Outsourcing to Secure a Strategic Advantage

As the outsourcing industry matures, more asset managers than ever are seeking to outsource to provide strategic advantages. According to a recent “Middle and Back Office Outsourcing” study published by BNP Paribas, “outsourcing of middle and back office functions is an extremely common practice, with the vast majority of respondents (86%) indicating that they outsource these in part.”   So how are firms outsourcing strategically?

Most commonly, asset managers are outsourcing middle-to-back office functions to focus resources on their core expertise. A well-designed outsourcing partnership can automate and monitor middle-to-back office responsibilities, freeing up resources for priority items while improving efficiency and reliability.  The role of the operations staff can then evolve, letting go of non-core activities to adopt a more focused approach of supporting the firm’s core task of managing money.  Of the fifty financial services firms surveyed by BNP, the “vast majority (78%) indicate they see outsourcing as a long-term strategy designed to help the outsourcer focus on their area of expertise.”

Another strategic driver for outsourcing is to provide protection against market and regulatory changes. Outsourcing redistributes the risks and costs associated with middle-to-back office functions to vendors, which is especially important in today’s constantly evolving market conditions.  Not only is an outsourcer responsible for the service being outsourced, but also for staying abreast of requirements that would impact services.  Implementing an outsourcing relationship that assigns this responsibility to experts protects your firm against costly oversights and gives your investors assurance that you are meeting industry requirements.  According to BNP’s survey, distributing risk is the second-most common reasons for firms to establish outsourcing relationships.

Working with outsourcing vendors typically provides a third, important benefit – delivering services at a lower cost. Outsourcing providers have the economies of scale and expertise to provide quality services with fewer resources, and outsourcing providers who leverage their own technology have even more flexibility to customize solutions to meet each firm’s unique operational requirements.

With the availability of outsourcing to optimize your processes, it is time to consider whether your operational strategy needs updating. Is your firm wasting too many resources on inefficient non-core functions?  Download SS&C’s recent paper, “Beyond Hosting,” to evaluate how outsourcing can provide your firm with an opportunity to create a more effective operational model.

The views expressed herein are those of the author and do not necessarily reflect those of SS&C.

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