Outsourcers take stock of market turmoil

Financial crisis leads to review of providers' strategies

The City turmoil is affecting outsourcers

Outsourcing suppliers with major customers in the financial services sector are reassessing their strategies to prepare for the after-effects of the banking industry crisis.

According to a survey from consultancy TPI, some 132 outsourcing deals worth $17.9bn were signed by finance firms during the first nine months of 2007. But only 101 contracts were agreed during the same period in 2008, worth $10.8bn.

With a significant revenue tied to the financial services industry, outsourcing providers are being forced to reconsider their service model.

“We are seeing a re-balancing of the services that we deliver, from propositions that help deliver revenue growth to ones that deliver immediate and short-term cost savings, or quick payback,” said CSC vice president for the UK financial services sector, Nigel Kirkham.

As banks consolidate, outsourcers will modify their business model to accommodate merger and acquisition strategies, said Satyam director for Europe Keshab Panda.
“Consolidation will be a defining characteristic shaping the needs of these institutions, which need to combine disparate systems,” he said.

Other companies are placing their bets on consolidation of their own to broaden their service offering, as demonstrated by the £287m buyout of Citi’s Indian back-office operation by Tata Consultancy Services (TCS).

“We’re seeing company boards demanding more accountability and return on investment from IT,” said TCS vice president AS Lakshminarayanan.

Outsourcers will need to increase focus on stringent regulation, and operational and risk management, said Patni vice president Brian Stones.