I was recently in a meeting with a leader at an asset management firm that has made full use of middle- and back-office outsourcing. I asked, “What’s next for the firm?” He replied: “More outsourcing!” It’s a trend. Asset managers are continuing to look at ways to help bend the cost curve and acquire new capabilities by using strategic partners to accomplish important tasks.
Many operations leaders in asset management are embarking on a journey to write the next chapter in their history. Whether they opt to outsource for the first time or as an ongoing initiative, the path of exploration is the same. It requires a measured and disciplined approach.
The thought process on whether to outsource or not entails several steps. It should start with an analysis phase, then articulation of alternatives with potential benefits and risks of each. The decision point follows; and then potentially execution.
A strategic analysis sets the outsourcing decision process in motion.
Asset managers who examine the issue in this way should arrive at an outsourcing decision poised to make the right call for their firm. And, ideally, this sequence begins before the organization finds itself at a crossroads.
Step 1. Assessment: Who Are We?
The process begins with a comprehensive internal and external assessment. It evaluates the firm’s business as well as the landscape in which it operates. The firm addresses key questions, such as: what are our main drivers? What challenges do we face? What do we do best? Which of our activities represent competitive advantages?
The answers often reside in the firm’s DNA, which steers the strategic plan. The asset manager’s guiding principles and aims for its operational functions shed light on the possible courses of action. This line of inquiry highlights what the firm seeks to be known for in the market. It pinpoints its capabilities and strengths by profiling the objectives propelling the business, e.g., growth and profitability, efficiency and complexity, as well as the challenges in each category, including cost pressures, speed-to-market and scalability.
Arraying the information in this way helps the firm articulate opportunities. It also helps firms come to terms with other questions that underlie the issues under discussion:
Are our operations set up to achieve our strategic objectives? Does retaining these functions internally further our ultimate business goals? Would outsourcing compromise those goals?
Much work is required in this phase.
The self-assessment also should review high-level workflows for major functions as well as organizational structure. Technology, in light of current and anticipated needs, goes under the microscope too. Interviews with key stakeholders and business sponsors round out the inquiry and help define success factors for the best decision.
Step 2. Options and Potential Solutions
This phase uncovers a list of potential options. These typically range from keeping middle- and back-office operations as is, to outsourcing some or all of it. Others include changing the operating model, offshoring functions and upgrading technology. Each requires a careful risk/benefit analysis to understand the consequences of making that choice. And it should include estimates of financial savings as well as potential additional costs.
The table below illustrates the front-end of the exercise. The financial ramifications provide capstone information for the ultimate solution.
Step 3. Decision Point
What to do? All eyes must focus on the information and analysis developed in the prior steps. It’s time for operational leaders to make a determination. Of note, in many instances, the decision is not strictly based on cost. Instead, it flows mainly from the firm’s strategy. If, for example, the firm seeks to grow the business, it may need new capabilities outside of its core strengths. Many firms understand they may have to “pay up” for new capabilities. Outsourcing may be the solution… or not.
At the conclusion of this process, the firm should develop a solid business case for its decision(s), regardless of the option selected. My experience is that if the process is executed properly, the business case often makes itself.
Step 4. Execution
If the decision is outsourcing, the RFP process follows, as would creating a communications plan for internal and external stakeholders about the opportunities being pursued. If outsourcing is not pursued, planning for the selected option (redesigning the operating model, offshoring, obtaining new technology, etc.) begins.
One-size-fits-all: Not for making an outsourcing decision.
Getting to a decision point requires a penetrating look inside the firm. For outsourcing, a one-size-fits-all approach is not the way to go. Factors such as the firm’s strategy, core competencies, culture and technology all trump service provider offerings as primary factors. In the end, a lot goes into the decision to outsource… or not to outsource.
For more information, email me at girard.healy@accenture.com or visit https://www.accenture.com/us-en/insight-insideops-asset-management-operations.