Where Outsourcing is Headed

Information gurus increasingly see outsourcing migrating up the corporate food chain. No longer confined to clerical functions and things like call centers, today it's embracing activities that have a higher knowledge content – especially in the financial services industry.

A recent article by InformationWeek writer Chris Murphy outlined some current issues related to "business process outsourcing" (BPO) morphing into "knowledge process outsourcing" (KPO).

Many expect financial services companies to lead the way in KPO, and there's data to support such a view. For example, 45 percent of financial services executives who participated in a recent InformationWeek Analytics survey said they see the industry knowledge of their business process outsourcing (BPO) providers significantly improving. That's more than any other area of improvement.

Murphy says the impetus to outsource knowledge-related functions gains further support from a signficant minority of companies that view outsourcing in terms of strategic goals like transforming processes and increasing revenue – rather than simply a means to cut costs. For instance, about 15 percent of the 110 financial services IT professionals surveyed by InformationWeek Analytics fell within that "strategic outsourcing" group. And an additional 24 percent said BPO is "more strategic than tactical".

Even though outsourcing is mature, 28 percent of companies surveyed said they plan to make greater use of it, dwarfing the number planning to decrease their use. That suggests that much of the increase will involve new functions falling outside managements' traditional comfort zone for outsourcing.

But the same survey also sheds light on some management concerns about outsourcing that sound particularly salient for financial companies when they transfer functions like capital market research and sell-side equity research support.

It takes a high degree of trust to transfer custody of customer data, share tacit knowledge and work as a single team. Yet the No. 1 concern financial services companies have about BPO is data security, according to InformationWeek Analytics.

Other top concerns include the difficulty of managing outsourced processes, tension between employees and outsourcers, and less flexibility to innovate. Murphy observes:

Only 16 percent of financial services respondents said they see improvement in vendors assigning quality people for their projects. Companies that aren't getting bright ideas and top people on everyday projects won't likely rush vendors up the knowledge stack.