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A STUDY OF COST SAVING INCURRED BY BARCLAYS BANK PLC BY OUTSOURCING ITS IT RELATED SERVICES
DIVYA GUPTA Assistant Professor, Alard school Of Business Management (University of Pune) Department of Management Studies, Pune , India.
ABSTRACT
This paper is an effort to analyze why Barclays Bank PLC went for outsourcing and what cost benefits are realized by Barclays by getting work done out of an outsourced location like Pune in comparison to that of an on-shore location like UK. It also helps in getting to know about the pros and cons of outsourcing and on-shoring. This paper helps in understanding the risks and criticism faced by a Bank while outsourcing its services and various best practices followed in the service sector in terms of outsourcing and offshoring.
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As per David Skillen, lessons learned from the Outsourcing Centre are as follows: Good outsourcing relationships take time. Time builds trust, which breeds a sense of partnership. A service provider has a greater chance of providing strategic value to a buyer if it controls a process end to end. Both sides have to participate in give-and-take. Buyers dont always get to have their way.
Taking one step forward, today a major portion of the IT related work at Barclays is done via its outsourced centers located in India(Barclays Tech Center India), Singapore, South Africa, Nigeria, Brazil and Lithuania. Barclays is now outsourcing handsome portion of its work to major IT companies like IBM, Infosys, TCS, Wipro and Accenture. Both on-shoring and outsourcing have their pros and cons and have different benefits and risks associated with them. On the whole, outsourcing is on the rise in Barclays Bank PLC. In this paper we are going to analyze why Barclays Bank PLC went for outsourcing & compare the cost of getting similar work done out of an outsourced location like Pune and an on-site location like Radbroke Hall, UK. Also, companies need to face risks and criticism while going for outsourcing and same happened with Barclays as well.
LITERATURE REVIEW
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.
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A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
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1.
By Outsourcing its non-core activities, Barclays Bank PLC has given more time to concentrate on its core business processes
2. 3.
Outsourcing has lead to access to professional, expert and high-quality services With outsourcing Barclays experienced increased efficiency and productivity in non-core business processes
4. 5. 6. 7.
Outsourcing has helped Barclays in streamlining its business operations Outsourcing makes Barclays Bank PLC more flexible to change Barclays experienced an increased control of its business with outsourcing 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.
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
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A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
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 Indias position as a preferred destination for outsourcing by Barclays Bank PLC: 1. 2. 3. Availability of large talent pool Low cost 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 Country US Australia Europe India World Average Attrition Rate (Percent) 43 29 26 18 24
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.
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unproven. 2. Stability of the Offshore Countries is another risk. In India and other countries stability is less these countries are always involved in politics and religious activities. This will directly affect Indian economy. India is also relatively unstable. If we see on past two years back the swine flu in Pune caused many precious lost days of development time. Before outsourcing, companies must ensure that the offshore software development companies have business continuity and disaster recovery plans.
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A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
1.
When the project is carried out from an outsourced location i.e. Pune a. Efforts in man-days : 9 man-days b. Efforts in hours : 9*8.5 = 76.5 hours c. Billing per hour for an outsourced resource = 90 pounds d. Total money spend (b * c) = 6885 pounds
2.
When the project is carried out from an on-site location a. Efforts in man-days : 9 man-days b. Efforts in hours : 9*8.5 = 76.5 hours c. Billing per hour for an on-shore resource = 250 pounds d. Total money spend (b * c) = 19125 pounds
Cost saving in terms of pounds = 12240 pounds Cost saving in terms of percentage for this project = (19125 - 6885)/19125 = 64 % Following is list of teams which are working for Barclays from an offshore location like Pune and the below figure represents the cost benefit of getting the work done out of India. Table 1.3 : Cost analysis
The above table explains that there are 200 occurrences of certificate renewal in a calendar year in Barclays. On an average each certificate renewal activity takes around 30 hour. It would have cost the bank 324000 pounds, had it been carried out of UK. Since it is carried out of India, it cost bank 174000 pounds. Therefore, carrying out certificate renewal activity from India saves bank 150000 pounds every year which is a phenomenon amount. Similarly, figures are given for all other activities carried out of India i.e. Incidents, Monitoring, RCA and Fixes, Small Change. The total sum saved by carrying out these activities out of Pune is 177775 pounds, which is a handsome amount. The below graph depicts the table 1.1 and give a broader understanding of the results of carrying out non-critical work from Pune.
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Cost Graph
350000 324000 300000 250000 Cs ) o t( 200000 150000 100000 50000 0 Certificate Renewal 7128 3300 3828 Small Change 5346 2871 2475 Incidents Activities Cost in (India) Cost in (UK) Cost in (Saving) 43200 23200 20000 M onitoring 174000 150000
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A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
There is a high degree of communication and coordination involved with distributed teams. There are late night/early morning handoffs between teams, a lot of conference calls, oneon- tools up to date."
We also recommend rotating team members between on-shore and outsourced locations, so they can meet the clients and be more involved with planning. Making sure rotations of outsourced employees coming onshore and onshore employees going offshore really helped in terms of transferring the body of tacit knowledge and interpersonal relationships.
CONCLUSIONS
After going through the pros and cons of on-shoring and outsourcing & the way, its been followed in Barclays Bank PLC, we all will agree to the fact that the basic motto behind outsourcing is cost saving. As much as 40 to 65 percent of money could be saved out of a project if its been carried out of a low cost location. Companies tend to outsource work to the lowest bidder and lost sight of the effect it had on the company except for finances. While outsourcing companies needs to understand that they should not opt for those service providers that are providing them the services at lower prices. Rather than they should opt for providers that provide good quality at a reasonable price. This will help the organization in the long run. There are also non-financial costs to businesses from outsourcing, including lowered public perception and reduced morale/productivity from remaining staff. At the same time companies should keep a track of the deliverables of project from quality perspective.
REFERENCES
Books & Website Douglas Brown and Scott Wilson. The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities. New York: Wiley,2003 Elizabeth Sparrow. A Guide to global sourcing - OFFSHORE OUTSOURCING. London : British Computer Society, 2006 Maurice F. Greaver. Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives. Hamburg: Kogan Page, 2007 Erran Carmel. Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce. New York : Vintage Books USA, 1999 Linda Cohen. Multisourcing Moving Beyond Outsourcing to Achieve Growth and Agility. Harvard Business School Press, 2005. www.amazon.com/Offshoring-Information-Technology-Outsourcing-Workforce http://www.tutorial-reports.com/business/outsourcing/india/advantages.php www.tutorial-reports.com www.academon.com http://www.outsourcingandoffshoring.com/ www.freeonlinebookstore.org