It's time to invest in market innovation

Current economic volatility may trigger further business process transformation in the financial services (FS) sector, according to a financial services industry research paper released recently by business advisory firm EquaTerra. What's Next for Service Delivery in Financial Services? Is a compilation of findings from two recent studies offering management insights gleaned by canvassing industry leaders on a variety of business topics.

Sixty-four per cent of financial services executives polled in EquaTerra's Globalisation Study, conducted by the Economist Intelligence Unit, believed rising income levels in developing regions of the world were creating a lucrative pool of new investors, spurring new-market expansion. Unfortunately, this window of opportunity coincides with continued volatility in the global economy. EquaTerra's paper suggested financial services firms will explore new outsourcing strategies to tackle both challenges.

"Financial services firms understand they need to reduce complexity across the board to lower costs," said Stan Lepeak, EquaTerra's managing director of research. "A growing need to customise new product and service offerings to capitalise on emerging markets is adding urgency for operational innovation."

The findings included:

Financial services firms are changing strategies in response to opportunities and threats created by globalisation. In EquaTerra's globalisation study all respondents cited the top change in response to ongoing globalisation was a new focus on redesigning product and service development processes. More flexibility is needed to tailor new offerings to different global markets and accelerate their time to market. All FS respondents also reported they were investing more heavily in new or emerging channels, including the Web, social media networks and mobile telephony to market, sell and deliver products and services globally.

Short term, financial services outsourcing buyers have become more focused on cost avoidance and are looking at outsourcing as a means to defer or amortise investments in new IT capabilities. Longer term, however, outsourcing is still viewed as a strategic reengineering tool, enabling business process improvement and market innovation. More than 50 per cent of both EquaTerra's own customer-interfacing advisers and the leading outsourcing services providers polled for the 1Q08 Pulse Survey reported that buyers continue to place more emphasis on process improvement, innovation and transformation than on pure cost reduction in their strategic outsourcing efforts.

As a result, EquaTerra expects demand for financial services outsourcing to grow at a more rapid pace, seven to eight per cent annually over the next five to seven years, in response to both current market challenges and opportunities.

Management and delivery of middle and back-office business processes is a prime target for innovation, according to John Boyle, financial services sector lead for EquaTerra. He said he believed that financial services firms could significantly benefit from alternative service delivery models like offshore captives or outsourcing to more efficiently and effectively deliver these services. "Sourcing strategies are effective tools for boom cycles, but they're even more valuable in bad times. They can ensure hard-won efficiency gains are permanent and evolve to deliver greater value."

Len Rust is publisher of The Rust Report

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