Financial Services, outsourcing, strategy and innovation: Time to rue past decisions?

Frequent visitors to my website will be familiar with my long-running concerns with outsourcing or BPO – especially in the financial services industry and the insurance sector in particular. I have dealt with outsourcing issues in some detail in two briefings – most notably Outsourcing Problems and Disadvantages Revisited.

My concerns have centred around the accepted trend to outsource two functions in particular –customer contact and Human Resource Management. The rush to outsource these areas is may be surprising if one discounts immediate cost savings.

The offerings or products of insurance companies, for example, are by their very nature intangible. Most of the value, and therefore the source of competitive differentiation, comes from human interaction. And the quality of that interaction is determined by the values and attitudes of employees – in other words the organisation’s culture – a difficult dimension of quality to measure and control at the best of times. So why outsource (a) one of the few sources of differentiation in what has historically been seen as a commodity sector and (b) an area where ‘quality control’ is so difficult?

And then we have the Human Resource Function. Research tells us that it is more than a cost function. It has a central role to play in stimulating change in service organisations that wish to break out of a cost reduction mindset. But it also has another key role and that is building, shaping and maintaining those behaviours, values and attitudes that together make up an organisation’s culture. As I have said earlier, culture is an intrinsic part of a service organisation’s ‘product’ and arguably the only true differentiator. So should we be outsourcing this function in insurance and other professional services firms?

An interesting topic to debate I believe.

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