With the whole of Wall St being restructured and substantial investment being primed to re-vitalize the financial services sector, what will be the short-medium term impact on the outsourcing industry? please complete this 2 minute poll here.
please complete this 2 minute poll here.
I've been trying to get my head around the looming crisis on Wall St. the past few days, and the situation is far more severe than when we discussed the sub-prime crisis a few months ago.
Normally, I'm quick to pounce with my thoughts and opinions (as if you didn't know that already), but I've been truly perplexed by the goings on - and the potential magnitude - of the potential outcome to global markets. I cling to the hope that the bail-out package will quickly steady the economy and spark a mini-revival, despite the long-term ramifications of paying back this debt – and our children footing the bill too. So what does this mean to the outsourcing industry?
Historically, tough economies have proved to be lucrative markets for increased outsourcing: remember the 2001 recession and subsequent deal activity. However, this situation will have a two-pronged impact on the outsourcing industry:
1. Outsourcing drivers: Merger activity is going to provide new outsourcing opportunities, for example the Bank of America, with its acquisition of Merril Lynch, will surely look to move Merrill's support functions onto third-party resources, as BoA has a strong and effective outsourcing culture. And the newly-merged entity may have to look at additional or new providers to support the broader global presence of the new firm – especially when you take into account Merrill's international operations. We can also expect to see a host of other M&A events taking place in the coming weeks (i.e. JP Morgan taking over Washington Mutual's assets, and CitiGroup taking over Wachovia and its global BPO operations). In addition to M&A activity,
there will be some financial institutions looking to reduce SG&A costs quickly, which will opt for outsourced solutions that quickly impact the bottom-line – i.e. F&A BPO and some ITO and possibly some HRO deals, where there is quick remediation of staff.
2. Outsourcing inhibitors: Short-termism is rife. My real concern is that most of the financial services firms are currently looking at mere survival on a month-to-month basis, and will not be looking to move into any complex long-term initiatives. And this includes staff-augmentation projects, a lot of discretionary spend, ERP upgrades, BPO and ITO engagements.
All-in-all, I see this crisis as having a largely positive impact on outsourcing adoption, provided the situation does not spiral even further out of control, the government's bail-out package has the desired effect, and the majority of financial services firms can maintain a long-term strategy.
However, I do not anticipate an immediate spike in demand for outsourcing services – either IT or BPO – as financial services firms iron out their immediate futures, but I do expect to see increased adoption of services from Q2 next year and beyond, when the sector emerges from this restructuring phase.