Rebalancing your sourcing strategy

After years of large-scale outsourcing and offshoring, a number of on shoring initiatives in both the manufacturing and service industries have left many executives wondering if a major trend reversal is occurring.

The answer, according to our analysis, is simply that many leading companies now have a broader set of options when they source. To do that optimally, they define bundles of activities that should be sourced consistently and select the best option for each bundle: offshoring, near shoring (locations in neighboring countries), farm shoring (lower-cost locations in the company’s home country), or on shoring. Today, sourcing strategy focuses increasingly on value-creating factors that go beyond labor costs, which was the primary driver of sourcing in the past.

Diversified sourcing modes

Our review of major on shoring initiatives reported by media in the past two years highlights diverging sourcing trends for manufacturing and for IT and business processes. The vast majority of on shoring initiatives were in manufacturing. This development is primarily due to a rebound in domestic demand for goods such as machinery and automobiles that are typically assembled close to final demand. In addition, a two-thirds decline in the US price of natural gas since 2008 is attracting some manufacturing industries that use gas as direct fuel or feedstock.

In contrast, only about 20 percent of on shoring concerned IT and business processes. Corporate sourcing leaders that we interviewed said they find that strategic offshoring of IT and business processes retains the promise of reducing costs, hedging production risk, and increasing access to talent by employing a network of offshoring locations.

Manfred limiter, CIO of Nokia Solutions and Networks (NSN), said his organization remains heavily outsourced. Moreover, its sourcing partners in turn offshore resources to a high degree. This provides flexibility for NSN by avoiding fixed costs and having short lead times to add or reduce resources. A financial-services executive estimated that his industry’s shared-services centers are increasing their offshoring ratio to have at least a third of business-process staff offshore.

Overall, we conclude that what’s happening is not a major trend reversal but rather a rebalancing of sourcing modes focused on factors other than cost. In the case of offshoring, these factors are access to a global talent pool, increased flexibility, and the ability to establish a global network, which naturally hedges against multiple operational risks such as currency fluctuations, regulatory changes, and natural disasters.

Near shoring and farm shoring, on the other hand, offer advantages such as access to workers with language skills that are essential for sourcing effective frontline sales. One global insurer, American International Group (AIG), is moving ahead with the creation of near shore centers in multiple regions, according to its global shared services executive, Peter Robertson. AIG expects to locate an increasing percentage of its staff in scaled centers, as near shoring also allows movement of activities that require language skills other than English, enabling relocation of activities higher up the value chain. Clearly, near shore and farm shore servicing will become more important as companies revise their sourcing strategies.

Thinking about bundles

Making the right choices in an evolving sourcing market, in which new economics and technologies enable new synergies and a wider range of options, requires a new way of thinking.

Many companies are discovering that sourcing decisions cannot simply be made based on the notion that “noncore” business activities can be offshored. First, what is core or noncore is subjective. For instance, the finance function might consider sales a core activity because it generates revenues and view operations as noncore. Those in marketing and sales might consider call centers core because they are visible to customers and view R&D as noncore.

Second, if top managers agree, for example, that IT project management is core and should be kept in-house, while software development is noncore and can be outsourced, they must weigh the potentially damaging side effects of separating the two activities. In this case, one complication could be a lack of good in-house project managers in the future, because the career path to an IT project-leadership role often includes deep software experience.

That’s one additional reason companies need to articulate the building blocks of a sourcing strategy according to a bundling logic that results from a systematic analysis of the business processes in scope (ideally covering the entire enterprise). This analysis should identify interdependencies among activities, uncover proximity requirements, and reveal language requirements; based on this information, companies can define bundles of activities that should be sourced consistently, by using the same ownership model and the same location.

    Such a strategy could be useful, for instance, in manufacturing. In a March 2012 Harvard Business Review article, GE CEO Jeffrey R. Immitzer structured that by bundling R&D and production into one unit at Appliance Park in Louisville, Kentucky, he could reduce waste and cost and increase productivity to achieve a 68 percent reduction in time to produce.

    At NSN, Manfred Immitzer structured three big enterprise IT bundles. The first included the enterprise applications that run customer operations and supply-chain activities. The second was IT for R&D, which he described as a pivotal function in a technology company like NSN. The third bundle was the common IT infrastructure serving all of NSN. These bundles have been sourced with three different vendors, each with different mixes of onshore and offshore resources.

    As companies move away from the core and noncore logic and bundle their activities, they find themselves in a better position to optimize their sourcing strategy. This process usually results in a network of locations and sourcing approaches, which hedges against geopolitical, currency, and other risks, while increasing access to a diverse pool of talent. Our analysis shows that rather than increasing the size of their existing offshore locations, companies prefer to complement their network with additional farm shore and near shore centers.

    As the complexity of their network increases, executives need to focus on effective sourcing governance and ensure that they make the most of value-creation levers such as centralization, scale advantages, process standardization, automation, and labor arbitrage.

    Sourcing is coming of age, and many executives must revise their sourcing strategy to maximize value for their enterprises. Those who get it right can shape the cost, risk, and talent structures of their operations.

      SUMMARY

      • Financial services (FS) firms globally face a range of well-documented challenges; their peers in the Middle East are no exception.

      • As FS firms seek greater efficiencies, managed services – which are well-suited to a range of FS ecosystem players like banks, central banks, payment services providers, exchange houses and others – offer some useful solutions.

      • Managed services are much more than traditional outsourcing. Instead, they are a next-level solution incorporating specialised skills and outcome- based results. Managed services are transformative, reduce risk and costs, and see suppliers become true partners.

      • In the “Never Normal” months of 2020, we have seen banks, regulators and others in the Middle East’s FS sector work together to manage numerous challenges, including that of remote working. That will stay the same going forward. In many instances, the key to success has been the agility, flexibility and nimbleness of partners in areas like technology and operations – proving the benefits of a managed services approach.

      • Technology and operations are key focus areas for managed services, where they can help to drive digital transformation, deal with legacy systems, reduce costs and increase efficiencies, and scale up business. Also, they help the organisation focus on what is core to their business, while at the same time ensuring a strong base of operational excellence, security and service quality, and, importantly, creating a foundation of innovation.

      • Once FS firms have identified the functions best-suited to managed services – a decision that FORFIRM's framework can help with – they should analyse various aspects with a business focus to ensure that this solution and potential partners are suitable.

      • The key aspects that FS firms should consider while embarking on the managed service journey include the following:

      • The firm’s strategy and vision;
      • Drivers for change: skill complexity, delivery risk, the regulatory landscape, cost efficiency, and automation and innovation;
      • Defining the customer and how to improve customer satisfaction;
      • Decision criteria: the time horizon and finding the right partner;
      • Delivery and outcome: transformation outcomes, and risk and delivery-based compensation.

      • While it’s key that prospective partners have the necessary skills, it’s also crucial that they are aligned with the FS firm’s culture, vision and strategy.

      • For their part, FS firms need to understand that the benefits of a managed services approach can take a few years to feed through, and may not always be quantifiable on day one.

      The Pursuit of Efficiency

      The pressures facing financial services (FS) firms, which our FORFIRM colleagues have covered comprehensively in a range of articles, are forcing players in the sector to review various operational areas. In a time of lower revenues, tighter margins and increasing competition, players are focused on increasing efficiencies, accessing innovation more easily, and being more agile and resilient as they seek to manage changes.

      When it comes to becoming more efficient, for example, there are many avenues firms can pursue – from digitisation to automation, and from creating platforms (for example, using an ecosystem approach) to partnering. Specifically, IT and operations outsourcing models include staff augmentation, selective sourcing, outsourcing and managed services (see diagram).


       

      The classification below can be used as a base for indentifying the outsourcing model
      Sourcing Model INSOURCE STAFF AUGMENTATION SELECTIVE SOURCING OUTSOURCING TRANSFORMATIONAL OUTSOURCING- MANAGED SERVICES
      Objective Maintain control internally (usually for reasons of intellectual property, privacy or strategic responsiveness). Save money while maintaining responsibility for technology and operations. Leverage external cost structure benefits and expertise while maintaining an appropriate level of control. Offload services to an external organisation for which they are a core competency. Combination of outsourcing but also transformational in nature. Benefits extend beyond cost optimisation to niche skills, to outcomes-based delivery, etc.
      Partner Role Not applicable. Provide specialised skills and/or low-cost labour through offshore– become an extension of the Bank’s technology or operations arm. End-delivery responsibility remains with the Bank. Infuse resources for projects or to manage discrete systems. Manage and run capability. Jointly define key roles and targeted benefits. Partner may manage strategic programs. Transform, manage and run entire - for e.g. technology capability. Bank and partner jointly define key roles and targeted benefits. Partner manages strategic programmes.
      Benefits Preserve intellectual property or privacy, or enhance strategic responsiveness. Provision of lacking skills. Labour arbitrage. Can help fill skills gaps and provide efficiency gains through process improvements, tools and methodologies. Can help fill skills gaps and provide efficiency gains through process improvements, tools and methodologies. Can provide significant cost savings. Provide efficiency gains through rationalisation, consolidation and standardisation at enterprise-wide level. Can provide significant cost savings, also leveraging automation, innovation, etc.

       

      Having a flexible partner can help firms on the innovation, agility and resilience fronts too. While a number of FS firms globally have leveraged managed services in partnering to meet such needs, this avenue is less common for firms in the Gulf Cooperation Council (GCC) nations1– even as managed services become increasingly important.

      The time is ripe to consider these offerings. First, though, it’s important to define what we mean by “managed services”, and how these differ from traditional outsourcing. The latter is common to areas like business process outsourcing (BPO) and knowledge process outsourcing (KPO) – commoditised services run by a third party, and that are undertaken solely from a cost-saving perspective.

      Managed services are a next-level solution. While cost-savings are an important factor (particularly when driving increasing efficiencies), managed services differ in that they:

      • Focus on the need for certain specialised skills;

      • Are predicated on outcome-based results that are driven by operational- level agreements (OLAs), service-level agreements (SLAs) and key performance indicators (KPIs);

      • Are not limited to the third party providing full-time equivalents (FTEs); instead, they incorporate a built-in, transformational approach that provides people, process and technology enhancements;

      • Reduce risk overall and support the firm in managing uncertainty by incorporating agility and flexibility into, for example, technology and operations, which is particularly important in today’s “Never Normal”, frequently changing environment;

      • And are undertaken with suppliers that tend to become true partners, rather than being limited to the standard client-vendor relationship.

      Managed services can help FS firms to focus on their services, interactions, capabilities and capacity, while such partnerships can see them unlock business value in near-real time. Take technology and operations: a managed service should see faster application development with 20-30 percent less effort; it should result in fewer defects and an optimised test cycle – for example, improving the testing cycle time by 50 percent over three years; it should reduce unplanned downtime and ensure technology operations are 20-30 percent more efficient; and it should cut costs and uplift revenues.

      In addition, managed services can help FS firms move towards a digital culture. That can generate significant rewards in areas like technology and operations, for example, which is seen in some firms as a burden or as a space that is hard to work with. However, the right managed service partnership can change this, ensuring it becomes a true enabler for the rest of the FS firm and a competitive advantage. How might this work? Staying with technology, a firm could look to request that a managed services partner provides IT infrastructure as a service. That could cut the firm’s costs on the service side, but also in some instances on the hardware side and, in terms of managing that infrastructure, bring down the total cost of ownership – including by leveraging increased productivity and efficiencies.

      Managed services typically comprise on-site and off-site solutions, with the mix dependent on the nature of the work, the availability of talents, and on local regulations (for example, factoring in visa requirements for workers onsite in a location which is not their home country).

      Apart from regulatory considerations, the FS firm must consider what works best for it in terms of what the vendor can deliver that is aligned to its needs. This might mean considering space requirements for the vendor’s team at the firm’s premises; it might require that the firm provide secure access to relevant technological requirements from offsite; it might see the vendor having to address a range of security-related topics; or it might see the firm looking at the advantages of offshoring, such as additional cost- optimisation and having access to a wider set of best practices.

      FS in the Middle East: Unprecedented times

      Technology and operations are among the areas most viable for managed services. That’s in part because FS firms in the Middle East, along with peers elsewhere, face a litany of related challenges: the drive towards digital transformation; dealing with legacy systems; the need to scale up their business; increasing costs; and a complex IT landscape. A general slow-down in the economy, driven predominantly by lower oil prices, reduced trade activities and a decline in tourism, is an additional challenge for FS firms in the Middle East, while business disruption and the impact of the COVID-19 pandemic are global issues.

      Managed services solutions can help to resolve some of these challenges. They can also help FS firms to improve in other areas like increasing their focus on service quality, being more agile and resilient, and improving security and bringing greater efficiencies.

      Switching to managed services

      • The COVID-19 pandemic has highlighted how FS firms and government agencies can make the switch to managed services.

      • In the Middle East, for example, FORFIRM worked with a number of clients to shift large- scale operations to a completely remote setting in days, depending on the scale required, with no negative impact on performance.

      • Introducing managed services allowed those clients to increase their focus on their core business, while not losing sight of areas like technology and operations.

      • Varied organisations can reap rewards from managed services, as can industry-linked groups like financial services companies.

      • Globally, the managed services market is expected to keep growing – from US$223 billion in 2020 to US$329 billion by 2025, a CAGR of 8.1 percent.3 Key drivers include: greater numbers of cyber attacks; a lack of IT professionals; the high cost of data-loss and network downtime; an increasing focus on efficiency; and a focus on automation and innovation, to mention a few.

      Beyond that, there are the broader regional challenges facing the industry – VAT increases in some GCC countries, troubled real estate and services sectors, and a decline in key non- oil sectors will continue to heap pressure on earnings, which are struggling. Net profits for the GCC’s banks, for example, reached a low in Q2/2020 even as loan-loss provisions doubled in the two years to Q2/2020 to US$4.6 billion.

      Faced with shrinking net income, lower top-line growth, a possible decline in asset quality and potentially higher provisions, it’s little surprise that GCC banks’ efficiency is going the wrong way: their cost-to-income ratio climbed to 44.5 percent in Q2/2020, up from 39.7 percent six months earlier.

      And while stimulus efforts from government agencies will help, banks and other FS firms in the region need to focus on how they operate and how they can differentiate themselves. Increased M&A and digitalisation activities are consequences, but won’t remove the necessity of looking at how they can improve and change internally. Costs will become increasingly important, and the digital new normal, or rather the “Never Normal”, will see firms needing a range of differentiated skills – all the while ensuring that their credit quality doesn’t deteriorate, their operations aren’t affected, and the customer experience is improved and reshaped to the needs of today and tomorrow. In short, what is key is that all players in the FS ecosystem – from regulators such as central banks and other government agencies, and from payment service providers to exchange houses to banks – are able to act fast, be innovative and be resilient.

      Our view is that many FS firms would benefit by pursuing managed services solutions, and that all should at least consider how this approach might help.

      Why some FS firms are reluctant to embrace a managed services model

      • One important reason is that the people in areas susceptible to managed services solutions are resistant to it – they work in a certain way; they fear losing their job; or they worry the partner might overshadow them.

      • Other challenges include the lack of a strong vision to bring change in the way that the firm operates, concerns about efficiencies (i.e. moving away from traditional approaches, or disruption from “business as usual”), and even fears about whether it will survive transformational changes. Generally, then, these are mainly “people” topics.

      • While change is never easy, the solution is strong leadership, and ensuring that forward-looking executives are in place in CIO, COO and CTO roles.

      • At an organisational level, firms fear the managed services route might see them lose control over aspects of their technology and operations (which should not be the case if they use proper vetting procedures as described below). Security and data-privacy concerns are also common (and are also unfounded provided firms take the appropriate security measures) – indeed, selecting the right partner might well strengthen security.

      • Success also requires that the managed services partner supports the firm, ideally embedding itself with the client to meet people and cultural concerns, and to build trust. Within the FS firm, it also needs a shift in mindset away from legacy applications or “ways of working”, and from often-outdated policies and processes, and rejecting the “refresh” that technological changes typically involve.

      Key Considerations

      To assist in that effort, we developed an approach (see diagram) with key aspects that banks and other FS players can consider once they’ve identified which functions are suitable candidates for managed services – a process that our framework can help them to manage. We’ll look at each aspect in turn.

        Company Strategy & Vision
      Key Drivers

      development-skill

      Skill complexity

      high-risk

      Delivery risk

      globe--v1

      Regulatory landscape

      cost

      Cost efficiency

      external-setting-talent-management-flatart-icons-outline-flatarticons-2

      Automation & Innovation
      Decision Criteria Time Horizon Right Partner
      Delivery & Outcome Transformation outcomes Risk & delivery-based compensation
        Robust Governance Change Management

      Company Strategy & Vision

      Even if the managed services are for just one specific area, it’s crucial that the partner understands and is aligned to the firm’s strategy and goals. In that way, both parties can agree on a vision for the managed services functions.

      For example, should the FS firm decide to partner on technology or operations (for example, on IT development, application management, infrastructure management, testing, security operations or other more generic operations like its callcentre or service desk), then both parties should agree on a common vision, with the operating model translated to the partner’s focus area, and with a culture of continuous improvement central to it, including how to improve quality and customer satisfaction.

      Both parties must also work as a single team that operates the retained and managed service elements. To that end, it is key that they establish an organisation structure enforcing accountability, communication and transparency from both parties.

      Key Drivers

      We have identified five drivers that are core to this analytical process of driving forward the FS firm’s managed services agenda: skill complexity; delivery risk; the regulatory landscape; cost efficiency; and automation and innovation. We will tackle each in turn.

      Skill complexity

      Related skills – or the lack of them – are a challenge in most countries. The GCC is no different, and fast-evolving areas like cyber-security, as one example, face a shortage of specialised skills. That can make it difficult and costly to recruit such staff.

      The same holds true for skills in specific languages, or for test automation or in infrastructure management in areas such as the cloud. Determining whether potential partners can provide such skills is a key step, as is validating that the partner has the skills in-house. And should the partner sub-contract such requirements, the FS firm must be sure that its partner has taken end-to-end responsibility and ownership for delivery of its obligations, and that its proposed team has successfully delivered those obligations for other clients.

      Delivery risk

      It’s crucial to ensure that managed services partners can deliver what they promise, and that’s best achieved by ensuring that they align with global best practices – for example, that at a minimum they meet the ITIL standard for IT service management.

      Take security, for example. There are a number of considerations when evaluating a potential managed services partner. In part, these involve ensuring that its security operations centre (SOC) monitors functions properly, and making sure the potential partner adheres to all necessary security protocols: secure internet, for example, or secure virtual private networks (VPNs) if based offsite; account monitoring; cyber-threats; and 24/7 checking and monitoring of services.

      Additionally, security considerations at the partner’s premises also include items on this (limited) checklist to determine whether there are robust workplace security measures. For example: ID cards; CCTV; 24/7/365 security personnel at entry and exit points; security checks; fire detection; firewalls; a clean-desk policy; project-specific VLANS; dedicated client hardware; USB/CV-DVD-disabled computers; hard-disk encryption; installed and updated antivirus software; and data- loss prevention measures. Additionally, the FS firm should conduct periodic audits of its partner’s security measures. Ticking these boxes is an important step in ensuring partnering peace of mind.

      At the same time, the FS firm must vet potential partners to ensure their business continuity planning (BCP) and disaster recovery procedures meet what it needs. The increased focus on BCP means this is not a one-time exercise, but one that requires continuous validation and testing.

      When it comes to a partner providing specialist security services to a client, FS firms in the GCC region can leverage external tools and the skills of their partners. For example, a 24/7 command center that uses AI and other technologies can bring real-time automatic diagnosis of events, with auto-remediation and auto-correction of vulnerabilities. FORFIRM's Manage Detect Response (MDR) platform, for instance, uses analytics and machine-learning to monitor, detect and respond to threats using automations built as industry- and attack-specific plays. This is relevant when a bank or any other FS organisation considers a partner to manage its security operations.

      Beyond this, there are a range of other factors that FS firms should consider. The first is to balance concepts like DevSecOps in technology and operations with what will best fit their needs. After all, there is no one-size-fits-all solution.

      The second is to manage the transition phase – whether that be from, for example, the FS firm’s in-house team to the partner or from another vendor to the new partner – to ensure there are no interruptions to business as usual, and no decline in service levels during the transition or afterwards. Success here requires upfront agreement of a robust knowledge-transfer plan, which should include the option to retain some of the existing team in place even once the partner has taken over.

      The third is to define the SLAs, OLA and KPIs, and agree them jointly in advance and document the same. These should also ensure that FS firms following the managed services path see a marked reduction in costs and risk levels over time, and that they progress along the defined and jointly agreed-upon transformation journey. Firms should bear in mind, too, that there is no such thing as a 100-percent managed services solution – in almost every case, 5-10 percent of the staff involved will be the FS firm’s employees; they will augment what the partner is doing, which means the FS firm will always retain some control over the processes.

      Regulatory landscape

      The regional and global regulatory landscape has changed significantly in recent years, and our view is that this shift will continue – and even more so in the region with the GCC’s focus on localisation.

      When looking to partner on managed services, FS firms must assess existing regulatory requirements in detail, and must keep regulatory changes under review on an ongoing basis to ensure compliance and reduce risks. This includes assessments across different areas – for example, if work is being done offsite, the firm must determine what data can be processed or held offsite.

      Other considerations involve visa requirements for partner teams that need to travel onsite or security issues that might arise.

      Cost efficiency

      Optimising costs is one consequence of managed services – boosting productivity with increased automation or better processes.

      But before proceeding, it’s crucial that both parties agree in writing which measures will be taken to optimise costs, and the relevant goals and timelines.

      Lowering staff-related costs like recruitment, induction and training can help the FS firm to reduce overheads, while dividing responsibilities lets it focus more on value-added activities. It’s also important that unplanned events and disruptions are reduced over time in the partnering period, as this will also reduce costs.

      Given that a key purpose of managed services is to optimise costs and boost efficiencies, the FS firm must ensure its internal team remains lean; after all, there’s little point in running two organisations in parallel. For this reason, internal technology or operations teams should focus on specific areas, including taking the lead on aspects like critical workstreams, quality, governance and vendor management. Yet it’s vital, too, that personnel from both organisations work together as one team.

      On the technology and operations note, it’s worth bearing in mind the status in GCC countries of the cloud – just one aspect of technology and operations that firms need to consider. Currently, cloud as a subject is not fully ready, and though this will inevitably happen – perhaps through private cloud solutions or hybrid architecture – FS firms should factor in what a partner can bring on this front. In some countries, for instance, smaller banks are considering managed private cloud offerings, which frees up capital, reduces the need for investment, and means they can run state-of-the-art IT architecture as they grow and innovate.

      In any event, it’s important that FS firms can leverage the synergies involved to boost productivity. On top of that, firms should, for example, expect further productivity increases and cost reductions as their partners incorporate other solutions – better infrastructure could cut the mean time required to resolve incidents, for instance, while chatbots could deflect a greater proportion of calls. All of these technological improvements should bring further efficiency and cost gains down the years.

      Automation & Innovation

      That links to the next driver, which is that managed services should support the FS firm’s culture of promoting innovation, and should future-proof back-office activities. And, given that the partner should be leveraging the latest technologies, a managed services solution should bring a competitive advantage.

      At this point, firms should, for instance, ask whether their prospective partner commits to delivering continuous improvements and sustainable excellence – even after they leave and, if needed, when such work is brought back in-house (if required). During the period of the agreement, it’s crucial that the partner works on a model to bring the service back in-house when needed – whether that be the capability development or the tools. When it comes to those tools, the firm should ensure those aren’t all proprietary to the partner, otherwise it could face steep licensing fees should those services be brought back in-house.

      There are two final points worth making. The first is that FS firms should consider specific co-innovation programmes that can be undertaken during the tenure of the managed services agreement, with those based on business outcomes. The second relates to a broader point: partnering ought also to be about embedding a culture of innovation in the FS firm – one that leverages the partner’s ways of working in terms of design and innovation. After all, doing things in a different and better way tends to be infectious, and it’s likely that other departments within the firm will want to emulate such practices when they see them in action.

      Decision Criteria

      There are two areas to focus on when it comes to the decision criteria: the time horizon and finding the right partner.

      Time horizon

      In our experience, it’s difficult to see all benefits on a managed services contract in less than a year; a timeline of two to three years provides a much better indication. That said, the FS firm should be able to see some improvements immediately after the transition phase.

      FS firms should also keep in mind that the first few months are typically spent on transition and stabilisation; after that comes the focus on cost reduction and increased productivity, and only later are the benefits of innovation, increased automation and transformation apparent.

      Right partner

      Finding the right partner sounds obvious, but FS firms should consider that success might require more than one – with different partners leveraged for different areas.

      Delivery & Outcomes

      For this final aspect, FS firms should consider two broad areas: transformational outcomes, and risk and delivery-based compensation.

      Transformational outcomes

      Although staff augmentation is important, it’s essential that the partner works with the firm towards a common goal linked to the company’s overall strategy. In other words, selecting the right partner is as much about ensuring they share, for instance, the FS firm’s vision as it is about their ability as a service provider.

      It’s also important that the partner is committed to investing in its own services – for example, improving its delivery centres and innovation laboratories to benefit its clients. In determining the outcomes for, say, technology or operations, FS firms should focus.

      In determining the outcomes for, say, technology or operations, FS firms should focus on the following:

      • Testing: The focus should go beyond simply ensuring a strong foundation based on robust processes and governance, and should look at automation as one of the key areas. For example: converting manual test cases to automated scripts; reducing cycle times through tight integration with test data, the environment and DevSecOps; and generating insightful analytics and decisioning to mine patterns of data to improve agility and reliability.

      • IT development and application management: If the purpose is to leverage and embed DevSecOps, then it’s crucial to create a culture of innovation and continuous improvement. The partner should be able to: embed security into an application’s lifecycle; bridge the silos between business, development and operations teams; use cutting-edge automation and tools to build better, smarter solutions; identify quality-control concerns early; reduce defects across the lifecycle; stabilise and secure the operational state; and make changes that are systematically auditable. DevSecOps is a good example of an area where success requires more than the partner being ready to implement the changes and the FS firm being ready for that process to begin. It also requires more than just bringing in the right tools and automation solutions. Instead, it means making changes to the operating model, to the people involved and to the organisation itself. In short, success is not just a matter of “lift and shift”.

      • The same holds true for infrastructure. The first step is to build a strong foundation; after that the focus should be on DevSecOps, if relevant. Or it could be on accelerating innovation with the use of chatbots; bringing in data-centre automation; innovating to generate real-time insights and intelligence; or providing service predictability analytics.

      • Firms can also consider using managed services to run their SOC and cyber-security activities, and leverage on AI to further increase security (as mentioned earlier).

      • Regardless of the partner’s expertise, it’s key that they commit to aspects like the FS firm’s KPIs. SLA performance should be a given, with the transformational outcomes achieved over and above those listed.

      Risk and delivery-based compensation

      It’s key to agree the SLA up-front, and to incorporate the option of penalties if certain key aspects of the SLA are breached. That keeps both parties focused and committed to the service levels outlined.

      Equally important is that the SLA doesn’t become a point of dispute – that, instead of being wielded as a stick, it is used as a motivational tool. Avoiding a blame game requires clear alignment on the aspects that each party is accountable for and the elements that those aspects depend upon.

      Extending the motivational element, the FS firm could agree that the managed service partner benefits from credits should it exceed a certain service level.

      Finally, when it comes to delivery-based compensation, the main priority of the partner must be service-delivery excellence; however, it’s also important to recognise how it generates positive transformational change in the firm, how it improves ways of working, how it builds capabilities in the firm’s team, and how it drives aspects like innovation and culture.

      Managed Services and Living Systems 

      • The topic of managed services is evolving, yet it already plays a key role in technology and operations for a number of FS organisations globally.

      • That said, even prior to the COVID-19 pandemic, some FS players weren’t able to enjoy the expected return on their investments in technology. This is where FORFIRM's approach of Living Systems is key.

      • A Living Systems approach drives continuous business value through a series of transformations, creating value by moving five levers of change – strategy, organisation, practices, technology and talent – in an agile way.

      • This incremental approach puts technological innovation at the heart of the organisation through a virtuous, living cycle of reinvestment and transformation, incrementally evolving a company’s capabilities and skills in a world of constant change.

      • Marrying Living Systems solutions with a managed services approach builds intelligent operations and organisational resilience – precisely the properties that FS players everywhere are seeking.
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