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Outsourcing set to surge in 2009

An increasing number of technology roles within banks are likely to be outsourced in 2009, as banks look for ways to slash costs.

Outsourcing of technology by financial firms will surge by 8% globally in 2009, according to forecasts from consultancy IDC Financial Insights.

The prediction forms part of its annual industry overview, which also suggests that banks will spend by 3.2% less on IT this year – the first contraction since Financial Insights began tracking budgets in 2002. To make matters worse, it predicts spending in the securities industry will experience the sharpest fall – slumping by 9.9% in the next 12 months.

Jeanne Capachin, VP banking at Financial Insights, says: “As financial institutions renegotiate contracts and vendors become more competitive to win new business, overall prices will decline, but volumes of new business in outsourcing will increase.”

Financial Insights says that business process outsourcing (BPO) and transactions processing outsourcing are on the agenda this year, but this could just be the tip of the iceberg.

Nick Mayes, senior consultant at Pierre Audoin Consultants, reckons banks will look to outsource IT infrastructure and that any expansion of data centres is likely to be taken on by third-party suppliers.

He adds: “Banks are looking more and more at packaged applications rather than customised in-house developed systems, and we’ll see an increased use of application management and maintenance from third-party organisations.”

In December, IBM signed a big ticket deal with Friends Provident, worth 200m, to provide infrastructure services over ten years. Friends Provident expects to save 6m a year.

Citigroup, meanwhile, last week sold its BPO unit to Indian software services provider Tata Consultancy Services for $512m. Fidelity made a similar move in mid-December.

Financial Insights says a growing number of financial firms will follow in their footsteps this year due to the increasing costs of running these functions.

Comments (10)

  1. Outsourcing seems inherently sensible. Costs will be lower and results incentivised to be quicker/faster/higher/longer. There has been for too long empire building going on in the huge I.T depts at many IB’s, resulting in bloated departments of under employed people

  2. IBs should only outsource selectively. In parts of banks (particularly trading) where robust technology is needed to enhance business productivity, the technology group need to be aligned with the business. I have encountered too many situations where outsourcing simply does not deliver the quality of product the business needs.

  3. Since the government will be owning the majority of the UK banks in 6 months time, I think they should get rid of all the outsourcing contracts with foreign companies and bring those jobs back in the UK. It makes sense if you think about the volume of jobs lost in the housing industry (building, selling, brokering etc). The UK will need these jobs if it needs to fight recession and since the government will be the ultimate owner of the banking industry it should no longer care about cost trimming in the IT front. Any costs will simply be a net transfer of wealth from the government to its taxpayers. I don’t see why they need to hire all those foreign consultans with 3rd world degrees when there are equally qualified people in the UK.

    Each time that i had to work as an owner of a product/application and i had to deal with people either offshore or indian people working in the UK, i found it really really difficult and frustrating. I was saying “x” and they were delivering “y”, the projects ended up overunning all the time and the quality was very low. If i run the company i would have fired them all.

    I should also state that i am not British and i do not work in IT.

  4. I agreed with AK, I have worked many years in IB front office in UK, wanted to see what its like off shore with a sunny climate. From my experience off shore, the people are third class, only in it for the money. Long hours/working intensively is not in their nature.

    WorkingOffshore Reply
  5. You don’t make any economy stronger by making it less efficient. If UK firms are forced to pay more for labour than they will not be able to compete.

    I have no idea what failed state you come from, but any culture that produces anyone who writes “it should no longer care about cost trimming in the IT front.” implies that his country did not abandon socialism early enough.

    Britain tried protectionism like this. Was horrible. You’re too young to remember the 70s when it all fell apart.

    As for “3rd world degrees”, you invoke pity rather than contempt for you sheer ignorance.
    There are many British degrees that are not only worthless, the numbers show that they actually reduce lifetime earnings.

    Some apparently useful degrees like IT from Kings College are just shit, and we don’t class Reading as a university at all.

    IT graduates from Britain as a whole are frankly substandard, not just KCL, but I regularly encounter UK IT grads who I cannot find a single quesiton they can answer. Some even use Macs “because they are stable”. FFS.

  6. The IT outsourcing should not be increased, simply because the technical skills of the outsourcing comapnied(espeically those in India) is not good enough for mission critical systems.

  7. I think people need to be balanced in whether to outsource certain functions. Certain small jobs where not much of technical assistance is required (like processing jobs) should be outsourced, keeping the core activities inhouse. Also if people think that there are not enough quality coming from the 3rd world degrees, then qualified people from the UK should be deputated to those countries and train people to be upto the standards as required. This is more sound for long term benefits. There are certain benefits and ill effects of outsourcing. But at the end of the day outsourcing is a profitable venture.

  8. Outsourcing comes in and out of fashion depending on the economic times. I have been a contractor, and I worked MORE hours than the regular employees. You can’t generalise about contractors. Yes, they are paid more – but they are very expendable and usually the first to go when cuts are made, which is WHY they are paid more. Outsourcing is not the blanket answer – sometimes is is crucial for the team to be on one site working together and offshoring work is a bad idea. Sending IT and other work offshore is highly overrated anyway. And it’s not necessarily about the school, it’s about the person. Some people who are very good can’t afford to attend a top uni… or even go at all. Remember, there are a lot of people who are great successes in business without a uni degree.

  9. outsourcing is a tool not a solution.

    it can work well in support-type roles.

    it fails spectacularly in devel-type roles.

    banks’ preferred IT dept structures and politics also fail for devel-type roles. but on average in a manner less likely to blow-out financially. and intermittently, decent devel work _can_ happen despite the environment. (altho this typically is confined to the quant desk or by contractors.)

  10. If I am a biz man and I get 2 managers and 10 developers and 2 testers offsite for the cost of 2 developers onsite. then i would prefer outsourcing, boss this is business, only monmey counts.. many people in the so called ‘3rd world ‘ companies are also fired and loose jobs in one way or other because of recession and stuff….
    EOD only biz counts.. in casesome one sees less quality its just an excuse lesser quality can be anywhere and at any itme..

    now, all biz needs to go on onsite off shore model to save costs….

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