integrated

• A clear and defined Service Management

layer is in place, separate from service

delivery roles

• Clearly defined roles and responsibilities

– Service Managers are the owner of the

customer relationship, functional leads

report into them

• Service managers are nominated as a

single point of contact between the

business and service provider

• Has responsibility for the P&L of the

account and owns the commercial

relationship with the customer

Agree or strongly agree

that Service

Management principles

are applied consistently

across all the support

functions provided to

their business

Ro

le o

f th

e S

erv

ice M

an

ag

er

• Service Managers are either not in place

or are not fully embedded within the

organisation

• Services or products tend to be offered in

a fragmented manner

• Service Managers are usually not senior

enough to have authority or influence

• If Service Managers are in place, they

tend not to have responsibility for change

• The Service Manager is one of the most

senior positions in an outsourcer’s

organisation

• Solutions are presented to the customer

rather than products and processes

• Provide seamless interaction across all

services and take an active role in the

businesses they support, regularly

interacting and proactively offering

solutions rather than products

• Typically own the change agenda for the

customer’s services and work with

customers to understand their

requirements for change


that Service Managers

represent cross

functional

responsibilities rather

than individual function


that Service Managers

interact regularly and

often with the business

areas that they support

Serv

ice C

ata

log

ue

an

d R

ep

ort

ing

• Service catalogue often incomplete or

lacking completely

• Service reporting and performance

measurements are not always in place,

and responses to problems are reactive

rather than pre-emptive

• Costs tend to be allocated using basic

methods or not at all leading to a lack of

transparency over what the business is

paying for

• Formalised service catalogue which

documents all services and processes

and is actively managed

• Service reporting is embedded into

contracts with customers and

performance measurements are a part of

daily activities, encouraging a “front office

mind set”

• Flexible pricing models with clear cost

allocation linked to SLAs


that reporting lines are

often matrixed to the

businesses their

functions support

Service management is the interface between the organisation’s production capabilities and their customers, and acts

a single point of contact for the business.

FS support functions often lack a consistent Service Management layer, Service Catalogue and Service

Managers, if they are in place, have a tendency to be disconnected from the organisation.

Service Management

6 | Page

Low Performing = 1 High Performing = 5

2.1 3.5

Elix-IRR Expert

Benchmarking

Only

38% of FS providers

“Our client executives are the key

relationship owners and are expected to

be trusted advisors to our clients on

their strategic challenges” - Outsourcer

“We have leaders who focus on clients

and everything they need to excel.

Other leads focus on products and

functions. We rarely blend the two”

– Outsourcer

82% of Outsourcers

33% of FS providers

58% of FS providers

Only

57% of FS providers

Elix-IRR Survey

Results


Service Delivery is the “engine” of the organisation, driven by process improvement and an efficient, hybrid operating model.

This is the area where FS support functions are weakest in comparison to Outsourcers in the benchmarks, as

Service Delivery is not viewed a point of differentiation for FS support functions, who typically have business

aligned operations rather than a hybrid operating model, and tend to make less use of low cost locations.

Service Delivery

7 | Page

Low Performing = 1

2.2 4.1

High Performing = 5


Op

era

tin

g M

od

el an

d

Org

an

isati

on

• Most FS companies have made some

progress towards centralisation and shared

services models but there are typically

significant areas of operations that are

business-aligned

• This often leads to a fractured approach

with little account management and

repetition of processes across multiple silos,

leading to unnecessary inefficiency and cost

• Clear segregation of service delivery from

relationship and client management roles

• Combined business aligned and shared

services operating models allow for

service optimisation and cost efficiencies

• Combine efficient, scaled operations with

high value customised solutions through a

common services layer with the customer


that support or service

delivery functions in

their organisations are

part of a single support

services division rather

than reporting directly to

the business or industry

they support

Pro

cess I

mp

rov

em

en

t • Process improvement tends not to be seen

as a priority, as production is not always

viewed as a point of differentiation

• Any changes that do occur often happen on

an ad hoc basis, in reaction to need or crisis

rather than customer or industry demand

• Services delivered are mostly standardised,

with some customisation for larger

customers

• Process capabilities are built around Lean

and Six Sigma methodologies

• Process improvement is seen as a point

of differentiation as it leads to improved

service and therefore profit

• Process automation and centralisation

are used where appropriate and cost

effective


that their organisation

incentivises continuous

improvement from

support services staff

Lo

cati

on

Str

ate

gy

• Typically centred on a single location with a

number of satellite operations

• Use of alternative locations largely based on

lowest cost

• Impact of location strategy on services to

customers are generally a secondary

consideration

• Location strategy is rarely reviewed or

optimised, leading to inefficient labour costs

• Overall lower use of offshore locations than

Outsourcers

• Leverage low cost locations and make

use of labour arbitrage, moving work to

areas of optimal cost and skill levels

• Established global delivery networks,

which allow services to be delivered from

multiple locations, minimising effects of

political issues and natural disasters on

delivery

• Regularly review networks and locations

to ensure optimal location strategy

Elix-IRR Expert

Benchmarking

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Accenture

Wipro

Capgemini

Infosys

IBM

TCS

FS Support Functions

Low Cost High Cost

Use of low cost versus high cost locations by FS Institutions and Outsourcers*

Elix-IRR Survey

Results

Source: Elix-IRR surveys,

interviews, industry

research and experience

“Organic evolution of service rather than

commoditisation” - FS Institution

“This varies by business line but there is

an increasing emphasis on centralisation”

– FS Institution

“Whilst we operate comprehensive

governance and control… it is the way that

we organise and empower our service

teams that ensures quality is achieved”

– Outsourcer

*Low cost would include offshore (e.g. India,

Phillippines, Bangladesh) or near shore (e.g.

tier 2 European or North American cities)

High cost includes major metro centres and

western countries (e.g. US, UK or Germany)

81% of Outsourcers

56% of FS providers

100% of Outsourcers

24% of FS providers


Strategy and planning is service and customer led leading towards differentiated product solutions, and is integrated

across the organisation giving seamless delivery to the customer.

As part of a single organisation this is the area where FS support functions are closest to the outsourced

competition in our benchmarking but there is still evidence of silo mentality and ad hoc planning processes.

Strategy and Planning

8 | Page


2.7 3.3


Cu

sto

mer

led

Str

ate

gy

• Often seen as “order takers” rather than

strategic partners to the business

• Typically base strategic planning on

customer requirements, but alignment is

poor leading to reactive rather than

proactive strategies

• Lack of regular review and forecasting

updates, resulting in strategy becoming

outdated and unfocused – targets are

tactical and focused on the short term

• Strategy is customer driven

• An active role is taken in directing

customer strategy

• Act as a strategic partner to the

customer, helping to guide and mould

strategy

• Strategy routinely reviewed to ensure

relevance and alignment with long term

goals


that the businesses

they support view their

organisation as

strategic partners for

future success

Inte

gra

ted

Str

ate

gic

Pla

nn

ing

• As part of the same business this is one

area where the internal functions should

have the advantage over the 3rd parties

• However, there is evidence that some

support functions that focus on domain

led strategy lose connection to the

business

• Some participants indicated planning is

still ad hoc, with little attempt to

understand market drivers or redirect

strategy after internal or external

incidents

• Integrated planning across all functions

and services allows seamless delivery to

customers

• Effective communication and

collaboration between senior leadership

across delivery functions ensures a

consistent approach, and allows

objectives and priorities to be decided in

an inclusive manner, rather than within

individual functions


that strategic planning

for their support

functions is closely

aligned to the strategy

of the businesses they

support

Serv

ice o

r C

os

t b

ased

Str

ate

gy

• Cost reduction is often the main focus of

strategy, leading to a “do more for less”

culture

• Services are stretched to perform and

customer experience can suffer as a

result

• Strategy is led largely by service

improvement rather than cost reduction,

resulting in leaner, more effective

processes and a perpetual drive to meet

customer expectations


that their support

functions are most

focused on cost

reduction rather than

service improvement

So

urc

ing

Str

ate

gy

• Outsourcing is generally undertaken on

an ad-hoc basis, rather than a strategic

‘Make vs Buy’ decision and is used as a

cost reduction tactic

• The customer relationship is frequently

not effectively managed, allowing

interaction between outsourcing service

and customer, often leading to

disintermediation

• Outsourcing is viewed as a strategic

choice, not a cost play, and is used to

supplement and complement existing

offerings

• Any outsourced services are fully

integrated, and offered seamlessly to

customers, with no disintermediation

from outsourced parties



proactively considers

outsourcing as an

important aspect of any

future growth strategy

Elix-IRR Expert

Benchmarking

Elix-IRR Survey

Results

“Staff do no necessarily have a

customer orientation, they are

focused on meeting the service

catalogue rather than delivering the

best service” – FS Institution

“We aim to be a trusted advisor to our

clients and help them shape and

deliver on their strategies”

- Outsourcer

100% of Outsourcers

71% of FS providers

94% of Outsourcers

71% of FS providers

35% of Outsourcers

48% of FS providers

82% of Outsourcers

43% of FS providers


Change management focuses on defining the change process, as well as the change portfolio and transition of people

and employee development.

Change is often not separated from BAU within FS support functions, change management is often reactive

rather than proactive, and successful transition of personnel is not seen a priority during change programmes.

Change Management

9 | Page


2.4 3.8


Ch

an

ge M

an

ag

em

en

t P

rocess

• Change management process is typically

not well defined or implemented

• If change and delivery are separated, the

best people and capabilities are usually

not aligned to the change process

• Measurements are not in place and there

is little consideration for the downstream

impact of change

• Generally strong practitioners of change

management processes, and often

thought leaders

• Change is usually contractual and

separate from delivery, meaning there is

additional revenue available

• Key metrics are in place to ensure

change obligations are met and benefits

are realised



clearly defines and

implements a change

planning and

prioritisation strategy

Ch

an

ge P

ort

foli

o M

an

ag

em

en

t

• Many FS support organisations show

mature change capabilities, however

change in some organisations is reactive

rather than planned, and is driven by cost

cutting or crisis, on a project by project

basis, rather than by customer priorities

• Lack of visibility between change

programmes is commonly reported,

leading to interdependencies not being

effectively managed or co-ordinated

• Change is proactively managed and

prioritised to fulfil customer needs

• Project portfolios are governed and

overseen by change management

functions, who ensure alignment and

have the ability to adapt the portfolio and

stop unaligned projects

• Standardised methodologies are used

throughout the organisation


that change is well

managed and

coordinated across the

support or service and

delivery functions in

their organisations

Peo

ple

Ch

an

ge

• Transition management often has little

focus on the people element of change,

and does little to integrate transitioned

personnel into the organisation

• Basic tools may be in place to aid

transition, however capability building is

not a key objective

• Invest time and effort into integrating

people into culture of the organisation,

through creating a clear transition plan

and providing dedicated change

specialists

• Employee development and capability

building is promoted through provision of

appropriate tools and technologies


that their organisation is

effective at transitioning

people and capabilities

into their organisation

Elix-IRR Expert

Benchmarking

Elix-IRR Survey

Results

“BAU staff often shoulder managing

change” – FS Institution

“Successfully managing changing

customer expectations, priorities and

requirements …is critical to our success

and therefore we have a robust approach

to managing and coordinating this within

the delivery function” - Outsourcer

“Portfolio planning and prioritisation is

an ongoing activity” – FS Institution

88% of Outsourcers

57% of FS providers

94% of Outsourcers

38% of FS providers

Only

52% of FS providers



Tra

ns

pare

nc

y a

nd

Rep

ort

ing

• Costs are not clearly linked to service

agreements or drivers, resulting in lack of

transparency to the customer

• Little financial reporting means that the

customer does not have a clear idea of

which services are good value, or how

costs can be effectively influenced

• Customers are engaged in a dialogue

over service for value, to ensure that

costs and pricing are transparent and

flexible

• Costs are clearly mapped to services and

SLAs, and service drivers are indicated

to help customers understand how costs

can be affected by altering service usage

and requirements

• The customer drives the level of

transparency they wish to have not the

other way round


that the businesses

they support consider

the financial reports

they provide to be a

clear and transparent

account of costs

allocated to them

Pri

cin

g M

od

els

• Rely on basic pricing models, but tend

not to vary or customise models to suit

individual requirements

• Typically, many FS support functions use

a cost allocation model – consumption

does not affect total cost just changes

distribution. Internal customers don’t

really have a ‘choice’ over these costs

• The maturity of this approach varies

across banks and typically between

functions and departments – for

example, basic IT services like desktops

may be charged as a variable cost on a

per user basis, whereas finance functions

still typically use allocation methods

• Have a full suite of pricing models which

can be combined and tailored to

customer or project requirement

• Prices are variable, SLA or value based

• Clear and transparent cost allocation

linked to SLAs


that their pricing is

effectively linked to

SLAs

Pro

fit

cen

tre n

ot

co

st

cen

tre

• Support functions usually seen as a cost

not a revenue creating business unit

• Normally little incentive to exceed

budgetary targets

• Emphasis on cost not profit can often

drive empire building mentality; perceived

importance based around the biggest not

the most efficient unit

• A tendency towards cost mentality pricing

over service for value

• Difficult to make an internal ‘profit centre’

model work and there is typically

management resistance to such models

• Incentives to drive efficiency and

measures to achieve profitability

• Competitive landscape drives continual

focus on efficiency to remain competitive

or increase market share

• Clear link between service and value:

service providers incentivised to do more

for the customer not the same for less.

However this can present concern from a

customer perspective as they may

perceive this as an expansionist agenda


that their clients value

quality and

responsiveness of

service over cost

efficiency

Effective financial management is delivered by transparent costs and reporting, a flexible suite of pricing models and

viewing service provision as a revenue generator not a cost.

As cost centres Financial Services support functions have typically spent much less focus on reporting and

allocating costs to their internal customers. Outsourcers have been forced to develop appropriate reporting

and measurements to explain their fees to their customers.

Financial Management

10 | Page


2.1 3.9

Elix-IRR Expert

Benchmarking

“Reporting and allocation

methodologies are often criticised for

lack of transparency”

– FS Institution

“Our job is to offer a range of

commercial models and be flexible and

supportive of our clients needs”

- Outsourcer

100% of Outsourcers

18% of FS providers

85% of Outsourcers

6% of FS providers

71% of Outsourcers

38% of FS providers

Elix-IRR Survey

Results


Vendor management should be a centralised and coordinated function which builds strategic partnerships with key

vendors who are clearly incentivised through strong performance management.

A frequent lack of centralised vendor management means FS support functions tend to struggle in forming

strategic partnerships with key vendors, however, vendor performance management is seen as a strength.

Vendor Management

11 | Page


2.5 3.8


Str

ate

gic

Part

ne

rsh

ips

• There is often little consideration of the

overall value of partnerships with

vendors, who are largely viewed simply

as suppliers

• Clear incentives for vendors to become

preferred suppliers are not commonly in

place, and principal criteria is level of

spend rather than maximising

competitive advantage

• Two way interaction between vendor and

provider, with financial incentives in place

to encourage vendors to act as partners

not just suppliers

• Partnerships are utilised to form

combined offerings and vendors are

leveraged to gain a competitive

advantage over the market

• Focus on managing a small number of

key strategic partnerships



incentivises third party

vendors to act as

strategic partners

rather than traditional

suppliers

Cen

trali

sati

on

an

d C

oo

rdin

ati

on

• Procurement is often centralised but

there is a lack of centralised or

coordinated vendor management

• Contract management is often not seen

as a priority, and regular reviews are not

always scheduled

• Contract renewals are not normally

managed pro-actively

• A central management function for

procurement and vendor management

allows an end to end approach to service

delivery, ensuring vendor service levels

match or exceed customer requirements

• Act as service integrators, to deliver a

consistent service to the customer and

avoid disintermediation


that relationships with

third party vendors of

outsourced services to

their organisation are

managed centrally by a

company wide

oversight function,

rather than a

decentralised basis

Perf

orm

an

ce M

an

ag

em

en

t

• Vendor management policies and

relationships often based on legacy

• If formal SLAs or performance metrics for

third party vendors are in place, these

are not always linked to incentives

• Performance management has a

tendency to be reactive not proactive,

without regular review meetings

• Performance management often

devolved to line managers

• Capabilities, guides or tools for vendor

performance management not always

centralised or standardised

• Full range of metrics in place to measure

performance of third party vendors, such

as satisfaction surveys and 360°

feedback

• Data is evaluated and published along

with performance reviews

• Recognition programmes incentivise

vendors to continuously improve and

ensures service levels are matched

across the organisation


that their organisations

have formal

SLAs/performance

metrics in place with

third party vendors who

provide outsourced

services

Elix-IRR Expert

Benchmarking

“Little adoption of best practice vendor

management principles such as

consequence management”

- FS Institution

88% of Outsourcers

33% of FS providers

100% of Outsourcers

48% of FS providers

100% of Outsourcers

81% of FS providers

Elix-IRR Survey

Results


People and culture focuses on embedding the purpose and values of the organisation throughout their staff through

regular training and development, and clear knowledge transfer.

Outsourcers have a strong focus on people and culture, however FS support functions also scored well. There

are opportunities for FS support functions to improve in knowledge management, encouraging innovation and

staff empowerment.

People and Culture

12 | Page

Low Performing = 1

2.9 4.0

High Performing = 5


Ow

ne

rsh

ip a

nd

Acco

un

tab

ilit

y

• FS support functions often feel

disconnected from the business

• The purpose and identity of the

organisation is not always clearly defined

or well communicated, meaning that staff

are not aware of the overall direction of

the business and feel detached from the

company vision

• This leads to a lack of ownership or

accountability for business outcomes as

staff struggle to connect business

achievements with personal success,

and are not encouraged to exceed

requirements

• The purpose and values of the

organisation are embedded in the

culture, and staff are aligned behind the

business strategy

• This drives to a commercial culture

where people feel empowered and

accountable for the business

• This results in staff taking ownership for

outcomes and will “go the extra mile” to

make sure they deliver


that there is a highly

embedded commercial

culture throughout their

organisation

Perf

orm

an

ce M

an

ag

em

en

t an

d

Develo

pm

en

t

• Motivation and reward are not clearly

linked to profit, and those measures that

are in place are not closely aligned to

customer needs

• There is poor investment in training and

development in comparison to

Outsourcers, meaning staff are not easily

integrated or aligned behind the purpose

and identity of the organisation

• Performance measures are closely

aligned to business strategy and are

linked to feedback process from both

customers and employees which drives

reward scheme

• Training and personal development are

seen as a key elements to ensuring staff

are well equipped with the best skills and

continue to progress throughout their

career, e.g. 15-20 % of first year salary is

earmarked for training and development



incentivises continuous

improvement from

support services staff

Kn

ow

led

ge

Sh

ari

ng

an

d

Inn

ov

ati

on

• Innovation is not seen as a differentiator,

meaning there is little investment in

dedicated research

• Lack knowledge management capability

and knowledge embedded in individuals

leads to lack of knowledge transfer or

sharing

• Little incentive for staff to innovate or

contribute, as no measures or reporting

in place to link innovation or knowledge

sharing to performance

• Strongly focused on innovation as a

differentiator and driver of business, and

continually seek to bring new solutions to

customers as part of service offering

• Invest heavily in knowledge sharing and

management, with dedicated internal

teams focusing on knowledge

management

• Knowledge transfer across functions is

incentivised


that there is a culture of

innovation amongst

their staff

Elix-IRR Survey

Results

Elix-IRR Expert

Benchmarking

“There is no incentivisation for

continuous improvement or innovation”

– FS Institution

“Service Delivery staff typically have an

operator mind set rather than a mind set

of ownership” – FS Institution

“Our commercial model and

transparency around it are one of our

key differentiators in the market place

that we operate in” – Outsourcer

“Formal measures such as the Customer

Satisfaction Interview Programme form a

part of all staff objectives” – Outsourcer

82% of Outsourcers

33% of FS providers

94% of Outsourcers

19% of FS providers

88% of Outsourcers

33% of FS providers


Lessons from Outsourcers

The challenge for support functions within

Financial Services organisations is to instil a

sense of commerciality as a fundamental core of

their set up. In the case of Outsourcers, there is a

clear commercial relationship between provider

and customer, and the constant threat of

customers going elsewhere if the service provided

is not of the expected standard. This perpetual

drive to provide value for the customer promotes a

culture of continuous improvement leading to

innovation and efficiency. For this to occur

successfully in the internal support functions of

banks, a sea change in the culture will be

required. Support functions must attempt to

recreate the commercial tension present in an

outsourced service environment through the

formation of a synthetic company mind set that

measures internal support functions against the

same service quality benchmarks as outsourced

functions.

This culture is underpinned by the embedding of

the organisation’s values and identity within staff,

through focused training and development. Staff

are motivated to deliver high performance through

clearly linked incentives, making people feel

accountable for the success of the business.

Continuous improvement is further developed

through effective management of the key enabling

capabilities; strategy and planning, change

management, financial management and vendor

management. These capabilities are constantly

reviewed to ensure processes and services are

optimised, efficient and delivered seamlessly to

the customer.

This commercial, service oriented relationship is

managed by a dedicated Service or Account

Manager who acts as a single point of contact for

the customer, and who has line of sight service

ownership to ensure a consistent service to the

customer.

The key areas for success that have been

highlighted in the survey cannot be taken in

isolation; each must work in conjunction with the

others to deliver a truly differentiated service.

Banks as Outsourcers?

The implications of not taking on these lessons

are obvious – Financial Services houses will

increasingly look to Outsourcers as a strategic,

not just a tactical, solution to their needs to reduce

operational costs and improve service levels.

Outsourced services to the Financial Services

industry have continued to grow over the last five

years in the face of unparalleled industry

pressures (see fig 3), as Financial Services

Institutions aim to shed fixed costs in favour of the

variable costs and structure they achieve from

utility providers. This trend is set to continue or

accelerate.

Already Outsourcers have moved into core FS

processes like payments and mortgage

processing, and are increasingly looking for ways

into core capital markets operations, buying or

building technology assets – the recent Accenture

tie up with Broadridge and SocGen is a clear

statement of intent in this direction.

However, there is a corresponding opportunity for

the FS Institutions who get this right. For example,

the securities processing outsourcing market is

now worth over $40bn and forecast to grow by

over 20 % by 2016. As more institutions look to

variabilise and reduce costs, the creation of

transaction utilities presents a significant

commercial opportunity for those banks who have

the appetite to play Outsourcers at their own

game.

Conclusions What does this mean for Financial Services organisations?

13 | Page

$B

n

2016

176

2015

166

2014

158

2013

150

2012

143

2011

137

2010

131

2009

130

Figure 3. Financial Services Business Process outsourcing

Market 2009-2012 Source: Nelson Hall

Forecast

The results of the survey have highlighted important distinctions between the way Outsourcers

and FS support functions operate, manage and deliver their services. A number of lessons need

to be taken on board if FS support functions are to improve their position.

Elix-IRR Partners LLP

Level 3, 20 Abchurch Lane

London

EC4N 7BB

www.el ix- irr .com

About Elix-IRR:

Elix-IRR is a strategic advisory firm, offering

bespoke, differentiated advice to plan and execute

achievable transformation that creates

demonstrable business value. We provide

inspiration and drive at every step of the process,

from defining business strategy, through operating

model design and strategic sourcing, to the

alignment of major change initiatives. Our team is

comprised of senior professionals from top-tier

consulting and services firms, as well as

experienced practitioners from industry.

We provide insightful, practical and pragmatic

advice that leads to real results.

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