Is onshore the better option for financial service companies?

By Kevin Paterson

July 2004

At Winchester White, our view is that financial service organisations should assess the offshore opportunity. This will help them to proactively determine whether or not there are advantages to be gained for their particular business. Offshore can, potentially, represent significant benefits. Equally, we recognise that there are instances where an onshore strategy can and will deliver considerable benefits. The purpose of this particular article is to examine some of the arguments for pursuing an onshore strategy.

Although the offshore business-processing trend in financial services is still relatively new and untested, there is a mismatch between financial service companies' expectations and what is realistically achievable in going offshore. There are already some indications of the things that can and do go wrong, some disgruntled organisations and customers and the ever-present unease amongst the onshore workforce when organisations announce a shift of roles to the offshore environment. In addition, prominent UK organisations are committed to the onshore strategy, including HBOS and RBS.

We at Winchester White believe there are at least three very good reasons for organisations to retain services onshore:

Business benefits of offshore have been overstated

Although the offshore trend is relatively new, there is already evidence to suggest that the cost savings are not as significant as originally anticipated, and are also taking longer to materialise. The impact of wage arbitrage is significant when viewed in isolation, however, claims of 40% plus cost savings are often wide of the mark- most business cases to date have failed to adequately provide for the additional onshore cost and effort required to manage the offshore business.

Reduced operating costs

Based on our work within financial service organisations, we believe that the opportunity exists to reduce operating costs by at least 25% through focused effort on transforming the existing business model.

Over the past decade, the success of internal transformation programmes in delivering true cost savings and efficiency gains has not been overwhelming. However, two important factors have emerged which could provide the necessary impetus for organisations to focus on delivering the improved business model:

The increasing pressure on new business margins will force organisations to find new and innovative business models.
Organisations are now looking more clearly at how to streamline the legacy business model to release inherent value.

There are real examples of organisations that have achieved operating cost savings of at least 25% through improving the efficiency of the onshore model. Critical to the delivery of such a strategy is the absolute commitment of senior management to embrace the change of attitude and approach which defines operations as a key component of customer servicing and not, as we have often seen in the past, the 'poor relation' of sales and marketing.

Customer facing activity should remain onshore

A clear distinction needs to be made between customer facing and non-customer facing activities. The majority of customer interaction activities should remain onshore, particularly where queries require in-depth understanding of products and are likely to become complex. It is these areas where accent neutralisation might not provide sufficient fluency to give the customer reassurance and a satisfactory response. The current and emerging offshore environment is not ideally suited to such services and the potential for business disruption and reputational risk is significant. The experience to date indicates that it is those services/functions which can be clearly defined and documented that are suitable for the offshore market. You cannot effectively commoditise customer interactions.

In an industry where there is an increasing drive towards the commoditisation of products and charges, the need to differentiate on the basis of customer service has never been greater. The opportunity to provide a truly superior service will not necessarily be achieved through a strategy of offshoring to a cheaper jurisdiction with graduate calibre employees. What is needed is a fundamental rethink of how to maximise the effectiveness of every interaction or touchpoint with customers – dealing with clients is an activity which organisations outsource at their peril. The damage to the reputation of organisations such as BT due to anecdotal experience of the offshore call centres has yet to appear in their bottom line and this could be significant.

There is a significant opportunity in the financial services sector to reduce operating costs by remaining onshore. Organisations should not ignore the potential, however, to achieve this the absolute commitment of senior management is imperative.