It's not surprising that interest in IT outsourcing has grown over the past few quarters, considering one of the first targets for expense control is the IT budget. Few would argue that reducing IT cost through outsourcing is especially important during down business cycles.
Yet while it's tempting to focus on achieving the lowest cost IT infrastructure, it's important to remember that the primary reason for IT is to improve productivity. Therefore, the ideal IT infrastructure needs to be determined in light of overall business conditions.
The problem is that many IT expenses are fixed. If a bank needs 50 developers every two years for a lending project, it's hard to ramp down and attract them back later.
IT services providers can deliver cost reductions by managing customer infrastructures and by using common development facilities. Future outsourcing relationships will focus on achieving continuous cost reductions, not just one-time savings.
IT services providers offer a choice of outsourcing models (e.g., on-site facilities or application management, remote processing or ASP). Not only is the infrastructure cheaper and more reliable than many in-house versions, but it also has the flexibility to support changing business needs.
Change is difficult, especially for large organizations. Outsourcing can be a catalyst for changing organizational structure or culture. An IT provider with experience with a number of banks is likely to bring fresh ideas for improving productivity. In the back office, for example, the ability to resolve checking account exceptions can save considerable manual effort.
IT providers are also skilled in managing technology transitions. By leveraging investments across customers, markets and industries, they are equipped to deal with rapid cycle times-an important consideration as the economy rebounds.
Given the right points of leverage and a provider flexible enough to support their needs in good times and bad, most banks should be able to find a rationale for IT outsourcing.