Outsourcing is when you send work to companies outside of your corporation that may or may not be in the same country. The worldwide economic recession has forced companies to explore all options to increase efficiencies and cut costs. Companies are getting increasingly comfortable outsourcing larger parts of their businesses as they realize they are not core. Outsourcing is a cost savings exercise over a period of time. There is a lot of overhead involved with outsourcing due to language barriers, cultural barriers, and time zone challenges.
To successfully outsource development work, the paying customer must provide a maximum amount of over site and process to overcome these barriers. With outsourcing, companies can bring a team of consultants on site for any amount of time without paying the expenses of flying them in from the other side of the planet. Outsourcing or sub-servicing often refers to the process of contracting to a third-party i.e. Barclays Bank PLC outsourcing its Ab-initio works to a third party like Accenture and Wipro. Benefits of outsourcing are usually lower costs, better availability of skilled people, and getting work done faster through a global talent pool. Risks of outsourcing include misaligned interests of clients and vendors, increased reliance on third parties, lack of in-house knowledge of critical (though not necessarily core) business operations etc. Outsourcing is often criticized for transferring jobs to other countries. Other risks include geopolitical risk, language differences and poor communication etc.
OBJECTIVES OF THE STUDY
The specific objectives of the study were:
• To understand the factors that influences Barclays Bank PLC to undergo outsourcing
• To understand the financial benefits incurred by Barclays for carrying out the project from an outsourced location like Pune, India and an on-site location like UK.
CHALLENGES IN TODAY’S WORLD FOR BARCLAYS BANK PLC
To survive in the ever challenging and competitive world, strength in multiple terms is necessary. On one hand, while it is important to have robust processes and structures in place, with manpower to execute projects, on the other hand it is necessary for firms to have their strategy firmly in place. While the Vision and Mission define the ethos of any enterprise, irrespective of the field in it, yet this is necessary to drive the wheel of a company forward. It is undoubted that strategy varies as an offshoring enterprise evolves and goes through its various phases of growth. While nascent players may look at opportunities to grab and work upon, established players have a well set and defined plan of action. Players in the growth phase like Barclays Bank PLC are the ones who have strategy targeted at achieving the ulterior goal and demonstrate perseverance and drive to achieve the same. These trends are truly reflective of the path that some of the established players today have had in mind. Being a business model, which has a unique driving force behind is, the fact that the industry as a whole has coped rather well with the economic downturn. For those who have grown and escalated in this scenario, it is their strategy in view of their ultimate vision and mission to which credit must be attributed
OUTSOURCING AT BARCLAYS BANK PLC
The pros of outsourcing have driven Barclays to step into outsourcing and experience the benefits that it has to offer. Organizations who are interested in outsourcing are often curious to know more about advantages and disadvantages of outsourcing. By gaining insight about both the good and bad of outsourcing, organizations can decide if outsourcing is right for them. Most organization jump headlong into outsourcing, without actually finding out if outsourcing is good for their business.
In the early 2000’s, Barclays was attracted to the low labor rates in the outsourcing firms. Therefore, the original driver for outsourcing at Barclays was labor arbitrage, delivering as much as 40 to 50 percent savings compared to the on-shore site. In 2003, Barclays outsourced its non-voice back-office services for both its commercial and retail banks. In addition to reducing labour costs, the ability to serve customers 24 X 7 was another lure. Barclays had also outsourced some technology, finance and accounting, human resources, and back-office functions to other Indian service providers. The bank used many different firms in India and Accenture broadly. With time, the outsourced organization starts performing more complex functions and bank started enjoying the cost benefits out of that mutual trust. Following are the advantages enjoyed by Barclays Bank PLC by outsourcing it’s IT related work
1. By Outsourcing its non-core activities, Barclays Bank PLC has given more time to concentrate on its core business processes
2. Outsourcing has lead to access to professional, expert and high-quality services
3. With outsourcing Barclays experienced increased efficiency and productivity in non-core business processes
4. Outsourcing has helped Barclays in streamlining its business operations
5. Outsourcing makes Barclays Bank PLC more flexible to change
6. Barclays experienced an increased control of its business with outsourcing
7. Barclays saved on investing in the latest technology; software and infrastructure as its outsourcing partner have invested in these
8. Outsourcing has given Barclays assurance that its business processes are being carried out efficiently, proficiently and within a fast turnaround time
9. Outsourcing has helped Barclays to save on capital expenditures
10. By outsourcing, Barclays saved on management problems as its offshore partner will be managing the team who does its work
11. By outsourcing, Barclays are able to cater to the new and challenging demands of its customers
12. Sharing its business risks is also possible with outsourcing
At times, it is more cost-effective to conduct a particular business process, rather than outsourcing it. While outsourcing services such as payroll processing services and tax preparation services, Barclays thought that its outsourcing provider will be able to see its confidential information and hence there is a threat to security and confidentiality in outsourcing. When Barclays began to outsource its business processes, it finds it difficult to manage the outsource provider when compared to managing processes within the organization. In case, outsourced service provider becomes bankrupt or goes out of business, organization will have to immediately move your business processes in-house or find another outsourcing provider. Also, the on-shore employees in Barclays Bank PLC, UK might not like the idea of outsourcing processes and they might express lack of interest or lack of quality at work.
Many times it happened that the outsourcing provider was not be only providing services for Barclays Bank PLC only, since the provider were catering to the needs of several companies, there might be not be complete devotion to Barclays.
By outsourcing, Barclays might forget to cater to the needs of its valuable customers as its focus will be on the business process that is outsourced. In outsourcing, Barclays loses its control over the process that is outsourced. Outsourcing, though cost-effective have hidden costs, such as the legal costs incurred while signing a contract between companies. Barclays also have to spend a lot of time and effort in getting the contract signed. With outsourcing, its organization suffered from a lack of customer focus. There are several disadvantages in outsourcing, such as, renewing contracts, misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.
Following are the key factors that contribute to India’s position as a preferred destination for outsourcing by Barclays Bank PLC:
1. Availability of large talent pool
2. Low cost
3. Fast turnaround time
One of the main reasons of choosing India as an outsourced location is the availability of a large pool of talented and young motivated professionals. Its 380 universities and 11,200 higher education institutions produce 2.1 million graduates each year. As a result, companies have sufficient options to choose from, while recruiting employees for their offshore captive centers. Further, it is expected that the number of people in the working age group in India will increase by 250 million from 2009 to 2020 at an average rate of about 15 million per year. This will ensure labor for companies in UK where the demand for labor is increasing. India also has the largest English speaking population in the world. This ensures good communication between the customer and vendor when the work is offshored to India. Indian employees are hardworking and motivated. They are also satisfied with their work; this can be seen from the attrition rate in India. As shown in Table 1.1, attrition rate in India was 18 percent in 2009, significantly lower than that in other economies.
Table 1.1 : Attrition Rates
Source: Times New, New York (2009)
According to the Boston Consulting Group, access to the large talent pool and higher employee satisfaction translates into better employee performance (and cost savings on recruitment and training). This leads to a productivity increase of over 30 percent in India. Indians also produce superior quality of work.