Famous management consultant Peter Drucker has said, “Do what you do best, and outsource the rest.” This makes a lot of sense, doesn’t it? It’s really how many of us live our lives—we get a job doing something we’re good at and then pay others to do the things we can’t do ourselves. But when managing a business like a bank or credit union, it’s difficult to know if outsourcing is really a good option. It can be hard to understand all the benefits and drawbacks that come with outsourcing and which services could work best at a financial institution.
Types of outsourcing
Outsourcing can come in different forms, but it always aims to meet the same benefits and goals for businesses. The first major type is using freelancers and independent contractors. These are typically used for short-term projects or limited-work situations. In these cases, the motive for outsourcing is simply because it would be impractical to get a new employee for the amount of work that needs to be done.
The second major type is the contracted business service. This is what many people think of when they hear the term “outsourcing,” and it involves paying another company to handle some regular part of your business operations. Many companies outsource things like IT support, digital services (such as website or app management), marketing, or customer service.
(Many people think outsourcing and offshoring are the same thing, but they are not. “Outsourced” means the company work is being done by someone other than company employees; “offshore” refers to moving work to another country.)
As mentioned, the idea behind outsourcing is simple: it’s more efficient to pay a professional service to do work your business doesn’t do especially well. This comes with a huge number of potential benefits, including:
Better work: Outsourced workers who do a particular type of work every day can be faster and more skilled than a direct employee who does not specialize in that type of work.
Better time utilization: For business operations, outsourcing mundane and time-consuming aspects of employees’ jobs can mean they are able to address more valuable work on a better timetable.
Less management complexity: Outsourcing tasks eliminates the distractions and complications of managing and supporting direct employees. It also alleviates the HR work that comes with hiring and training more employees.
Improved flexibility: Using a large service provider can be very helpful when there are sudden changes in business or support needs. During temporary surges inactivity, there is no way for a financial institution to instantly hire and staff more employees; however, a service provider will typically have the staff to deal with these surges without disruption to your customers/members or business operations.
Less business overhead: In addition to a reduction in management and benefits costs, outsourcing jobs can be an excellent way to keep operational costs low if hiring staff would require the purchase of more office space or newer equipment.
Reduced risks: Outsourcing can help reduce a financial institution’s risks by moving certain tasks to companies that have the right security and insurance to mitigate problems. (This is particularly important for data and IT security risks.)
Better expertise: It can be difficult (and often expensive) for any business to stay on top of changes in technology and best practices. Outsourced expertise can keep track of trends and lower the cost of testing new processes.
Ultimately, an ideal outsourcing experience will be one that improves the quality, relevance, and efficiency of work. These improvements show why outsourcing is such a popular option for many roles at many different businesses.
But there may be drawbacks when outsourcing parts of a business and managers need to consider the potential problems that come with the benefits.
Less connection: There is a strong belief at many businesses that employees need to really believe in the company and its mission. When hiring freelancers, contractors, or service companies, it’s highly unlikely the outsourced workers will share that enthusiasm for the work. In some cases, like data management, it may not impact the business at all; but other roles, like customer service, can suffer greatly if the workers don’t help reinforce the brand and mission of the institution when talking to real people.
Lost cross-department efficiencies: Almost everyone at a company has at least one idea for how to improve the business. Many of these come from interactions between different departments and staff noticing an opportunity that a manager never would have found. Since outsourced roles exist outside of the company and follow their own rules, it may be difficult to find places where innovation would create better services.
Potential for lower-quality work: While outsourcing allows for better work and more efficiency on paper, the reality could be different. Depending on how much information they provide or oversight they allow, outsourced services may be able to hide lower quality work or poor service interactions. Additionally, you may have no direct ability to reprimand or fire problematic employees if poor behavior takes place.
Difficult to change: Changes to process or positioning can be more difficult to get implemented by outsourced staff than direct employees. This is especially true for small changes that might be able to get covered with a quick meeting or email. Asking a servicing company to make a change to their processes can require a number of steps and possibly even an adjustment of the contract.
Staff concerns: While it depends on the type of work being moved, suddenly outsourcing several tasks or positions can make existing staff nervous about their own job security. If done carelessly or with too little communication, outsourcing can create staff shortages when employees quit finding jobs that feel more stable.
Because there are so many benefits and drawbacks, it can be difficult to decide whether to outsource. Each financial institution is unique, so there are no definitive rules about which departments or processes should be outsourced at every bank/credit union. There are, however, some guidelines when evaluating outsourcing.
According to business consultants at Deloitte, a well-outsourced banking process “reduces the cost of operation, improves the quality of service, provides greater compliance with regulatory requirements, increases customer satisfaction and contributes to the value of the bank.”
Managers should look for outsourcing solutions with multiple benefits, not just one. That may seem obvious, but it’s important that managers and decision-makers are actively thinking about all the effects outsourcing could have. Dramatic changes to processes are great opportunities to rethink all of the operations that are attached to them.
A good opportunity to outsource will be one that can reduce total costs and the complexity of the core business operations, while not damaging customer relations or the company brand.
Even if outsourcing could provide obvious improvements and efficiencies, selecting a services company is not a quick decision. Financial institutions need to carefully research options, plan out how the outsourcing will impact the business, and perform due diligence on the company they want to use.
Since each financial institution, service need, and outsourcing company is different, all steps to outsourcing cannot be covered here. However, the U.S. Federal Reserve has provided financial institutions guidance on establishing outsourced services. They highlight some best practices:
Establish goals and a way to objectively measure success for an outsourced process
Ensure that an outsourcing arrangement does not keep the institution from meeting obligations to both customers/members or regulators
Perform due diligence on the outsourcing company, ensuring they are reliable, insured, and meet any necessary security standards
Ensure that outsourcing relationships are controlled by written contracts
Develop contingency plans and periodically test any backup procedures
Require all service providers to protect any confidential information they may handle
While each financial institution must weigh its pros and cons, outsourcing can provide significant value when used appropriately.
As an equipment management services provider, Equips helps financial institutions focus on doing their best work. Our strategy is to take on the time-consuming and distracting management of financial equipment maintenance so that you can do the work that drives your success.
There’s no need to change your equipment or your vendors, just let us take the complexity out of scheduling, organizing, and billing your equipment services. By entrusting the day-to-day care of your critical branch equipment to our team of experts, you can maximize efficiency and simplify processes while you reduce operating costs and lower your risk.
Contact us to find out how a partnership with Equips can help your financial institution be at its best.
Equips is revolutionizing how Banks and Credit Unions manage, maintain, and protect critical branch equipment. Leveraging a network of 500+ vendors, experts at Equips help Financial Institutions respond to equipment problems quickly in one place: Equips. Active management allows Financial Institutions of all sizes to improve operational efficiency, cut costs, and streamline equipment inventory and vendor management. Our groundbreaking solution provides clients across 45 states with better insight and transparency into their critical equipment and enables employees to do their best work. To learn more visit equips.com.