Outsourcing's role in bank IT failures continued...

I have blogged recently about the role of IT outsourcing and more specifically offshoring in recent IT failures at banks.

A contact of mine had this to say on the subject. “Most of the issues I’ve seen have been due to human error, equipment failure or in recent years errors made by outsourced firms who are more distant than they were historically. More work has gone abroad as a result of cost pressure and that has led to a drop in standards across the industry.

Outsourcing and offshoring development didn’t hurt production but now that more production support is both offshore and outsourced, the scope for live problems is much higher than a few years ago. All too often human error by a junior person at a 3rd party somewhere half way round the world who did not understand or follow a process properly.”

I have since been contacted by a number of people on the subject and it appears that the failures at banks are a combination of legacy systems, outsourcing/offshoring and cost cutting. See my analysis here. 

I also received this comment from a reader:

“In the banking business, the legacy systems have been very reliable in the past and as the management thought that if it is not broken do not touch them. So the expertise of these systems has never been maintained or at minimum.

In addition, some new generations of programmers have never develop systems based on these technologies or language.  In fact we had the perfect example with the Y2K bug, we had to hire former programmers.

In terms of outsourced services, although the language of communication is the language of the customer, some of these environments have been supported by people who have difficulty being understood or to understand you.

One time, I’ve heard this situation when you ask to close down a particular application and the guy has understood to drop down the entire system…
And as you say, even if they have SLAs and penalties, the damage is done.

Also, with my experience, in many cases, companies prefer to keep in-house critical systems (example, Trading Systems). Also they keep or bring back in-house services provided directly to customers to keep a better reputation and image in front their clients.

The problem is also due to the fact that companies think reducing costs without affecting services and on the other side, outsourcers want to have the best profit and be able to charge low fees but watch out, when you are out of your negotiated services, costs could become higher.

Also outsourcers have to be closer to the need of their clients, sometimes they try to sell ‘one size fit all’ solutions.

They have to be more flexible to the needs without asking very high costs.

And now I think new technologies can answer these concerns.”