Blame it on the restructuring for Europe banks job loss and not offshoring - Deutsche Bank
SOURCE: Finextra
DATE: August 11th, 2008
Mohit Soapbox:
The reports does present a realistic time expectation and cost saving scenario on larger implementations when using offshoring. In a number of the banks the reality is that restructuring along with some degree of technology innovation/standardisation and process efficiencies have made the number of people required to do the job less. The last year with the financial turmoil has has added to the significant acceleration in job losses. We believe that going forward the technology innovation, process efficency and outsourcing have to work together under a single initiative to make it effective. The interesting snippet in the report is about the percentage of cost saving which companies can expect with offshoring 10 -20%. This is vastly different than the numbers you hear from the vendor community and has infact driven some of the banks to look closely at other ways to achieve similar savings. So if offshoring has to be a viable option and has to move beyond the noise of we do more than cost saving - the offshore vendors have to bring more to the table and prove that it works.
Given the current maret turmoil the companies are looking closer at the back office / IT cost models and looking for short term cost savings ( aka non outsourcing/offshoring) and long term benefits ( although these seem to have moved down the chain given the slow decision making).
A question we get asked a lot is - what is the right mix of transformation vs offshoring ? Would like to hear views on this.
Bank job losses caused by restructuring, not offshoring - Deutsche Bank
Internal restructuring has resulted in banks shedding far more staff than the outsourcing of functions to offshore centres, according to a European study by Deutsche Bank.
Since 2001, European bank employment has dropped by more than 125,000, says the report. On average, bank employment dropped by around four between 2001 and 2006. But the losses are distributed unevenly - British and German banks lost large numbers, while banks in Estonia, Latvia, Ireland and Spain added new employees.
According to the report, less than 10% of all job cuts at European banks since 2002 are due to offshoring, says the report. The majority of jobs cuts result from internal restructuring and factors such as the closing of branches.
“Across Europe, there is no correlation between the share of banks that have offshored IT functions and the changes in bank employment between 2002 and 2006. Other factors - such as the reduction in bank branches in Germany or the catching-up in financial development in some Eastern European countries - apparently dominate the relation,” says the report.
However the report does emphasis the popularity of outsourcing among European banks, with close to 90% sourcing ICT functions from external suppliers. More than 22% buy from a foreign offshore supplier and 11% of banks procure from a foreign affiliate.
Banks using offshoring employ between 32% (IT operations) and 38% (support functions) of staff offshore. This is expected to rise to 40-44%, says the report. This increase is evidence of the banks’ satisfaction and growing reliance on offshore vendors.
Looking ahead, Deutsche Bank says a global survey of 50 retail banks, nearly half of all respondents plan to offshore some IT functions during the next five years - compared to 38% today. Back office and other routine support functions are also increasingly considered to be ready for offshoring.
But the report warns that although offshoring does cut costs - between 10-20% - these savings only materialise over time.
In the first year, more than 30% of banks report an increase in costs, says Deutsche Bank. This goes down to two per cent after five years. This suggests that “offshoring is not a short-term fix to alleviate cost pressures but rather a strategic decision”, says the report.
No relate
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Leave a Reply