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Outsourcing should be about process improvement, not cost cutting and headcount

Large MNCs world-wide are under pressure to reduce their costs and headcount, all too often CFOs see outsourcing as the perfect solution. But some corporate departments are finding that if Business Process Outsourcing is imposed and implementation rushed, it can increase costs and complexity, for example:

  • the costs in low cost locations become popular and costs can rise rapidly eliminating any gain
  • the BPO provider does not understand the business and much time has to be spent training them, and retraining them as the staff turnover in the BPO can be very high
  • developing tight and practical service level agreements is almost impossible
  • BPO providers cannot sort out any problems or unusual occurrences.

But many CEOs and CFOs, and other analysts are convinced that Business Process Outsourcing is the way to cut costs and just focus on their businesses on the critical, unique elements of the business. The trend to outsourcing is, at the moment, for many corporate treasury departments unstoppable, so how can they manage this process and get the best out of BPO?

Rajesh Mehta’s four principles

Rajesh Mehta, Citi’s Head of Treasury and Trade Solutions - EMEA, believes that, “Corporate treasury outsourcing should be about process improvement, NOT just cost cutting and headcount reduction.” He has found that in his long career that there are four critical factors in effective corporate treasury outsourcing:

  1. only outsource processes that are not critical. (He believes that this is why agency corporate treasury was not successful because it often included critical processes that corporate treasury departments should have retained.)
  2. the process has got to be ‘uncritical enough’ for it to be placed on a third party’s scale platform and that the process needs to be ’sorted out’ before being outsourced
  3. outsourcing has to be part of the overall process of re-engineering the whole corporate treasury department and should not be purely based on cost arbitrage/head count reduction
  4. there is typically a critical minimum processes that can be outsourced, i.e. some processes naturally and logically fit together and should not be split up. Identification of these process groupings is vital.

“Don’t put crap in a new wrap”

One well known corporate treasurer has found that biggest problem is that companies rush into BPO. They hand over the process to the BPO provider before sorting out and rationalising the process(es) first. He elegantly recommends, “Don’t put crap in a new wrap.” He believes this is a certain path to increased costs and all sorts of operational problem. It is, in his experience, the biggest sin in Business Process Outsourcing today.

But why do BPO anyway?

The outsourcing in some corporate treasury departments has become so poor that, they feel that if the outsourced process had been thoroughly rationalised and refined, and then automated, it would have been far simpler and cheaper to keep the process in-house. Indeed some argue that: once any process has been rationalised, refined and fully automated, why outsource it and have all the problem of managing a BPO provider?

Future of bank outsourcing

Recently Bank of America Merrill was the last bank to exit the agency treasury business, see. It came as no surprise as the economics and nature of the business did not fit with how the banks’ cash management is evolving. But that doesn’t mean that the cash management banks won’t be providing outsourcing services. Mehta believes that the cash management business is being re-defined with:

  • multi-national corporations focussing on standardising their transaction and payment processing and delivery by adopting ISO XML standards, etc. so they become bank agnostic
  • banks focusing on providing core data based services, e.g. cash flow forecasting, data enrichment and analytics services that have an impact on corporates’ liquidity management and overall exposures.

In the new bank services, Mehta expects that, “The services will need to combine data and services from many different sources and suppliers. Technology collaboration is going to be a major new feature of the new bank services.”

CTMfile take: Cost and headcount driven outsourcing clearly causes more problems than it solves, and should not be the driver for business process outsourcing. Banks will continue to provide corporate treasury outsourcing services as they now have a much clearer view as to what they should focus on. However, the biggest threat to the very existence of BPO is the feeling amongst many corporate treasury departments that: ‘Once any process has been rationalised, refined and then automated, why outsource it and have all the problem of managing a BPO provider?’

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By Yazmin on 15th Jun 2017:

Well of course outsourcing should be about process improvement, although lets say that its more cheaper and affordable at the same time we need to look for a better outsourcing firm that can improve the processes that can make a company more efficient and effective. When the processes improves the next thing is that the business wil be more successful.

Yazmin Barajas
OBP Business Outsourcing Solutions

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