I've covered the financial technology industry long enough to remember when outsourcing used to be called third-party processing, service bureau, or facilities management. It's certainly not a new practice in financial services-although one might think from the breathless tone of much of the current mass media coverage of outsourcing (and its offshore variation) that it's a new development.
A lot of ink (literal and figurative) has been spilled recently trying to determine whether or not offshore outsourcing is good, bad, both, neither or somewhere in between-yet the debate has changed neither minds nor the accelerating pace of the practice. Adding to the din have been local, state and national politicians. The politicization of outsourcing appears to stem from a hunt for hot-button issues that can produce catchy sound bites, rather than any real understanding of economics, budget issues or competition. And, while it's popular to rail against moving jobs to India, I doubt these officials would have problems if an outsourcing contract involved moving jobs to their own states or localities.
My own politics are hardly laissez-faire, yet I can't help but think that public officials who push for legislative restrictions on offshore outsourcing are out of touch with business realities. After all, financial services firms are not public utilities. For the most part (there are a few exceptions), banks, insurance companies and other financial institutions are for-profit businesses that will not survive if they do not make money. And profits usually have as much to do with internal efficiencies and cost-saving strategies as they do with increases in sales and market share. To restrict the ability to pursue such opportunities would definitely hurt U.S. competitiveness in the global arena.
But, of course it's not quite that simple. As a consumer, I've never been aware of my insurance premiums getting cheaper or being offered a better deal on banking services because my providers were outsourcing. More significantly, the task of addressing the tragedy of job losses is a lot more complicated than just offering retraining programs.
Outsourcing definitely involves trade-offs, and we're just starting to figure out what their consequences are going to be. It's too serious to be left to the politicians.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio