“The evolution of knowledge outsourcing.” CiG Yearbook 2008: 20-22.
The outsourcing or offshoring of business information work to India or other low cost destinations is now commonplace. As far back as the late 1990s, a well known management consultancy set up its own knowledge centre in India. Since then, the investment banking industry has truly embraced outsourcing.
Although many organisations have experienced large scale outsourcing that is driven primarily by both strategic and cost considerations, many companies still have misconceptions about this practice:
- At the individual level, there is often a lack of understanding of what roles, processes and tasks are appropriate for an outsourced model. “It will never happen to me” or “I have studied for 4 years, and have extensive experience, why should I hand my job over to India?”
- At the institutional level, there have been some publicised bad experiences with outsourcing which can deter serious consideration. “The quality is never going to be good enough.”
- On both levels, there is a lack of understanding of the longer term business direction. “It’s only a phase and will pass.”
- On both levels there is sometimes the perception that offshore outsourcing is only a cost arbitrage issue.
What’s a better way to view outsourcing?
If we take the financial services industry as an example, outsourcing has been prevalent in IT and back office operations for many years, and now reaches up the value chain to investment research and high level analytics. Either by partnering with a service provider or working with their own “captive” operation, financial services increasingly rely on outsourcing. Two distinct models have started to emerge for the management of high-value information and research:
- Core research support offshore
- Onshore/offshore hybrid
In the pure offshore model, local information support is replaced by a team of offshore researchers. Over a period of 4-5 years offshore researchers gradually replace the majority of the local team. Usually a small, local team of core information professionals remains to “manage traffic”.
In the hybrid model, a more gradual transition takes place and the onshore team focuses on more specialised, higher value work. The offshore teams begin working with their local counterparts gradually building their knowledge and experience. The two teams work very closely together, with the offshore team providing much needed help with quick and easy requests. In this model, the work going offshore typically has the following three characteristics:
- it is highly repeatable,
- it does not require local knowledge,
- it does not require strong industry knowledge.
By moving the more routine aspects of the work offshore, the onshore researchers can concentrate on sophisticated, higher value work. The onshore researchers can develop stronger industry and subject knowledge because they spend much less time focusing on the commoditised, repeatable work, which is fulfilled offshore. Furthermore, an offshore research strategy provides the investment banking community with the ability to easily scale upwards and downwards depending upon market conditions: a very important factor given the current volatility seen in the financial markets. Indeed, cost arbitrage, though significant, takes a back seat to other value propositions.
Although survey data is sparse, it appears that offshoring is common among investment banks and that the hybrid model dominates. Smaller banks seem to outsource less, possibly because they do not see themselves as having sufficient scale to benefit from the strategic advantages and costs savings.
Knowledge offshoring is not limited to the financial sector. Professional services such as accountancy, law, and management consultancy are also offshoring knowledge work. These organisations typically adopt the second model, where offshore services are used extensively, but usually as a supplement to the onshore presence.
Impact on the information industry
Outsourcing has fundamentally affected the information industry in the UK. Though there may have been some job losses in the UK market, offshoring creates many benefits in the local economy. Individually, onshore local researchers have expanded their capabilities and knowledge. The fact that offshore researchers can now take care of the quick and easy requests has allowed many local researchers to specialise in a particular industry or practice. What we are now seeing is a new type of researcher who is much more aligned with the business and who understands the internal and external client requirements in much greater detail. Institutionally, this allows organisations to provide more and higher value services to their clients at lower cost.
An interesting by-product of the growth of outsourcing has been the demand for information professionals who have experience managing offshore researchers. Many recruitment agencies now look for candidates who have experience in this area and in many cases it can be a real differentiator.
So what does the future hold for the UK information professional? It is most likely that the majority of organisations will continue to adopt a hybrid model of an offshore/onshore blend. This will certainly cause the number of traditional information roles to shrink. What it will leave in their place is a more specialist researcher. A researcher who is integrated more deeply with the business and has the opportunity to develop the now increasingly sought after skills associated with managing offshore relationships and service providers.
Jeff Davis, Sales VP for Integreon, has spent two decades in investment banking and management consultancy research. Integreon (www.integreon.com) provides outsourced services that improve profits, effectiveness and efficiency for law firms, financial services, and corporations. The company operates in India, the Philippines, US and UK. Contact: jeff.davis@integreon.com or +44 (0)20 7268 3465.