Outsourcing offers huge advantages – not least the opportunity to halve the cost base. But it carries with it many risks and pitfalls, making careful planning essential if companies are to turn hype into reality.

There are at least three reasons driving financial services organisations to outsource:

• cost savings
• concentration on core competencies
• service and efficiency improvement.

Gains
Substantial cost savings of between 40-50% are available to outsourcers who go offshore to benefit from cheaper labour markets.  For those who remain in the UK, the VAT charge on newly-outsourced services tends to reduce the saving to a respectable 10%. 

Though the effect of concentrating on core competencies may be less easy to quantify, the benefits of investing exclusively in those areas which you believe will deliver strategic and competitive advantage are also significant.  Not only is the whole organisation contributing directly to the vision, but essential non-core services like IT are being provided to a higher standard, with greater efficiency, at lower cost by specialist staff.

Pitfalls
The picture is not entirely rosy however. 

There is a strategic risk that you give away something which subsequently you decide was core, a contractual risk that you fail to achieve value through the full life of the deal, a customer risk that your supplier lets your customers down (potentially creating regulatory issues), plus a whole range of other risks from business continuity through operational risk to regulatory risk to reputation risk – all of which require careful assessment and mitigation.

From why to how
Deloitte understands the opportunities and the pitfalls.  We can help you move smoothly from strategy and design, through structuring and due diligence to implementation and control of your new outsourced structure. 

We have worked with a variety of household names to create and evaluate business cases, structure offshoring contracts for customer services and IT support, or audit existing operations in terms of strategic fit, risk, operational efficiency and regulatory compliance.