How the outsourcing affect to the banking industry

              

                                

By specializing on a limited activity structure, outsourcing companies have been able to improve the performance of their core activities (Quinn and Hilmer,1994; Ellram and Billington, 2001; Kakabadse and Kakabadse, 2005).

Benefits of outsourcing in banking

· Management can focus on its core competencies.

· Brand building and marketing of bank products.

· Access to new technology.

· Less capital investment and effective utilization of funds.

· Elimination of the cost of hiring full-time processors.

· Accelerate customer satisfaction.

· Easy to obtain external expertise. 


Drawbacks

· Quality of end product depends upon the quality of outsourcing vendor.

· Poor performance by the outsourcing vendor results in poor quality of services to customers.

· When a particular business process is outsourced by the bank, the employees  may lose

   interest and motivation for expertise and innovation.

· Difficult to compare the prices as price quoted by one vendor could be different from another.

Areas can be outsourced

· Accounts opening functions.

· Managing of Customer queries (Call centres)

· Recruitment, Selection and Training of Personnel

· Administration of Payroll .

· Marketing of bank products

· Maintaining of Computer and other electronic gadgets

· Maintenance of ATMs

· Internal Audit


Related risk to outsourcing

Strategic Risk

Incur unnecessary cost as the bank  not choosing the right service provider.

Reputation Risk

Can result from poor service offered by third parties.

Compliance Risk

If an outsourced provider has inadequate control systems in place, this may affect compliance risk.

Operational Risk

The lower quality vendors may hinder production and delivery resulting to increase the operational risk.

IT Risks

Any breakdowns in connectivity and the need for an sufficient IT infrastructure may create IT risk.

Legal/Regulatory Risk

Legal issues related to privacy, confidentiality and security of transactions may arise.


ABC bank as a  leading commercial bank was outsourced some areas with in the bank such as secretary grade staff, cleaning staff, messengers, security officers, ATM machines, photocopy machines etc.


Conclusion

Outsource is a strategic decision for many organizations including banking industry. Outsourcing core or non-core activities is a strategic decision used by banks, as it can affect the quality and cost of banking services. The decision is associated with many types of risks. Therefore, Banks should follow appropriate risk mitigation strategies on a regular basis to manage outsourcing arrangements.

References 

Ellram, L. and Billington, C. (2001) Purchasing Leverage Considerations in the Outsourcing Decision, European Journal of Purchasing & Supply Management, Vol. 7, pp. 15-27. 

Kakabadse, A. and Kakabadse, N. (2005) Outsourcing: Current and Future Trends, Thunderbird International Business Review, March-April, pp. 183-204. 

LDM Management(December,2020)outsourcing in banking industry. 

LDM Management(October,2020)outsourcing in banking. 

Maxicus(November,2020)outsourcing in banking:Analising the risk and benefits.

Kahindi,A.K.(2010)The relationship between outsourcing and firm financial performance in the banking industry in Kenya.Degree of master of business administration.University of Nairobi. 

Quinn, J. and  Hilmer, F. (1994) Strategic Outsourcing, Sloan Management Review, Summer, pp. 43-55.

 

 

Comments

  1. Ruwan Herath27 March 2021 at 20:19

    No argument, outsource is a strategic decision as author explained. There are plenty of advantages & disadvantages of outsourcing & some part of the business can be outsourced whilst some cannot.
    Author has clearly explained the benefits & drawback of outsourcing & what are the industries can be move forward with outsourcing. It's worth to read.

    ReplyDelete
  2. Saranyah MBA 217 April 2021 at 10:41

    Well written, you have covered the benefits and drawbacks too.

    ReplyDelete
  3. Sevani Ereporuwa10 April 2021 at 10:31

    This comment has been removed by the author.

    ReplyDelete
  4. MADHU MBA10 April 2021 at 17:17

    Better article about the outsourcing in the banking industry. well described about the advantages and disadvantages of this procedure. can get good knowledge about the outsourcing concept.

    ReplyDelete
  5. Janashi Lamahewa18 April 2021 at 12:21

    Author has described about the effect of outsourcing in banking industry. According to Lankford and Parsa, 1999, organizations should consider outsourcing only when it is believed that certain support functions can be finished faster, cheaper, or better by an outside firm. Cutting costs is mostly a major benefit of outsourcing (Lankford and Parsa, 1999). However as per the Davies, 1995 a much better reason in outsourcing is the specialized knowledge that the contractor can provide. Adding more to the arears which can be outsourced in the banking industry, treasury functions, banks are increasingly outsourcing a range of typical transactional activities in treasury functions. If author could have mentioned about the HR function in outsourcing, article would be much completed. Interesting article to read,

    ReplyDelete
  6. Sevani Ereporuwa1 May 2021 at 23:17

    Outsourcing is often accompanied by a transfer of material and human resources to the chosen provider. It has the task of substituting domestic services in a medium or long term relationships (on average five-six years) with the customer enterprise (Quelin, and Duhamel, 2003).Author has well explained the concept of outsourcing with example.

    ReplyDelete
  7. Asela Fernando14 May 2021 at 01:27

    have addressed all relevant areas

    ReplyDelete

Post a Comment

Popular posts from this blog

Most effective leadership styles to manage the work of subordinates

Image
                                      T here are many businesses professors  have developed beneficial frameworks and theories of leadership approaches to describe the way of leading people (Ingram, 2017).   D efinition of leadership T he individual who has ability to motivate the group in order to acting towards achieving a mutual goal (Ward, 2016). As the organization  part, leader need s  to set the goals, take the decisive action, inspire other performance and suggest in the competition (Investopedia, 2017).  Management Leadership 1.    Do the right things   2.    Influence relationship 3.    Create change 4.    Give directions 5.    Have subordinates 6.    Tell other what to do 7.    Have good ideas 8.    React to change 1.  ...
Read more

Managing change in health care organizations

Image
                                                                        Introduction According to Somerville,(2008) organizational change is a complex subject. Achievements in change management are difficult to predict in terms of results; most experts believe that most of change projects do not achieve its final goals. (Balassanian,2007) stated that organizations in public sectors are the most perceived for change resistance, as many of public organizations focus on getting things done rather than looking for new ways of doing things. Based on the ADKAR model, change management module of five elements can be indicated as follow; (1) awareness of the need to change (2) desire to participate and support the change (3) knowledge of how to change (4) ability to implement the cha...
Read more

Importance of better understanding and managing emotions at work

Image
  Mimicry of facial expression eventually leads people to actually feel the emotions displayed on their faces (Hatfield, Cacioppo, and  Rapson, 1993). R esearch indicates that customers of organizations require positive emotional displays by employees   (Thurau, Groth, Paul, and  Gremler, 2006) . Emotions and related constructs clearly play a major role in the lives of humans, and expressions of emotion are universally recognized by people of all cultures (Ekman, 1973) .   Ego at work W hen you really want to understand what ego is and how it works for the purpose of becoming a more effective manager and leader. The language of psychology provides a basis for better understanding the forces at work .   From a psychological perspective ego is one of three ‘functions' of the human mind the other two being the ‘id' and the ‘superego'. Emotions at work The usefulness  of emotion s  in the workplace can be a confusing  topic for experienced and ne...
Read more