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International Journal of Business Management & Research (IJBMR) ISSN 2249-6920 Vol 2 issue 2 June 2012 9-17 © TJPRC Pvt. Ltd.,
A STUDY OF COST SAVING INCURRED BY BARCLAYS BANK PL C BY
OUTSOURCING ITS IT RELATED SERVICES
DIVYA GUPTA Assistant Professor, Alard school Of Business Management (University of Pune)
Department of Management Studies, Pune , India.
ABSTRACT
This paper is an effort to analyze why Barclays Bank PLC went for outsourcing and what cost
benefits are realized by Barclays by getting work done out of an outsourced location like Pune in
comparison to that of an on-shore location like UK. It also helps in getting to know about the pros and
cons of outsourcing and on-shoring. This paper helps in understanding the risks and criticism faced by a
Bank while outsourcing it’s services and various best practices followed in the service sector in terms of
outsourcing and offshoring.
KEYWORDS : Barclays Bank, Outsourcing, PLC.
INTRODUCTION
The world of banking has assumed a new dimension at the dawn of the 21st century with the advent
of tech banking, thereby lending the industry a stamp of universality. Barclays Bank PLC is a major
British multinational financial services firm. As of 2010, it is the world's 10th-largest banking and
financial services group and the world's 21st-largest company according to a composite measure by
Forbes magazine.
Traditionally, all IT related work at Barclays Bank PLC was carried through its on-shore offices
based out of London, Radbroke Hall, and Manchester by using permanent employees and contractors. In
the early 2000′s, Barclays Bank was attracted to the low labor rates in India and other emerging nations.
According to David Skillen, Chief Operating Officer, Barclays, the original driver for outsourcing was
labor arbitrage, delivering as much as 40 percent savings compared to the UK.
Barclays initially outsourced its non-voice back-office services for both its commercial and retail
banks to Intelenet in 2003. In addition to reducing labour costs, the ability to serve customers 24/7/365
was another lure while opting for outsourcing. David Skillen says its credit card customers often need
help on the weekends and holidays, which were expensive days for the internal call centre. “We don’t
have to pay more on holidays” once it outsourced, says the Barclays executive.
With time, Barclays outsourced some technology, finance and accounting, human resources, and
back-office functions to other Indian service providers. Slowly, the outsourced organizations started
performing more complex functions like underwriting, fraud management, and payments processing.
Divya Gupta 10
As per David Skillen, lessons learned from the Outsourcing Centre are as follows:
• Good outsourcing relationships take time. Time builds trust, which breeds a sense of
partnership.
• A service provider has a greater chance of providing strategic value to a buyer if it controls a
process end to end.
• Both sides have to participate in give-and-take. Buyers don’t always get to have their way.
Taking one step forward, today a major portion of the IT related work at Barclays is done via its
outsourced centers located in India(Barclays Tech Center India), Singapore, South Africa, Nigeria, Brazil
and Lithuania. Barclays is now outsourcing handsome portion of its work to major IT companies like
IBM, Infosys, TCS, Wipro and Accenture. Both on-shoring and outsourcing have their pros and cons
and have different benefits and risks associated with them. On the whole, outsourcing is on the rise in
Barclays Bank PLC.
In this paper we are going to analyze why Barclays Bank PLC went for outsourcing & compare the
cost of getting similar work done out of an outsourced location like Pune and an on-site location like
Radbroke Hall, UK. Also, companies need to face risks and criticism while going for outsourcing and
same happened with Barclays as well.
LITERATURE REVIEW
Outsourcing is when you send work to companies outside of your corporation that may or may not
be in the same country. The worldwide economic recession has forced companies to explore all options
to increase efficiencies and cut costs. Companies are getting increasingly comfortable outsourcing larger
parts of their businesses as they realize they are not core. Outsourcing is a cost savings exercise over a
period of time. There is a lot of overhead involved with outsourcing due to language barriers, cultural
barriers, and time zone challenges. To successfully outsource development work, the paying customer
must provide a maximum amount of over site and process to overcome these barriers. With outsourcing,
companies can bring a team of consultants on site for any amount of time without paying the expenses of
flying them in from the other side of the planet. Outsourcing or sub-servicing often refers to the process
of contracting to a third-party i.e. Barclays Bank PLC outsourcing its Ab-initio works to a third party like
Accenture and Wipro. Benefits of outsourcing are usually lower costs, better availability of skilled
people, and getting work done faster through a global talent pool. Risks of outsourcing include
misaligned interests of clients and vendors, increased reliance on third parties, lack of in-house
knowledge of critical (though not necessarily core) business operations etc. Outsourcing is often
criticized for transferring jobs to other countries. Other risks include geopolitical risk, language
differences and poor communication etc.
A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
11
OBJECTIVES OF THE STUDY
The specific objectives of the study were:
• To understand the factors that influences Barclays Bank PLC to undergo outsourcing
• To understand the financial benefits incurred by Barclays for carrying out the project from
an outsourced location like Pune, India and an on-site location like UK.
CHALLENGES IN TODAY’S WORLD FOR BARCLAYS BANK PLC
To survive in the ever challenging and competitive world, strength in multiple terms is necessary.
On one hand, while it is important to have robust processes and structures in place, with manpower to
execute projects, on the other hand it is necessary for firms to have their strategy firmly in place. While
the Vision and Mission define the ethos of any enterprise, irrespective of the field in it, yet this is
necessary to drive the wheel of a company forward. It is undoubted that strategy varies as an offshoring
enterprise evolves and goes through its various phases of growth. While nascent players may look at
opportunities to grab and work upon, established players have a well set and defined plan of action.
Players in the growth phase like Barclays Bank PLC are the ones who have strategy targeted at achieving
the ulterior goal and demonstrate perseverance and drive to achieve the same. These trends are truly
reflective of the path that some of the established players today have had in mind. Being a business
model, which has a unique driving force behind is, the fact that the industry as a whole has coped rather
well with the economic downturn. For those who have grown and escalated in this scenario, it is their
strategy in view of their ultimate vision and mission to which credit must be attributed
OUTSOURCING AT BARCLAYS BANK PLC
The pros of outsourcing have driven Barclays to step into outsourcing and experience the benefits
that it has to offer. Organizations who are interested in outsourcing are often curious to know more about
advantages and disadvantages of outsourcing. By gaining insight about both the good and bad of
outsourcing, organizations can decide if outsourcing is right for them. Most organization jump headlong
into outsourcing, without actually finding out if outsourcing is good for their business.
In the early 2000′s, Barclays was attracted to the low labor rates in the outsourcing firms. Therefore,
the original driver for outsourcing at Barclays was labor arbitrage, delivering as much as 40 to 50 percent
savings compared to the on-shore site. In 2003, Barclays outsourced its non-voice back-office services
for both its commercial and retail banks. In addition to reducing labour costs, the ability to serve
customers 24 X 7 was another lure. Barclays had also outsourced some technology, finance and
accounting, human resources, and back-office functions to other Indian service providers. The bank used
many different firms in India and Accenture broadly. With time, the outsourced organization starts
performing more complex functions and bank started enjoying the cost benefits out of that mutual trust.
Following are the advantages enjoyed by Barclays Bank PLC by outsourcing it’s IT related work
Divya Gupta 12
1. By Outsourcing its non-core activities, Barclays Bank PLC has given more time to
concentrate on its core business processes
2. Outsourcing has lead to access to professional, expert and high-quality services
3. With outsourcing Barclays experienced increased efficiency and productivity in non-core
business processes
4. Outsourcing has helped Barclays in streamlining its business operations
5. Outsourcing makes Barclays Bank PLC more flexible to change
6. Barclays experienced an increased control of its business with outsourcing
7. Barclays saved on investing in the latest technology; software and infrastructure as its
outsourcing partner have invested in these
8. Outsourcing has given Barclays assurance that its business processes are being carried out
efficiently, proficiently and within a fast turnaround time
9. Outsourcing has helped Barclays to save on capital expenditures
10. By outsourcing, Barclays saved on management problems as its offshore partner will be
managing the team who does its work
11. By outsourcing, Barclays are able to cater to the new and challenging demands of its
customers
12. Sharing its business risks is also possible with outsourcing
At times, it is more cost-effective to conduct a particular business process, rather than outsourcing it.
While outsourcing services such as payroll processing services and tax preparation services, Barclays
thought that its outsourcing provider will be able to see its confidential information and hence there is a
threat to security and confidentiality in outsourcing. When Barclays began to outsource its business
processes, it finds it difficult to manage the outsource provider when compared to managing processes
within the organization. In case, outsourced service provider becomes bankrupt or goes out of business,
organization will have to immediately move your business processes in-house or find another
outsourcing provider. Also, the on-shore employees in Barclays Bank PLC, UK might not like the idea of
outsourcing processes and they might express lack of interest or lack of quality at work.
Many times it happened that the outsourcing provider was not be only providing services for
Barclays Bank PLC only, since the provider were catering to the needs of several companies, there might
be not be complete devotion to Barclays.
By outsourcing, Barclays might forget to cater to the needs of its valuable customers as its focus will
be on the business process that is outsourced. In outsourcing, Barclays loses its control over the process
that is outsourced. Outsourcing, though cost-effective have hidden costs, such as the legal costs incurred
A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
13
while signing a contract between companies. Barclays also have to spend a lot of time and effort in
getting the contract signed. With outsourcing, its organization suffered from a lack of customer focus.
There are several disadvantages in outsourcing, such as, renewing contracts, misunderstanding of the
contract, lack of communication, poor quality and delayed services amongst others.
Following are the key factors that contribute to India’s position as a preferred destination for
outsourcing by Barclays Bank PLC:
1. Availability of large talent pool
2. Low cost
3. Fast turnaround time
One of the main reasons of choosing India as an outsourced location is the availability of a large
pool of talented and young motivated professionals. Its 380 universities and 11,200 higher education
institutions produce 2.1 million graduates each year. As a result, companies have sufficient options to
choose from, while recruiting employees for their offshore captive centers. Further, it is expected that the
number of people in the working age group in India will increase by 250 million from 2009 to 2020 at an
average rate of about 15 million per year. This will ensure labor for companies in UK where the demand
for labor is increasing. India also has the largest English speaking population in the world. This ensures
good communication between the customer and vendor when the work is offshored to India. Indian
employees are hardworking and motivated. They are also satisfied with their work; this can be seen from
the attrition rate in India. As shown in Table 1.1, attrition rate in India was 18 percent in 2009,
significantly lower than that in other economies.
Table 1.1 : Attrition Rates
Country Attrition Rate (Percent)
US 43
Australia 29
Europe 26
India 18
World Average 24
Source: Times New, New York (2009)
According to the Boston Consulting Group, access to the large talent pool and higher employee
satisfaction translates into better employee performance (and cost savings on recruitment and training).
This leads to a productivity increase of over 30 percent in India. Indians also produce superior quality of
work.
Divya Gupta 14
SIGNIFICANT COST ADVANTAGE
One of the biggest advantages of offshoring to India is cost savings. Barclays Bank PLC has been
able to save about 30 to 40 percent for most services by offshoring processes to India. Cost savings in
India can be accounted for by savings in the following three heads:
1. Labor: Indian professionals work at wages much lower than that in the UK.
2. Capital: Infrastructure costs in India are lower thus saving significantly on capital.
3. Labor management: The number of employees required during a project is not same
throughout the course of the project. Hence, when a business process is carried out in-
house, companies have to pay the employees and maintain office space for them, even
if these employees are not working on any project. Offshoring enables companies to
do-away with the expenditure on bench labor.
After offshoring its operations to India, Barclays Bank PLC found a reduction of 25 percent on its
labor cost. This lead to an increase of 150 percent in the Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA).
There is a vast difference in the labor costs in UK and India in the IT industry as well. An IT
professional with 1-2 years of experience in the UK charges 5,000 to 7,000 pounds per year. On the other
hand, a professional with same experience level costs about 1,500 to 2,000 pounds per year in India,
about 30 to 40 percent of that in the UK.
There also few disadvantages of outsourcing development in India. The main reason is business
understanding. Normally new offshore centers are unable to understand the process of offshore
outsourcing and fails before grow.
Risks in offshore software development in India as faced by Barclays Bank PLC are as follows:
1. Offshore software development industry in India is still new, young and largely
unproven.
2. Stability of the Offshore Countries is another risk. In India and other countries stability
is less these countries are always involved in politics and religious activities. This will
directly affect Indian economy. India is also relatively unstable. If we see on past two years
back the swine flu in Pune caused many precious lost days of development time.
Before outsourcing, companies must ensure that the offshore software development companies have
business continuity and disaster recovery plans.
COST COMPARISON AND BENEFITS
We are considering 2 projects of similar man-days efforts. One is being carried out of Pune and
another being taken care by a person from UK.
A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
15
1. When the project is carried out from an outsourced location i.e. Pune
a. Efforts in man-days : 9 man-days
b. Efforts in hours : 9*8.5 = 76.5 hours
c. Billing per hour for an outsourced resource = 90 pounds
d. Total money spend (b * c) = 6885 pounds
2. When the project is carried out from an on-site location
a. Efforts in man-days : 9 man-days
b. Efforts in hours : 9*8.5 = 76.5 hours
c. Billing per hour for an on-shore resource = 250 pounds
d. Total money spend (b * c) = 19125 pounds
Cost saving in terms of pounds = 12240 pounds
Cost saving in terms of percentage for this project = (19125 - 6885)/19125 = 64 %
Following is list of teams which are working for Barclays from an offshore location like Pune and
the below figure represents the cost benefit of getting the work done out of India.
Table 1.3 : Cost analysis
The above table explains that there are 200 occurrences of certificate renewal in a calendar year in
Barclays. On an average each certificate renewal activity takes around 30 hour. It would have cost the
bank 324000 pounds, had it been carried out of UK. Since it is carried out of India, it cost bank 174000
pounds. Therefore, carrying out certificate renewal activity from India saves bank 150000 pounds every
year which is a phenomenon amount. Similarly, figures are given for all other activities carried out of
India i.e. Incidents, Monitoring, RCA and Fixes, Small Change. The total sum saved by carrying out
these activities out of Pune is 177775 pounds, which is a handsome amount.
The below graph depicts the table 1.1 and give a broader understanding of the results of carrying out
non-critical work from Pune.
Divya Gupta 16
Cost Graph
174000
3828 287123200
2320
324000
7128 5346
43200
4320
150000
3300 247520000
20000
50000
100000
150000
200000
250000
300000
350000
CertificateRenewal
Small Change Incidents Monitoring RCA and Fixes (onMonitoring)
Activities
Cos
t(£)
Cost in £(India) Cost in £(UK) Cost in £ (Saving)
FINDINGS OF THE STUDY
We all will agree to the fact that the original driver for outsourcing was labor arbitrage, delivering as
much as 40 percent savings compared to the UK. Outsourcing made sense at that point of time.
Specialized companies provided their services to many client companies at lower prices than the client
companies could do the work in-house. Both companies, the service provider and the client, profited
from the arrangement. Unfortunately, outsourcing got carried to extremes. Companies began outsourcing
work to the lowest bidder and lost sight of the effect it had on the company except for finances. There are
also non-financial costs to businesses from outsourcing, including lowered public perception and reduced
morale/productivity from remaining staff.
It is equally inadvisable for a company to shift their work locations to India to save money if they
lose more than that from customers who stop buying their product because they can't communicate with
the call center representatives because of heavy accents. Outsourcing makes sense only if it truly saves
money at the bottom line.
As seen in this paper, when a project is carried out of an offshore location like Pune, it resulted in
bank saving around 64 % in costs when compared to it being carried out of UK. Offshore development
has saved Barclays money, but it can also create software quality challenges. In addition, it's difficult for
Barclays to use more agile development methodologies since it have geographically dispersed teams.
One issue with outsourced development can be increased defect rates. Projects that are multi-shored
pose greater challenges in optimizing because of communication between geographically disbursed
teams, resulting in project defects actually rising. In order to ensure quality Barclays is following lean
principles. To make agile practices work for distributed or offshore teams, following tips are being
followed in Barclays:
• Focus on short iterations and quick feedback cycles.
• Do upfront testing, i.e. test-driven development and unit testing.
• Incorporate a high degree of automation, particularly around regression testing and
continuous integration.
A Study of Cost Saving incurred by Barclays Bank PLC by Outsourcing its it Related Services
17
• There is a high degree of communication and coordination involved with distributed teams.
• There are late night/early morning handoffs between teams, a lot of conference calls, one-
on- tools up to date."
We also recommend rotating team members between on-shore and outsourced locations, so they can
meet the clients and be more involved with planning. Making sure rotations of outsourced employees
coming onshore and onshore employees going offshore really helped in terms of transferring the body of
tacit knowledge and interpersonal relationships.
CONCLUSIONS
After going through the pros and cons of on-shoring and outsourcing & the way, it’s been followed
in Barclays Bank PLC, we all will agree to the fact that the basic motto behind outsourcing is cost
saving. As much as 40 to 65 percent of money could be saved out of a project if it’s been carried out of a
low cost location. Companies tend to outsource work to the lowest bidder and lost sight of the effect it
had on the company except for finances. While outsourcing companies needs to understand that they
should not opt for those service providers that are providing them the services at lower prices. Rather
than they should opt for providers that provide good quality at a reasonable price. This will help the
organization in the long run. There are also non-financial costs to businesses from outsourcing, including
lowered public perception and reduced morale/productivity from remaining staff. At the same time
companies should keep a track of the deliverables of project from quality perspective.
REFERENCES
Books & Website
• Douglas Brown and Scott Wilson. The Black Book of Outsourcing: How to Manage the
Changes, Challenges, and Opportunities. New York: Wiley,2003
• Elizabeth Sparrow. A Guide to global sourcing - OFFSHORE OUTSOURCING. London :
British Computer Society, 2006
• Maurice F. Greaver. Strategic Outsourcing: A Structured Approach to Outsourcing
Decisions and Initiatives. Hamburg: Kogan Page, 2007
• Erran Carmel. Offshoring Information Technology: Sourcing and Outsourcing to a Global
Workforce. New York : Vintage Books USA, 1999
• Linda Cohen. Multisourcing Moving Beyond Outsourcing to Achieve Growth and Agility.
Harvard Business School Press, 2005.
• www.amazon.com/Offshoring-Information-Technology-Outsourcing-Workforce
• http://www.tutorial-reports.com/business/outsourcing/india/advantages.php
• www.tutorial-reports.com
• www.academon.com
• http://www.outsourcingandoffshoring.com/
• www.freeonlinebookstore.org