Madhavi Mantha : First, I think we are starting to see a shift in how companies think about outsourcing – a shift from a purely IT-driven decision making process to one that is more business-driven. So rather than asking the question “Should I outsource my IT department”, financial institutions are beginning to ask whether they should outsource a particular business process, along with the underlying IT that powers it. So, the growth that’s projected in BPO spending levels reflects this broader view of outsourcing, because virtually all business processes are IT-enabled and BPO will increasingly also drive ITO.

Looking at key drivers, the main driver of outsourcing has traditionally been cost savings. But other factors have become increasingly important. Outsourcing can allow companies to accelerate process re-engineering efforts, and to shift from a fixed to a variable cost structure. Outsourcing to specialized providers can also allow banks to take advantage of specialized skills that may be scarce in-house, which can lower the time-to-market for new products and services. Outsourcing can also allow companies to free up internal resources, both people and capital, to focus on the core, such as on revenue generation initiatives.

Madhavi Mantha : Yes, cost savings alone are not sufficient to sustain a momentum towards outsourcing. If you save money but the quality of the work is not high, then the outsourcing initiative will have essentially failed. Therefore, quality is of critical importance. The ability to provide process transformation benefits is also very important, and technology tends to play a role here. Business processes within an organization are often very complex and not always fully documented. Knowledge tends to be embedded in the minds of the people performing a particular function for a very long time. Going through the exercise of assessing and implementing outsourcing offers an opportunity to deconstruct the business process into its component pieces and identify potential areas of improvement. The goal is to streamline the process and actually improve performance. Technology often plays a role in this transformation by allowing for automation of previously manual processes.

Madhavi Mantha : There are two schools of thought on this: some feel it’s risky, some feel it’s a very good opportunity. The reality is that integrating organizations is a very resource-intensive process and banks may not have sufficient internal resources to help them though their consolidation phase. Some will look to third parties to assist in this effort.

Madhavi Mantha : Banks need to have a well-defined process for deciding what to outsource or offshore and how to do it. Deciding what to outsource requires an understanding of the bank’s focal point within the industry value chain to determine which processes are most amenable to outsourcing based on well-defined risk and fit criteria. The question of how is about ensuring that the right governance process is in place to manage the relationship with the service provider. Banks must ensure that they have the right people and tools to manage such third-party relationships, to ensure that performance can be measured and that service levels can be monitored.

Madhavi Mantha : The BPO and offshoring industries are still quite young and I would argue that mature best practices have yet to emerge. However, many service providers as well as financial institutions have developed their own methodologies. Some examples of successful practices include: Identifying criteria for evaluating the “offshorability” of specific processes based on factors such as risk, customer impact, employee impact, degree of automation etc... ; Ensuring that a proper governance structure is in place for assessing the success of a process once it is outsourced. In general, a systematic analysis across business processes is required. It is also critical that a cross-functional team from within the bank be involved in the evaluation exercise including process experts from the line of business, IT, risk management, etc..., to ensure that an offshored process is well integrated into the organization’s internal activities.

Madhavi Mantha : The mortgage industry is going through a period of rapid technological change. There is still much room for automation and process improvement within the mortgage-processing life cycle. Moving forward, I think that banks will leverage a combination of both internal and external resources to improve the efficiency of their mortgage operations and BPO will likely play a role in these efforts.

Madhavi Mantha : The range of processes being outsourced by mortgage lenders really cuts across all three areas of the mortgage processing life cycle, from acquisition to origination to servicing. However, mortgage servicing is a fairly mature market and offshoring plays a smaller role there. Looking specifically at offshoring, activity is likely to be focused on loan origination processes. The sub-processes within loan origination tend to be less efficient and relatively expensive to conduct, so there are opportunities in this space. Acquisition is another area with potential, particularly in areas such as analytics and lead generation.

Madhavi Mantha : With the boom in mortgage refinancing coming to an end, lenders can no longer counter the rising unit cost per loan through increased mortgage volumes. Lenders will be looking to cut costs without compromising service, and some will turn to third parties to provide assistance. Therefore, we are likely to see an increase in mortgage outsourcing and offshoring over the next three to four years. But offshore providers will also face challenges as questions of data security; regulatory compliance and operational transparency receive greater attention. Offshore service providers will have to be proactive in addressing such issues.