11 May 2006
In the past month a number of financial services institutions have announced plans to offshore further IT jobs to India.
Lloyds TSB expects to make savings through an outsourcing deal with IT service provider Xansa and UK IT positions at ABN Amro will be lost as the Dutch bank aims to save $70m (£37.5m) by moving IT applications development abroad.
Research by consultancy Deloitte shows that 62 of the world’s leading banks and insurance firms could collectively reduce annual overheads by as much as $16bn (£8.6bn) by offshoring IT development, servicing and call centres.
Chris Gentle, director of research at Deloitte, says that with the financial services industry reaching maturity in the West, margins are being squeezed and banks need to find cost savings.
‘It is important to dispel the myth that this is all about call centres moving to India. Only 10 to 20 per cent of all spending offshore relates to this,’ said Gentle.
The majority of offshoring involves IT application development, technology support and back office functions such as payment processing, he says.
Cost is a big factor in offshoring. Most financial services firms are finding that a project can be carried out in India for 40 to 60 per cent of the cost of one in the UK, says Deloitte.
But Martin Hart, chairman of the National Outsourcing Association, says large numbers of highly skilled software developers in India and China are also proving appealing to banks that need to develop new online financial services products fast.
‘IT is a fundamental part of the financial services industry these days. They rely on everything from web sites to CRM systems,’ said Hart.
Being able to develop new financial services applications 24 hours a day, by shifting the project to different service centres around the world, also means new money-generating products can be launched faster.
‘If you have your own IT department, often their skills aren’t the ones you need. It raises the dilemma: do you retrain staff or outsource?,’ said Hart.
But offshoring is not without its drawbacks, he says. Last year former employees at Indian outsourcing firm Mphasis were arrested for allegedly stealing more than $300,000 (£160,000) from Citibank’s customers.
‘There’s no reason to believe that fraud is any worse than in the UK, but the problem comes with business processes in place,’ said Hart.
‘If you have a high-worth individual’s data all on one screen, being viewed by a lowly-paid call centre operator then there will be temptation.
‘Systems need to be better designed to encrypt data and only make certain bits of information available to staff.’
Greater management controls also need to be put in place with offshoring contracts, he says.
‘You need to know your own business processes. Because of cultural differences, they won’t necessarily interpret it in the same way as someone in the UK,’ said Hart.
Offshoring…in 30 seconds
*With ever-shrinking profit margins, financial services firms are relocating IT functions to cheaper labour markets, such as India, China and Eastern Europe.
*Financial services firms are expected to relocate as much as 20 per cent of their total cost base offshore to cheap labour locations in the next four years, according to Deloitte. Some 10 to 20 per cent of financial services employment is also expected to be offshored by 2010.
*Offshoring in the financial services sector is set to double by 2008, says consultancy PricewaterhouseCoopers (PwC).
*PwC’s survey of 156 financial service firms also found that more than 50 per cent offshore IT functions or plan to in the next three years. Some 12 per cent of organisations do not offshore any activities.
*Turnover of staff in India’s main IT centres can be between 40 and 60 per cent, raising security and handover issues.
What do you think? Email us at: feedback@computing.co.uk
Reading articles in the press and online, it appears that there is a shortage of IT staff in the UK. With the rising costs of employment and the effects of the credit crunch on company's willingness to take on staff, companies are looking to alternatives. One of these being, offshoring.
Working at one of the major banks in the UK, I ask the question regarding whether or not this is actually an option that should be explored. There are many talented and experienced local talented individuals which companies are closing the doors on, in favour of "cost savings" received from offshoring. Based on my personal experience, this is not the case in many instances. Offshoring does have its time and place, but I do not feel it should be for the entire IT function.
The bank I am at has been exploring the offshoring to India option for about two years now. Although the costs have not been reduced and projects are failing miserably, they have been marketed as being successful and cost effective, which allows top management to continue with redundancies and to increase the number of offshored employees.
Costs of actual offshoring have been "hidden" as costs under other expenses on balance sheets or being picked up by other projects with only local resources. When projects do come in late or overbudget, they are marketed as being successful because of course you need to accommodate transition and handover periods. In all fairness, the truly offshored i.e. based in India, resources are in fact cheaper than local contractors. However for every local contractor replaced, it results in two to three offshored employees to pick up the work. If projects then still fail, external consulting houses are brought in to fix up the resulting mess left behind. This results in significant costs which again are not associated with the project to further skew data.
Offshore companies also charge for relocation costs for their onshore offshore staff. These are employees who come to the UK temporarily to train up before they go back to India. The onshore-offshore staff I have met have been living in the UK for 6 years plus and have no intention of moving back. Need I mention that these companies charge for relocation if they move their staff from one location in London to another location in London. Companies where they are deployed to absorb these costs as they are oblivious to this fact. In addition to this fact, companies blindly take on these employees as they are not required to go through any formal interview or CV vetting process due to them coming from such "reputable" companies.
Until now, certain IT employees have not felt too directly impacted by offshoring. Their positions have been relatively stable and safe and they have not been offshored or have had any plans to be offshored. However once onshore offshore employees are onboard, they start working on looking for every opportunity to get more of their people on board. Apparently their projects are only successful if the whole project is owned by their company so they do everything to ensure this. If only they spent the same dedication on actually getting the work done. I myself have been informed by one of these onshore offshore employees that they have backdoors to all the processes and they can make people help me or not. They decide.
To top it all off, offshore companies have monthly meetings with their staff from the different companies they have been deployed too. Once they have read all documents and understand internal processes, they give a presentation to their companies to ensure staff coming in are knowledgeable for the position which they are applying for. This is marketed as them being very experienced with fast knowledge in the respective area when they come on board. From viewing some CV's I have seen people with less than two years' experience being marketed as senior resources and claiming double the daily rates of local individuals who would have 20 years plus experience.
Based on this, shouldn't companies wake up and realise that there are no significant cost savings involved? No benefits have been reached from offshoring in so many areas as is being felt by local staff. Hopefully the idea will be limited to aspects of business where actual benefits can be realised.
Posted by: Bank Employee 04 Jun 2008
Have your say on this article
Newsletters
Latest stories from Services and Outsourcing
Latest videos
You may also like
Services and Outsourcing jobs
Technology Patent Wars
Case studies from large organisations across all sectors
... And rich media, and flexible working, and peaks in traffic ...
Upcoming Events
Join us for this Computing web seminar, in which the Head of BI at the Co-operative Group Nick Colebourn will be explaining just how he reigned in the Group’s sprawling database estate and how significant savings were realised and data quality improved as a result.
Date: 31 May 2012
Time: 11:00 AM
Live June 13th 11:00am: Register now. During this web seminar we will be looking at the sorts of incidents that can bring data centres grinding to a halt and what can be done about them.
Date: 13 Jun 2012
Time: 11:00 am
Receive the latest jobs direct to your inbox
Are you being paid what you are worth?
