22 June 2004

Outsourcing Obstacles

Outsourcing Obstacles

By Cynthia Ramsaran

Because of political pressure and security concerns surrounding offshore outsourcing, U.S. financial institutions have reservations about pursuing the benefits of contracting with an overseas third party, suggest industry observers. But setting up and maintaining safe offshore outsourcing relationships is possible if realistic goals and strict legal guidelines are defined.

Offshore outsourcing is controversial largely because of the social impact of losing jobs to low-wage countries. But the savings theoretically can free up resources for more highly skilled and higher-paying jobs in the U.S., it has been suggested. Most banks have a long list of projects stalled because of a lack of resources. With offshore outsourcing, banks should be able to reallocate budgets and redeploy IT staff to meet unfilled needs, according to Virginia Garcia, senior analyst at TowerGroup (Needham, Mass.). 'Cutting costs and cutting staff is not the case with institutions with a backlog of IT projects,' asserts Garcia. 'Banks may say, 'I'm going to get my people to work on this back log while I outsource and free up capital for IT spending.''

However, according to Garcia, many banks still are looking to offshore providers simply to cut costs. 'Job loss is very painful, and it is contributing to the negativity [about] offshore outsourcing,' she says. But, Garcia adds, redeploying some jobs to current employees, while outsourcing other jobs overseas, can sometimes quiet the negative buzz offshore outsourcing has been generating.

Although job loss in the U.S. is one of the most critical issues of offshoring, data security concerns speak more directly to firms' bottom lines. And though many banks are saving money by outsourcing business processes and call centers overseas, their ROI cannot be calculated without factoring in the cost of keeping data safe.

By being proactive in risk management, banks can be comfortable with their overseas outsourcing arrangements, according to Tom Patterson, former partner emeritus, security services, at Deloitte & Touche Germany, and author of Mapping Security, due out this fall, which covers the security aspects of outsourcing offshore. But not all banks are spending the money to ensure that non-U.S. employees are trustworthy, and that is where the trouble begins, asserts Patterson."

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