For centuries, people have been delegating responsibilities to others. Whether it’s a nanny hired to assist with child care, a landscaper hired to mow your lawn, or an accountant hired to do your taxes, society has long leveraged the help of others to achieve goals. Of course, in our world, we call it outsourcing. While the activities we choose to outsource continue to evolve, the reasons for outsourcing remain the same—scalability, flexibility, and cost considerations (among others). Frustratingly, the reasons outsourcing can fail also continue to stay the same.
In asset management, outsourcing activities span across operational and technology services. Fintech firms are shrinking your technology footprint by moving critical applications to the public cloud while service providers continue to take operational activities off the hands of asset managers. While outsourcing in asset management is already firmly entrenched, there’s reason to believe the outsourcing footprint will continue to expand.
Whether you are outsourcing a holistic set of middle office services and activities, or your entire technology footprint, we see the same mistakes being made time and time again. Below are some of the most common mistakes we see:
- Lack of oversight – One of the top reasons for outsourcing is believing that someone else can do the work faster, cheaper, or better. As a result, it is tempting to find a provider that fits the bill and just throw the work over a wall at them. After all, if you wanted to continue doing the work, you wouldn’t have outsourced in the first place, correct? Your outsourcing partner is an extension of your organization, working with you to achieve your stated goals. Just as nanny cam’s have become a regular fixture in many homes, you should keep a close eye on your outsourcing service providers. This means you should have regular, if not daily, interactions and keep lines of communication wide open. Have clearly articulated (and shared) goals with tools in place to, objectively, measure progress against those goals. Discuss issues early and often. Partner with them on the solutions rather than badger them over the issues. In summary: define what you will monitor, define who will be assigned oversight responsibilities, ensure that people have the tools to perform their oversight roles effectively, and communicate, communicate, communicate. For more on finding the right oversight program, check out Danielle’s recent blog.
- Forcing overly complex customizations upon your providers – Whether its asking the nanny to cook a meal using a specific recipe and ingredients from a specialty store, or asking your service provider to adopt a complex, labor-intensive and manual process, the outcome is usually the same: lack of satisfaction with the work product. The key here is to adapt and meet in the middle. Service providers need to be willing to take on some level of customization and asset managers need to be willing to adapt processes to the capabilities your provider is offering.
- Treating your contract like a commodity – You should view your relationship with your service providers as a long-term commitment. As I mentioned in point 1, service providers are extensions of your organization. Treat your providers as partners in your business. We are frequently asked to perform assessments and make recommendations due to a perception the current providers aren’t cutting it and our findings are that sometimes you just need to hit the reset button on the relationship. Invest time in the relationship itself and you’ll be surprised at the improvements you see elsewhere.
Outsourcing is here to stay. There are strong business cases for partnering with firms on a variety of facets of your business–both operational and technical. Keep in mind, however, that a sustainable model is only successful if both firms are committed to the relationship and truly partner with each other to achieve their goals.