Why partnering strategies matter: How sourcing of business and IT services impacts financial performance

Today, leading enterprises are sourcing for more than just cost reasons. They’re partnering to innovate and to help them achieve the rewards of   financial out-performance. The financial services sector is no exception. What’s different for these companies is increased attention on agility  achieved through new business and operating models, and responding better by anticipating market shifts. At the same time, they can seize an opportunity by doing more to tie metrics to business outcomes and implement enterprise-wide governance.

Traditionally, sourcing has been about cost reduction: providers could handle processes better and cheaper, particularly those that offer little differentiation. Today, with new business opportunities emerging through advances in mobile, social, analytic and cloud technologies, motivations have shifted. While savings are still expected, organizations are now sourcing to meet more complex needs. For many, this strategy has become a matter of competitive differentiation.

A similar shift in motivations is occurring within the financial services sector. Banks, financial markets firms and insurance providers have faced many challenges in recent years which, combined, put pressure on cost and business agility. Global economic turmoil has left a lasting mark, slowing growth and along with it, demand. Added to this are rising levels of regulation, competition from non-traditional providers and a more complex customer landscape marked by new channels, product diversity and greater expectations.

To stay competitive, financial institutions see a need to build sophisticated insight, accelerate time to market, improve product design and customer service, and proactively address risk and regulation – all while finding new, creative ways to manage costs. Sourcing is seen as a viable strategy for business model, operations and IT innovation. This outlook parallels a trend that spans industries across the economy. Not only are more CEOs now sourcing externally, 53 percent are doing so to drive innovation. Among CMOs, 92 percent are increasing their use of external providers for customer and data analytics. And two-thirds of growth focused CIOs are partnering to change the mix of capabilities and expertise in their organizations.

The “why” behind sourcing has evolved but the “how” still lags. Sourcing choices do not always reflect enterprises’ higher-order motivations. Does this really matter? It appears so. According to the global IBM cross-industry study, enterprises that source more broadly – and to drive innovation  – generally outperform their peers across a host of financial measures

As sourcing motivations evolve within the financial services industry, executives are moving up the sourcing hierarchy of needs, seeking     higher-order business outcomes like innovation. Their business strategies are pushing them to take a more expansive view of where providers can contribute and their sourcing strategies are designed accordingly.

Four distinct strategies emerge from looking at both the extent of and motivations behind sourcing. “Enterprise Innovators” are at the leading edge of this trend with financial services firms sourcing more broadly than their peers in other industries.

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Leaders marked by evolving provider relationships. Not only are these leaders (Enterprise Innovators) seeking a different kind of provider, they’re also establishing an inherently different type of relationship. To accomplish their business objectives, they recognize the need to alter the way they structure and manage their long-term alliances.

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They are approaching the sourcing question with a broader,  more integrated view that offers room to achieve targeted business objectives within the rigorous requirements of a highly regulated industry. If you have not recently thought through why you’re outsourcing and what business outcomes you seek, this broader conception of sourcing’s role might be the place to start. If you already have clear aspirations for your sourcing relationships, the next and more complex question is: do the “how” and the “why” behind your sourcing strategy align?

The considerations outlined in a recent IBM white paper  give some insight into how to seize the opportunity that sourcing can offer to help financial institutions take on the challenges of an industry facing tough conditions.

Global Strategy Leader; Industry Academy Member IBM Global Markets, Financial Services Sector Global Staff

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