New Datamonitor research reveals FSIs are skeptical about the cost benefits of IT outsourcing.

According to Datamonitor’s new report, IT Efficiency in Financial Services: European Financial Services Technology Survey 2002, 32% of institutions in financial services would not even consider business process outsourcing.

Datamonitor interviewed institutions in retail banking, insurance and investment across Europe about their IT spending strategies. Among the key concerns of these institutions was loss of control to outsourcer, with respondents showing a very high level of concern about range of issues relating to outsourcing.

Traditionally, IT investments by FSIs have been justified by the increased cost efficiency of internal processes. Efficiency gains are measured in terms of labor substitution and other fixed cost reduction. But more recently, with investments in the Internet and CRM, the success of IT has been measured in the way it improved the actual products and services of the institution.

Those FSIs that focus on using IT to enhance the service they offer to their clients have a positive view of outsourcing – they perceive outsourcing as a way of improving the business effectiveness of their IT. This means that vendors need to change their marketing strategy – they should focus less on the cost-cutting side of outsourcing, and more on the business benefits

In the current trading environment, some FSIs – particularly in insurance and investment – have reverted to cost efficiency as the main measure of success, with a new emphasis on improving the cost efficiency of IT investments themselves. However, the longer-term trend remains one of moving to a broader measure of IT success. This will help outsourcers to win a greater range of business in the future, particularly in business process outsourcing.

Related research: Datamonitor, 2002: IT Efficiency in Financial Services: European Financial Services Technology Survey 2002

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