IT Systems in Banking - Essay Example

 Bank Consultancy Report: Outsourcing IT Activities Name of Author Name of Professor Course Name Date of Submission Bank Consultancy Report: Outsourcing Human Resource Management Activities Introduction Upon its merger with another bank, the UK-based bank has observed a need for the integration of IT systems as both banks used completely different IT infrastructures, software applications and level of services. The bank has 350 employees but has the insufficient in-house expertise to solve the problem. For enhanced integration of both IT systems using the best expertise, outsourcing is a process that has been considered as a solution. Outsourcing usually involves transferring management and administration responsibilities of processes or functions from a company's in-house staff to outside service providers. IT outsourcing is the procedure of hiring resources from outside of an organization to handle certain information technology functions. There has been an increased consideration of outsourcing as a successful IT tool that can be leveraged to enable the company to fully focus on core competencies. An outsourcing agreement will allow the bank to supply its customers with services through the utilization of a well-structured IT system. In this process, outsourcing can be used as a channel for reducing costs, improving the satisfaction of customers, and increasing the level of efficiency and effectiveness. As a strategic decision, outsourcing enables an increased focus on core competencies. Hence, it requires the complete support of senior management, and every related goal and objective has to be articulated from the top. Reasons For Outsourcing IT Activities IT activities act as one of the core systems of the bank's activities as most services are now technology-oriented. Any negative issue in regards to IT in the company may result in major legal challenges in companies, along with the de-motivation of existing staff. Some of the IT functions that the bank will have to outsource will include; web development and the management of its online website. Over the years, there has been a vast growth of IT outsourcing as many companies focus more and more on core competencies. This can be observed by the step taken by Whatsapp to hire offshore developers in Russia. As the company had barely any starting capital, it needed to keep operations costs down (DAXX Nearshore IT 2019). For the launching of its product, the company used offshore developers in Russia, while a larger portion of the company’s own staff placed their focus on other core operations like customer support. This resulted in the significant cutting of costs. Hence any cost measure strategy will have a significant impact if it deals with the human capital budget. There are several factors that HR professionals within Ford Motors will have to consider in turning to outside services for several tasks. One of these factors is looking for expertise. Major industries have developed as a way to help IT departments carry out their jobs, and there would be a high level of difficulty for most IT departments to match the level of skill and expertise which can be purchased elsewhere. An example is the firms that provide training services which are used during the entire industry. The American Society for Training and Development has made an estimation that 50% of all trainers within the United States will work for consulting firms, to be called on by companies when needed (Collings et al. 2018). This means, that more often than not, companies within the country will outsource some of their functions. Outsourcing will also increase the efficiency related to the utilization of internal resources. As IT processes will be delegated to a third-party, in-house employees will have the time to place their focus on more meaningful tasks. Another factor for consideration is saving costs for the company as a way to raise funds which can then be invested elsewhere. Ultimately, IT employees have to answer the CFO and cost may act as a critical component for consideration when outsourcing. Both banks already have considerable experience with the outsourcing of in-house functions (Hong et al. 2017). However, Bank B has considerably more experience in comparison to Bank A, as Bank A only has two years experience of outsourcing its Human Resource management and accounting functions while bank B’s experience is much more extensive. As the in-house functions also greatly vary between the two banks, it may be difficult for in-house IT employees to create a comprehensive IT system that covers all of these differences. The bank will then be forced to hire more employees for this task. However, in its choice outsource, the bank will save on the cost o hiring more employees and purchasing additional equipment. Outsourcing may also be used as a way to enhance the role of IT within the bank. Bank A is a more traditional bank with physical offices across the country as compared to Bank B, which only provides online banking services. The integration of both systems will require complex expertise and extended periods. Therefore, IT professionals may be hopelessly mired within the details and the paperwork, and be limited by certain horizons. The department wants to focus on the delivery of high-quality efficient service and expertise in the investigation of claims and specialized knowledge. By taking the transaction work and redirecting it out to outsourcing providers, the department will observe an increase in productivity and pushing IT system,s to have more strategic responsibilities in the organization. In addition to the above, there are other several significant advantages that the outsourcing of IT may provide to the company and components that may affect the step by the bank to outsource these services. The transfer of risks and liabilities for employee issues brings in expertise in several areas of HR as needed most of which are carried out by outsiders, provides the ability to partner with an experienced HR team which may result in high expenses when maintained in-house. The company will enable experts to handle the integration of IT without the requirement to hire a large number of employees as the in-house expertise that currently exists is not enough. These outsourcing experts are characterized by increased availability to deal with legal aspects of IT activities, which enables various businesses to focus on core operations, assisting in the creation of a stable, cost-effective operating platform along with the re-direction of focus from internal processes to achieving business goals and ensuring legal compliance. This as seen with Citi, a financial services company which has outsourced its tech operations since 1992. This way, the company has been able to increase focus on its core business and cut at least 11,000 jobs, most of which were IT-related positions(DAXX Nearshore IT 2019). The company also has relationships with several outsourcing companies such as TATA consultancy services. This outsourcing of services has enabled Citigroup to focus on its core business which is the provision of financial services and enabled its growth to one of the top American-based financial services company across the world. Factors Which Affect the Decision to Outsource When considering outsourcing, IT employees should analyze the potential that exists to gain access to best practices, the realization of economies of scale, improving performance and stability, and improving their capacity to make changes. One of the main gains of outsourcing to the company will be the reduction in executive time used up in the management of peripheral activities and providing top managers with the time and resources to focus more on the core of the company's business (Willcocks et al. 2017). When analyzed, the internal transactions costs are very high. Ford Motors should, therefore, outsource the integration of its IT infrastructure due to the following reasons; Improving the focus of the company Gaining access to world-class capabilities The acceleration of reengineering benefits Sharing of risks Reduction and increased control of operational costs Free up the company’s resources for future needs Accessing specialists Refocusing on core activities Reduction of non-labor costs Capitalization on technology and expertise Advantages of Outsourcing IT activities to the Bank Outsourcing will enable the bank to share existing risks such as changing markets, increasing competition, shifting government regulations, varying financial conditions and advancements in technologies with the outsourcing provider that it chooses. It will also make the merger more successful as IT experts will be able to analyze the strengths and weaknesses of each bank and find the best way to integrate their existing infrastructures, Hence, the advantages of this level of outsourcing include; an improvement in the bank's focus, leaving operational details to the outside experts, reductions in operational costs, an increase in the satisfaction of consumers, and the re-allocation of internal resources to essential core activities. In other cases, outsourcing involves that transference or selling off company assets to the outsourced service providers which increases the availability of capital funds (Oshri et al 2015). The existing IT department does not possess the internal capability such as expertise, time and resources for the delivery of effective services. Despite the different reasons that several organizations have for outsourcing their activities, the advantages of the decisions are usually highly similar. Outsourcing will enable the bank to increase its focus on more strategic issues, such as the provision of effective banking services, in the process of outsourcing more operational services, and enables the transfer of skills and knowledge to employees. IT outsourcing results in the reduction of costs through the provision of services less expensively due to cost economies from specialization which is developed by the services providers chosen. This is especially true in matters such as the purchase of the relevant IT infrastructure. Outsourcing will increase the access that the bank has to specialized expertise that it would otherwise not have accessed (Virtaluoto et al. 2016). However, outsourcing may limit the company's ability to develop organizational competencies or create inefficiencies as the outsourcer may not effectively understand or hold knowledge of the organization. Limitation of Outsourcing of IT Services The disadvantages that may occur as a result of outsourcing IT services are the loss of control and the possibility of higher initial direct costs. This is because it is not possible to outsource the company's corporate, culture or employee relations. Outsourcing may also generate several new risks which involve the company losing critical skills or the development of the wrong skills, along with losing control over the supplier (Drahokoupil et al 2019). If the outsourcing arrangement is characterized by poor conceptualization, development and maintenance could result in the loss of control, reduced flexibility, quality control issues, information security issues, and problems with the provider. Hence, any outsourcing initiative that the bank considers should be carefully structured and implemented for the avoidance of these issues. A difficulty in the identification of competent contractors is also a great issue as the corporate culture of the company has to be heavily factored in when making a decision as to whether to outsource or not. The bank also runs a risk of the resultant IT infrastructure losing its own unique personal touch. If the integration was conducted by an in-house network administrator, the bank’s IT employees would have intimate familiarity with the eccentricities and unique characteristics of the bank’s network that will be managed (Earl 1996). Due to these factors, the employees would have the ability to deliver the results in a more efficient way. However, outsourcing these IT practices cannot provide a personal touch that is similar to that of an in-house IT specialist. Lastly, substandard security protocols are also a risk that may occur if the bank decided to outsource IT services. The company has to carry out an investigation of whether the supplier or managing company utilizes security measures that are as robust as their own. This is because a risk exists that the employees of the outsourcing company may breach security which can be a great threat to the bank's data (Aundhe et al. 2009). All these risks should be put into consideration when selecting a supplier. Selecting IT Service Providers The need for the company to outsource IT is very clear, and this is a growth industry for vendors. However, while making this consideration it is essential to understand the impact that this decision has had on similar companies in the same industry. a) Measurement and Review The first step to be followed is measurement and review. The main reason presented for outsourcing involves access to higher levels of expertise and saving costs. It is essential to regularly make an evaluation of the results and costs included. There are several ways to measure the effectiveness of outsourcing, and the company has to constantly measure and re-measure. The outsourcing process should also be methodical. Based on the company’s needs and culture, the company’s outsourcing bundle may be different in comparison to that of another company. Every organization has different unique needs and should found outsourcing decisions on their own cultures. b) Evaluating and choosing the best service provider At a time when the decision to outsource has been done, an organized process should be used for the evaluation and choosing of the best service provider for the company’s needs. When dealing with a service provider, it may be at times difficult to make predictions on what may happen during contract renewals, charges that may be made for adjustments at the time of the contract period or the effects that service quality reductions may have in cases where there are no thorough specifications of the outcomes. Hence, the bank should create an internal evaluation team which will be in control of the evaluation and selection programs. The companies IT services have several dimensions which include technical, operational, financial and legal dimensions. The creation of a team will offer a higher potential for decision-making that is well-informed through several perspectives. When choosing the team, the bank should involve existing in-house providers in the selection of the new external providers. This is because they will have better knowledge of the job in comparison to other individuals. An example of some of the major IT providers that the company should consider include; I) Synoptek Synoptek is an award-winning outsourcing provider for managed IT services. It offers IT consulting, managed IT services, cloud services, and on-premise IT management along with 24/7 end user support for the improvement of business results. As it has over 500 employees and more than 2000 active employees across the world, Synoptek provides comprehensive information technology management services (Synoptek.com. 2019). This makes it a highly reliable supplier of IT services and appropriate for the bank’s needs. II) Wipro Wipro Limited is leading global information technology, consulting and business process service company. It harnesses the power of cognitive computing, hyper-automation, robotics, cloud analytics, and emerging technologies to help its clients adapt to the digital world (Wipro.com. 2019). Its knowledge with cloud computing, therefore, will provide it with a good grasp of knowledge concerning services conducted by bank B while also enabling the elevation of Bank A. this places it as an ideal supplier of IT outsourcing services for the integration of both IT infrastructure into one system that the merged business can deal with. III) TATA Consultancy Services Tata consultancy services is an IT services, consulting and business solutions organization which partners with many of the world’s largest businesses to foster digital transformation (TATA Consultancy Services 2019). The company has a cognitive-powered, integrated portfolio of IT, and business and technology services which are ideal for the bank’s needs. Its innovative approach will enable bank A’s transformation into the digital world and create an appropriate cloud and digital platform that will accommodate activities from both banks. The suppliers listed above are well-established within the IT outsourcing industry and been proven to be highly innovative within the field. Their portfolio of services such as cloud computing also makes them the most appropriate options for the bank. c) Investigation of Vendors It is also essential that a thorough investigation is conducted on each vendor before any conclusion is made. This means taking the necessary time needed to evaluate vendors as they will be critical to the success of the IT integration process. This can be done through the reflection of the company’s objectives during the development of the Request for Proposal (RFP). The RFP is a document utilized for communication between a company and its vendors while also clearly stating the levels of quality and service that the company requires. It should also be used as a guide for a formal and measurable evaluation procedure which meets the objectives. Vendors should then be interviewed concerning contract details- it is essential that Ford Motors use a face-to-face interview procedure. This can be done in conjunction with the review of the vendor’s reputation and certifications. Conclusion Outsourcing has been established as an essential tool that the bank should use as a way to access high levels of expertise while also enabling increased focus on the core business which is the manufacture of cars. As the companies do not have the necessary in-house expertise, outsourcing the integration of its IT infrastructure will enable it to greatly reduce operational costs while increasing the quality of banking services and related products it provides to its consumers. Before outsourcing the recommended business function, therefore, the company’s management should develop strategies detailing the organization’s outsourcing intention, the strategic rational detailed above, and key issues that will require to be addressed. References Aundhe, M.D. and Mathew, S.K., 2009. Risks in offshore IT outsourcing: A service provider perspective. European Management Journal, 27(6), pp.418-428. DAXX Nearshore IT. (2019). 5 outsourcing success stories (and 2 failures) that any startup could learn from. [online] Available at: https://www.daxx.com/blog/development-trends/outsourcing-success-stories [Accessed 20 Mar. 2019]. Drahokoupil, J. and Fabo, B., 2019. Outsourcing, offshoring and the deconstruction of employment: new and old challenges. In The Deconstruction of Employment as a Political Question (pp. 33-61). Palgrave Macmillan, Cham. Earl, M.J., 1996. The risks of outsourcing IT. Sloan management review, 37(3), pp.26-33. Hong, Y. and Pavlou, P.A., 2017. On buyer selection of service providers in online outsourcing platforms for IT services. Information Systems Research, 28(3), pp.547-562. Oshri, I., Kotlarsky, J. and Willcocks, L.P., 2015. The Handbook of Global Outsourcing and Offshoring 3rd Edition. Springer. Synoptek.com. (2019). About Us - Synoptek. [online] Available at: https://synoptek.com/about-us/ [Accessed 27 Mar. 2019]. TATA Consultancy Services (2019). [online]. Available at: https://www.tcs.com/ [Accessed 27 Mar. 2019] Virtaluoto, J., Sannino, A. and Engeström, Y., 2016. Surviving Outsourcing and Offshoring: Technical Communication Professionals in Search of a Future. Journal of Business and Technical Communication, 30(4), pp.495-532. Willcocks, L.P., Lacity, M.C. and Sauer, C. eds., 2017. Outsourcing and offshoring business services. Springer. Wipro.com. (2019). About Us- Wipro. [online]. Available at: https://www.wipro.com/about-us/ [Accessed 27 Mar. 2019] Read More

Another factor for consideration is saving costs for the company as a way to raise funds which can then be invested elsewhere. Ultimately, IT employees have to answer the CFO and cost may act as a critical component for consideration when outsourcing. Both banks already have considerable experience with the outsourcing of in-house functions (Hong et al. 2017). However, Bank B has considerably more experience in comparison to Bank A, as Bank A only has two years experience of outsourcing its Human Resource management and accounting functions while bank B’s experience is much more extensive.

As the in-house functions also greatly vary between the two banks, it may be difficult for in-house IT employees to create a comprehensive IT system that covers all of these differences. The bank will then be forced to hire more employees for this task. However, in its choice outsource, the bank will save on the cost o hiring more employees and purchasing additional equipment. Outsourcing may also be used as a way to enhance the role of IT within the bank. Bank A is a more traditional bank with physical offices across the country as compared to Bank B, which only provides online banking services.

The integration of both systems will require complex expertise and extended periods. Therefore, IT professionals may be hopelessly mired within the details and the paperwork, and be limited by certain horizons. The department wants to focus on the delivery of high-quality efficient service and expertise in the investigation of claims and specialized knowledge. By taking the transaction work and redirecting it out to outsourcing providers, the department will observe an increase in productivity and pushing IT system,s to have more strategic responsibilities in the organization.

In addition to the above, there are other several significant advantages that the outsourcing of IT may provide to the company and components that may affect the step by the bank to outsource these services. The transfer of risks and liabilities for employee issues brings in expertise in several areas of HR as needed most of which are carried out by outsiders, provides the ability to partner with an experienced HR team which may result in high expenses when maintained in-house. The company will enable experts to handle the integration of IT without the requirement to hire a large number of employees as the in-house expertise that currently exists is not enough.

These outsourcing experts are characterized by increased availability to deal with legal aspects of IT activities, which enables various businesses to focus on core operations, assisting in the creation of a stable, cost-effective operating platform along with the re-direction of focus from internal processes to achieving business goals and ensuring legal compliance. This as seen with Citi, a financial services company which has outsourced its tech operations since 1992. This way, the company has been able to increase focus on its core business and cut at least 11,000 jobs, most of which were IT-related positions(DAXX Nearshore IT 2019).

The company also has relationships with several outsourcing companies such as TATA consultancy services. This outsourcing of services has enabled Citigroup to focus on its core business which is the provision of financial services and enabled its growth to one of the top American-based financial services company across the world. Factors Which Affect the Decision to Outsource When considering outsourcing, IT employees should analyze the potential that exists to gain access to best practices, the realization of economies of scale, improving performance and stability, and improving their capacity to make changes.

One of the main gains of outsourcing to the company will be the reduction in executive time used up in the management of peripheral activities and providing top managers with the time and resources to focus more on the core of the company's business (Willcocks et al. 2017). When analyzed, the internal transactions costs are very high.

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