Financial services companies question value of outsourcing

Financial services companies remain nervous about IT outsourcing, despite a series of high-profile outsourcing deals in the past...

Financial services companies remain nervous about IT outsourcing, despite a series of high-profile outsourcing deals in the past 18 months, according to analyst group Datamonitor.

A report shows that most financial services institutions (FSIs) remain unconvinced of the cost benefits of IT outsourcing. However, James Adams, technology analyst at Datamonitor and the report's author, said the success of last week's giant outsourcing deal by Barclays could change that.

Datamonitor interviewed 172 senior IT and business professionals in retail banking, insurance and investment across Europe about their IT spending strategies for 2002 for its IT Efficiency in Financial Services report.

The report found that respondents' greatest fear with outsourcing was reduced control of IT systems leading to weakening control over their relationship with the customer.

It found that cost control was the single most important driver of IT strategy, but revealed that FSIs typically saw no cost advantage in outsourcing.

Adams said a third of the respondents are refusing to consider the idea of business process outsourcing (BPO), but added that this could change quickly as economic conditions lead FSIs to look for areas where they can make savings.

"The IT department, has traditionally, been protected from cost cutting because it provided the means to make savings in other departments by reducing head counts and other fixed-cost reductions, " said Adams.

"More recently, Internet-based financial services and customer relationship management IT has been seen as an enabler in developing products and services of the institution. Now the focus is on the efficiency of the IT spend."

Banks and insurance companies will be looking at the success of the Barclays outsourcing deal as well as the £2.8bn American Express deal with IBM Global Services.

They will also expect their internal IT departments to start delivering demonstrable efficiencies and value to the business, otherwise there could be a new wave of outsourcing from 2003 to 2004, Adams suggested.

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