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In house or outsource: A request for input

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16 November 2009
Bart Narter
To run in house or outsource? At some banks this is a religious question. At others it is not even a question at all. Finally at some it is an ongoing debate. Celent hopes to write a report about this topic analyzing data across a wide range of US banks. The questions we ask? What are the key drivers for a lower efficiency ratio? Does outsourcing help more at a smaller bank or a bigger bank? Does outsourcing work better at a retail oriented bank or a business oriented bank? Is there any connection at all between efficiency ratio and the model under which the bank deploys its IT infrastructure? This is a genuine question and we will explore the answers with hard data and rigorous data analysis. Are there other questions around this topic that should be posed? I am actively seeking suggestions.

Comments

  • Would be interested in discussing the upcoming study with you.

  • Lively conversation going on here... Where's the author?

  • @Daniel Li
    I'm thinking mostly about smaller banks where IT governance is a fairly small issue. Most banks under $1 billion in assets have fairly standardized IT infrastructure from a single vendor or a fairly limited set of vendors.

  • Is there any connection between efficiency ratio and the maturity of IT governance practice in a bank?

  • Is this study exclusive to IT outsourcing? Or will other aspects of the in-house/outsource question be addressed -- marketing in particular. How much should a bank expect to manage in-house, and what is appropriate to outsource?

  • @Jeffry Pilcher
    This is about core banking systems at smaller banks, basically the entire IT infrastructure. This isn't about outsourcing the marketing.

  • Can we expand this to the all financial services, i.e core banking, self service channels etc. Also to get into the technicality of things I'd like to divide this into
    - In-House
    - Hosted Services - IT infrastructure still owned by the FI but managed by 3rd party
    - Outsourced

  • That makes sense at larger banks, but not at the smaller ones I am examining.

  • I would say Yes to outsourcing, Instead of Why. Even low cap banks also need substantial growth, which in today's world will come from a basic fact, "Spend Less & Earn More, & Save the most". That typically means, Spend wisely very wisely in IT integration, A Fully Advanced option and yet quite cost effctive options are also available. Indeed a yes, as it could attract Key customer segments. As a bank, their core job is to increase their customer base , increase & entice key relations and lookfoward for a poised growth. When you can do this in a budget, there is no question why they should not go ahead.

    Key Drivers for lower efficiency? Answer is Lack of Energy, Motivation, stress levels, willingness factor. In case of outsourcing, this will change like Forex. The greatest motivation apart from green dollar is appreciation.

    Works well with Retail/business? works both ways equally, I would say you must partner your outsourcing co. It really depends what project are you outsourcing, to whom etc. My advice to you would be to hire smartest for Corporate, as the profits are shifting there.

    Efficiency levels: You have to list & decide most critical elements, run a test to gain a generic effeciency level by the best of your bank & see if the outsourcer can beat it. They call it SLA

    Thats it for now.
    Anubhav