Consider the Source

Decreasing overhead in 2010, where will banks turn?

 

By Brian Smith, Partner & Managing Director, FSO Services North America, TPI

The economic situation in 2009 has changed the game for banks of all sizes. Going into 2010 they are all looking for new business strategies to rebound.  Across the board, banks will be restructuring in 2010, but what types of strategies will they look to employ and will they turn their eyes to “the cloud”?

Onshore operations have always provided the lowest margin of risk – but at a higher cost than offshore operations.  Offshoring, now a generally accepted approach to multi-process IT and BPO services for top-tier banks, will draw in more mid-tier, regional banks interested in taking advantage of the managed services that are now widely available.

 

The anticipated service provider consolidation in the next year will also allow single large providers to become a tempting comprehensive solution for financial institutions.  The need to minimize costs and reduce risk may lead the banking world in two distinct directions:  a flight toward larger, more established providers or toward niche players to distribute risk.

And, of course, we can’t ignore the enormous “cloud” in the room.  As more and more services and products are made available online, financial services firms will experiment with the level of security, service management and contract challenges they present.  It’s possible that this could be the year of true paradigm change meaning broad acceptance of cloud based services – which could significantly disrupt established service delivery models.

2010 will truly be a year of balancing onshore and offshore services with Captives and third-party solutions while dipping a toe into the world of cloud based services.  The potential opportunities available by the cloud and consolidation of service providers could set banks up for a delivery model hybrid not yet experienced in financial services.

Keeping Your Healthcare Sourcing Strategy Moving Forward (with Confidence!) During Turbulent Times

By: David J. McCament, Director, Healthcare Payer / Provider, TPI

Today’s global economic conditions are unprecedented for decision makers in healthcare. For example, every part of the United States healthcare business model is undergoing significant and unpredictable change; and we’re not even close to the finished model. 

Despite these turbulent times, healthcare payers and providers who are embarking on or are in the middle of major strategic business projects are wondering how to align their sourcing strategies amid this constant, multidirectional change. 

There is no time like the present for healthcare payers and providers to capitalize on chaos to improve operations and prepare for the new healthcare environment. Here are the TPI Top 5 actions you can take in the near term to drive contractual flexibility, increase speed of value realization and maximize the value derived from your sourcing relationships.

1. Reduce the number of key service providers and then increase leverage with those that survive your vetting process.

2. Renegotiate current contracts to reflect the changing environment. Consider the future benefit streams of your contracts and “pull them forward” contractually to realize their value sooner. Seek to consolidate multiple contracts with the same service provider to improve leverage across business units.

3. Now is the time to establish (or fine tune) rigorous Service Management & Governance oversight processes to ensure maximum value realization from your current contracts.

4. Look outside the traditional healthcare market for sourcing ideas and executable models. Examples of other industries that have proven track records in sourcing include banking and financial services, manufacturing and telecommunications, all of which have been successfully sourcing non-core functions for decades.

5. Establish an enterprise-wide sourcing advisory council to document and propagate your organization’s sourcing philosophy. For example, consider the bigger picture of sourcing as not just “outsourcing,” but as the application of resources form every potential source to solve your business challenges.

Now is the time to re-assess your sourcing strategy and re-evaluate your current sourcing relationships. Reset the performance bar, define/refine what innovation means to your firm and make sure to measure service providers’ execution of their contractual obligations.

TPI’s experts can help healthcare organizations produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during these turbulent times.  

Take charge; set direction. Contact David K. McCament, Director, Healthcare Payer / Provider, TPI, to learn more.

Outsourcing Observations on Insurance

By: Paul Reynolds, Director and Chief Research Officer, TPI Momentum

Having just completed a detailed review of outsourcing activity in 26 different vertical industry groups, I want to share some interesting findings from my research. The Insurance vertical sector has been hard hit by the economic issues of the last year, so I will share my observations on this industry segment first.

A quick look at the companies in the Forbes® Global 2000 reveals that there are more than 100 companies in the Insurance vertical sector, of which just less than half have an active outsourcing contract with a total contract value (TCV) of $25 million or more, according to TPI Research. As a group, these companies have increased their spending on outsourcing in each of the last 13 years, reaching an all time high of nearly $5 billion in annualized contract value in 2008. Compared to other industry groups, however, the typical insurance company spends about $10 million less per year than the overall market average, indicating that this vertical may be well-positioned for increased spending in the future.

 

Companies in this vertical sector have been somewhat slow to the BPO party, though TPI has recently observed increased attention being given to processes that can be offshored due to board pressure to reduce costs. Companies are also considering onshore options; especially those have taken TARP funding. This shift may benefit the US-based multinational service providers, who can market their US-based delivery centers.

To sum up, the Insurance vertical sector is a large market that already spends significant dollars on outsourcing. TPI sees opportunities for increased spending among companies that already source and expects more Insurance companies to adopt outsourcing during 2009, especially those positioned in the mid-market.

I’d be very interested to hear your thoughts on outsourcing in the Insurance vertical sector.

Source: TPI Momentum Q109 Vertical Industries Report
For more information visit: http://www.tpi.net/pdf/resources/TPI-Momentum-Market-Trends-Insights-1Q09-Verticals-Summary.pdf

Forget Inflation. It’s Deflation Time.

Guest blog by Chris KalnikPartner & Managing Director, Financial Analysis, TPI

In only a few months the global economy deteriorated with incredible speed and with it came deflation worries. Economic forecasts are clear and so too is the news: consumer and producer prices exhibited a jaw-drop last month in the U.S. with deflation risk rising. But will the outsourcing industry deflate as well? Probably not.

The goods, labor, commodity, and financial markets are all sending the same signals, and no matter what side you take on the issue, deflation is a risk. On a macro level, businesses will look left and right to shorten purchasing cycles, improve productivity levels, and substitute services to maintain profits.  Many will try to replace long-term contracts with short-term, deflation-sensitive agreements. That’s because the bottom line is highly sensitive to price adjustments.

And this will have a direct affect on the outsourcing industry. For one, it’ll attract new business as many are facing a decrease in producer prices that will squeeze profits. When they realize it’s cost-effective to buy services instead of laboring in-house, they’ll turn to service providers to weather the storm.

The King is Back

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

“Forget about spending LESS, how do we avoid spending ANYTHING?”

There’s no question about it: cash is king today. The current global economic situation is motivating CFOs in companies across all industries to focus foremost on preservation of liquidity.  And that’ll drive more BPO.

My recent experience reinforces this truism.  Budgets for 2009 are being drawn down to levels that reflect a “no investment” mindset.  Cost avoidance is the phrase, and this tendency is self-evident for prospective buyers of outsourced services.

But it’s weighing on the service provider community. Outsourcing contracts are notoriously capital and cash flow intensive on service providers, especially in the earlier periods of a contract. Both capital and cash are put out early to acquire assets, establish the supporting infrastructure, transition the work processes, and develop business solutions.

So let’s not forget: service providers aren’t banks. They’re not a source of capital for core business operations. 

Can Sourcing Right the Ship?

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

There’s no shortage of market commentary relating to the current global financial crisis.  But, let me add to the list.

For most people, the effects of the recession are being measured by dramatic declines in the world’s equity markets.  That is, the values of publicly-traded stocks are held as the paramount barometer of the economic situation. Underlying the crumbling valuation of equities is the virtual disappearance of commercial credit.  Borrowing money has become a nearly impossible feat.

So what effect will this constriction on available capital have on the global outsourcing industry?

Foremost, companies are limited in their access to investment capital, which will diminish the in-house systems integration and applications development work around building new capabilities. 

And that’s why the make-versus-buy debate is likely to swing hard towards the buy-side of the deliberation.  If there's a service alternative in the market that allows a company to forego the outlay of precious capital, I think that there’s an increasing appetite to go that direction.

So that implies an increased demand for outsourcing, right?