BY GUY WHITLEY

Typically banks and financial institutions have, in times of mounting cost pressures, adopted a restructuring and redistribution of resources and processes globally to align with the business target operating model and strategic aims. Using a balanced combination of offshoring, nearshoring and outsourcing, referred to as “right-shoring”, businesses seek to achieve the optimum cost-effective, fully functional locational footprint.

Since the financial crisis of 2008, financial institutions in the banking and financial services industry have been under increasing levels of pressure to reduce costs attributable to shrinking profit centres. A number of factors can be seen to be impacting upon the profitability of the banking sector, including:

1. New regulatory requirements
2. More diverse competition from new and non-traditional service providers
3. Disruption by online non-banking financial providers
4. Low Interest rates
5. Political and social economic factors, e.g. Brexit

However, right-shoring is only one option, and, given its drawbacks, should not be looked at in isolation. In moving operations further afield, businesses must accommodate higher levels of risk, manage a potentially dwindling workforce motivation, consider external pressures and work to ensure their plans are future proof. Before deciding upon a right-shoring strategy alternative industry solutions should be explored, which, put together to bridge the gap, provide wholesale outsourcing and managed services. These are in many ways preferential, and are becoming more attractive with mounting confidence levels in their delivery.

What to consider in right-shoring?

Moving a function, process or service to another location brings with it a host of considerations. Not all functions can or should be moved to the lowest-cost site, despite the financial benefits this may bring. Higher risk business functions, for example, client service desks will require more careful consideration to the customer base, with many service functions retained on-shore mandated by regulation or preferential due to the business, social and time-zone advantages this brings.

Equally, in a regulatory market which is growing in depth and complexity, operations dealing with existing and upcoming regulatory compliance are often mandated to remain on shore, to ensure a better face-off to UK regulatory authorities.

It follows, therefore, that the first step in the right-shoring process must be a site review. Assessing suitability, sophistication and potential synergies of on-shore, near-shore and off-shore sites, for factors such as attrition, skill pool, education, language, geographical, political or economic risk, all in the context of the wider company strategy, will provide confidence and direction when compiling plans and obtaining buy-in from internal/external stakeholders and ultimately shareholders.

Once a suitability model has been established, this should not remain static but should be a constantly evolving measure against which a business can iteratively assess its transitional plans. In relocating part of any business, it is of utmost importance that along with people, processes and functions, culture and values are effectively migrated, instilled and upheld. Effective global alignment is seldom instantaneous, but will need to be honed to create mature, integrated and professionally attractive communities within global centres.

Ownership and accountability are key to any plan, and this must be scalable in relation to the number and sizes of the changes being considered. For plans impacting multiple business areas, a prudent approach would be to delegate departmental ownership to the respective management team members, which in turn encourages buy-in and accountability within an organisation.

Pitfalls to avoid

Right-shoring does not happen overnight, but is rather a structured and methodical set of changes that require sequential implementation. In offshoring a function, the new team will require documentation, handover and training, and post-implementation support. Focus should be on reduction of cost without negatively impacting performance. Companies that seek to realise benefits of a right-shoring exercise prematurely, doing too much too fast, often suffer in the long run, having to re-shore processes proven ineffective in their target site.

Adopting a wider perspective on change is crucial, by analysing business plans as a whole and not in a siloed manner, functionally or geographically. Ordinarily when the project or programme team responsible for management and implementation of the changes are reviewing these plans, cross-divisional dependencies and risks are unearthed. For example, concentration risk where multiple movements of resources are scheduled simultaneously will need greater levels of management and control. Equally a forward looking view of the functional organisation is crucial, ensuring time and money is not wasted relocating soon-to-be redundant or obsolete processes. The organisation can then make amends to avoid these risks and control dependencies as best as possible.

When starting down the path of a right-shoring strategy, it is recommended to utilise peer-analyses in the correct manner. Each bank or financial institution had different drivers and motivations toward tailoring their locational target states, be it price, local skills and expertise, or infrastructure. The key is to not simply follow the crowd, but rather utilise the results gleaned from the positive and negative experiences of others who have gone down a similar route. A right-shoring strategy should be bespoke to each organisation’s purpose, and in line with its higher-level strategic objectives.

That being said, plans must remain flexible, and an initially forecast target state may not need be final. It is not uncommon to see work being moved back on-shore to home countries, often due to factors such as: offshore supplier performance, inability to realise cost advantages, customer perceptions, time-zone considerations, social beliefs and government incentives.

Secrets to success

People dislike change. Change brings uncertainty, threatening the status quo. As most right-shoring strategies will span over months and often years, it is essential that management commissioning these changes receive buy-in from as many echelons of the organisation as possible. A management team with support lower down the organisation will almost certainly be more successful when implementing change. Proceed without and risk treading an onerous and costly road to achieve the end goal. When requesting that individuals work toward the demise of their own roles, motivational factors will need to be managed effectively – financial incentivisation and travel opportunity often weighing in more than longevity of employment.

Given the sensitive nature of this sort of change, the whole process must be subject to stringent controls. Communications to those impacted, and to the wider stakeholder group, including relevant trade unions, must be carefully disseminated in a controlled fashion to avoid any influx of unwanted activity or media attention. However, empathy, honesty and openness is key, with a management team far more likely to receive positive buy-in when openly discussing and substantiating their plans. A high level of control of communications, both internal and external, combined with speed of execution will help knock down barriers to execution before they arrive.

When moving into the implementation stage of right-shoring, wider areas of concern are often uncovered. Financial institutions should utilise the opportunity afforded by the right-shoring exercise to address uncovered issues and inefficiencies, and address these as part of the wider strategy. E.g. a lack of documentation can be addressed in effecting a concrete but documented handover to a nearshore/offshore team.
Is Right Shoring the right approach?

Seeking to cut a mounting cost base through an effective right-shoring strategy is not a new concept, but one that has been adopted and proved effective by organisations for many years. However, this option should not be used in isolation, and alternative remedies should always be considered for their suitability and financial benefit. The programme costs associated with implementing a right-shoring strategy, and longer lead times before any tangible benefits are realised may mean that a bias towards outsourcing becomes a more attractive option. However, if retained control and ongoing process optimisation is high-up on the agenda, retaining functions within the organisation, but operating at a lower cost will remain the preferred option. In either case, when deciding upon priorities and mapping out the options ahead, working with specialist consultancy firms with industry expertise will help close the knowledge gap, smooth out the process, and aid an organisation achieve its financial and global footprint targets.