City IT: City will dump outsourcing in favour of cheaper, DIY IT

The financial services sector will see a backlash against high-value "mega" outsourcing deals in the next few years as firms...

The financial services sector will see a backlash against high-value "mega" outsourcing deals in the next few years as firms revert to "do-it-yourself" IT to cut costs and solve their technology problems.

That was the prediction from Andrew Muir, director of integration and trade management at news and information services giant Reuters.

At a time when the outsourcing market is booming across the finance sector, Muir said that the main justifications for outsourcing - reducing costs and transferring risk - were misguided.

"Outsourcing is not going to improve revenues or avoid costs," said Muir. "It will probably just give you a comfort level of someone providing a service instead [of you doing it]. The business justification for outsourcing in most firms is pretty weak."

Muir's comments were based on research by Reuters into the outsourcing market for back-office functions in the securities industry, a sector that has seen a number of mega-deals over the last year.

Muir also attacked the widespread assumption that outsourcing a function transfers the business risk of delivering the service.

"Your customer will come after the company [not the supplier] if something goes wrong," he warned.

Disillusionment over the performance of outsourced services will prompt an increasing number of City firms, particularly in the wholesale insurance and securities markets, to run more of their IT in-house, Muir added.

"In general, paying your in-house [IT] guy is cheaper than paying [a supplier] to do something for you with all the bells and whistles. Your in-house team know you and will not let you down."

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