E&Y Bursts Outsourcing Bubble

The trend of outsourcing key functions in the financial services sector has a long-term negative impact on shareholder value, Ernst & Young has found.

Senior executives from 26 leading financial service companies said that since they have outsourced major parts of their operations they appreciated the short-term cost saving, but admitted that it could mean a loss of control in their relationship with the customer.

Companies are increasingly outsourcing activities that have traditionally been regarded as core, such as check processing, loan administration, and fund management, the study said. This practice may have long-term implications for companies with regard to brand and reputation.

A key attraction of outsourcing has been that it supposedly frees up more management time. But a quarter of the individuals surveyed said that outsourcing a key function had actually led to further pressures on their workload.

Despite this, two-thirds of survey respondents expected to do further outsourcing in the future.

E&Y advised those engaged in outsourcing to bear the following points in mind:

  • Successful outsourcing is a partnership not a supplier relationship
  • Senior management must remain watchful of outsourced services
  • Outsourcing is a generic solution
  • Consider co-sourcing as an alternative

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