Offshoring Of Bank IT Jobs Looks Likely To Rise In 2009

Technology Staff Editor
Posted by

"Offshoring" is a word feared by financial technologists, increasingly with good reason. According to Jerry Luftman, lead researcher of the Chicago-based Society for Information Management (SIM), "offshoring" has become the favorite buzzword of today's bank CIO, replacing "reengineering" from 10 years ago. (For IT staff, either can amount to being laid off.) Having crunched SIM's latest survey numbers, released in November, Luftman has reversed an earlier assertion that "Offshoring is greatly exaggerated." SIM's June survey of its 3,600 CTO/CIO members, one in six of whom are in financial services, asked participants how much of their IT budgets they planned to allocate to offshoring. "It's increasing from 4 percent to 5.6 percent," reports Luftman, "which is a big jump, considering it's been flat for about six years and was, in fact, down last year." This confirms what BS&T has been hearing frequently from bankers and vendors: Offshoring and outsourcing are on the rise -- as one might expect when there's an acute need to cut costs. However, as reported in last month's issue, there are those who predict that the new presidential administration might limit offshoring practices, as President-elect Barack Obama promised during his election campaign. There's also some debate as to what is even meant by "offshoring." Luftman, who is also a professor at and executive director of the Stevens Institute of Technology in Hoboken, N.J., says "offshoring" typically refers to a company employing its own staff overseas, as opposed to "offshore outsourcing," in which the company uses third-party services abroad. According to Luftman, this has emerged as "pretty accepted" terminology. But Margaret Pitt-Jones, a London-based managing consultant with Alsbridge (Dallas), a consultancy specializing in outsourcing, used the terms "offshoring" and "outsourcing" interchangeably in a recent report. While she could not be reached for clarification, Pitt-Jones, citing U.K. research firm FS Outsourcing in her November report "Overview of Finance Services Offshoring," values the 2007 U.K. financial services outsourcing market at close to US$37 billion and anticipates what she terms "phenomenal" growth of between 25 and 30 percent a year. Since offshoring began in the 1990s, banks have barely changed their outsourcing practices, Pitt-Jones wrote, "with IT and back-office areas still [accounting] for over 80 percent of the market." "Increasing cost and resource pressures," however, will make even risk-averse banks view offshoring not just as an efficiency play "but to ensure these organizations stay in the game," she added. London-based Barclays Bank ($2.027 trillion in assets), one of the world's top 25 banks, has expressed a commitment to offshoring. It announced earlier this year that it would cut almost 2,000 technology jobs, including high-level positions, in the U.K. and move them to Singapore, India and Hungary. U.S. banks -- including The Bank of New York Mellon (New York; $205 billion in assets), J.P. Morgan Chase (New York; $2.3 trillion in assets), SunTrust Bank (Atlanta; $180 billion in assets) and Union Bank of California (San Francisco, $60 billion in assets) -- also tell BS&T of likely plans to extend their offshoring. To Offshore, or Not to Offshore The drivers behind moving tech jobs overseas can vary. And there are stories in the industry of offshoring efforts backfiring -- proving too much to manage from afar. "The decision to [go] offshore is not either/or, but case-dependent," says Jim Greene, VP of Cisco Systems' global financial services practice. Cisco re-designated its own headquarters from San Jose, Calif., to both San Jose and Bangalore, a year ago. "Dealing with remote resources is a particular skill set, and that's whether they're in the next town or 13 time zones away," adds Ron Hoffer, VP and senior audit manager at Union Bank of California. "I don't think it's one-size-fits-all. To consider outsourcing you need to have a significant number of people involved. I don't know what that number is -- 20, 50? It depends on the bank." Hoffer says that while Union Bank started offshoring in 2006, it really focused on the strategy in 2007. "We're not looking to have X many offshore [positions]," he reports. "It's more about ROI." To simplify its offshore management, Union Bank, which previously worked with four suppliers, now relies on just one, iGate Corp., a Freemont, Calif.-based provider increasingly gaining traction in banking. Union Bank has fewer than 200 staff currently based in India, compared with 10,000 in the U.S., Hoffer notes. "I don't know to what extent [offshoring ] will push up," Hoffer continues. Industrywide, "Offshoring generally has started flattening a little," he asserts. "People are now saying, 'Let's do this the right way.' My guess is that it will increase, but not near-term, since a lot of tech spending is now on hold." Indeed, iGate, now a 6,500-person-strong company, told the markets in mid-October that its fourth quarter growth is unlikely to match quarters past because of cutbacks seen in IT projects. The Bottom Line on Offshoring Despite the consensus that offshoring is likely to experience an uptick as banks look to cut costs amid the financial crisis, SIM's Luftman contends that cost is down the list of motivations to go offshore, according to survey respondents and his experience. "The salary itself might be less, but the overall effort is more expensive," he explains, maintaining that a major factor in offshoring decisions is an absence of U.S. workers skilled in both technology and business. But that has not been the experience of Union Bank's Hoffer or of Lindsay Soergel, SVP for channel technologies and enterprise information systems at SunTrust Bank. "Offshoring allows you to do a lot with a little," she says. "Typically it would cost three times more to hire the same person here." At SunTrust, Soergel says, "We've about 50 percent of our delivery staff offshore, and we may see a slight uptick." That's half of the roughly 1,000 people involved in SunTrust's overall application development. Even more of Soergel's own staff -- 75 percent, or 50 to 60 people, she reports -- work offshore. All of those 500-plus offshore employees are located on the Infosys campus in Mysore, India. "All of our offshoring is between IBM and Infosys," Soergel says. "We design applications onshore and ship the development work offshore." One J.P. Morgan Chase banker, who requested anonymity because he was not authorized to discuss the topic, tells BS&T that while the bank is expanding its India-based technology operations, in his experience U.S. workers have not been displaced as a result. "Workers here got more-interesting work, though on a macro level jobs probably are being lost," he says. He adds that Chase plans to expand within India from Bangalore to Hyderabad, and to the Philippines. Tom Kelly, a J.P. Morgan Chase spokesman, declines to confirm the bank's offshore plans or to detail how many employees Chase has offshore versus in the U.S. "But we are expanding," he says. Similarly, The Bank of New York Mellon likely will expand its offshoring. During an interview with BS&T in late summer, BS&T Elite 8 2008 honoree Ed Mulligan, EVP and president of The Bank of New York Mellon's global technology services group, anticipated that the bank would continue to grow its Indian technology subsidiary, Nautix, which it acquired with discount brokerage Pershing in 2003. A comment Mulligan made might give some U.S. technologists a chill: "In the U.S. people have to be willing to put more dedication into their careers and to be more flexible," he said, noting that some 1,900 positions have been relocated since year-end 2007 to the subsidiary in Chennai, India. A bit of comfort -- at least on the job front -- might come from a Financial Times research unit, London-based Mergermarket, which saw an upside to the credit crisis for the U.S. Based on survey responses by U.K. firms, Mergermarket predicted that the U.S. might become a destination for offshoring, now that the dollar's cheap (as presumably are many now unemployed tech types). Then again, since Mergermarket's fall predictions, the dollar has strengthened and some of the U.K. company respondents weakened.

Become a member to take advantage of more features, like commenting and voting.

  • John
    According to article, Lindsay Soergel of SunTrust says:            "Typically it would cost three times           more to hire the same person here."    I think the stockholders of SunTrust should demand that Lindsay transfer her knowledge to a counterpart over in India who could then be hired to do Lindsay's job at 1/3 the cost.    Have these people no shame, the way they sell out their own fellow countrymen for their own gain, and then fraudulently claim an increase in output?    Talk with enough people in the offshoring racket and you find out the game these people play, how they selectively measure cost and fudge the dollar value of actual output.  They don't count the real cost of the massive amount of additional overhead and governance that is necessary to oversee the offshoring.  It also becomes harder for those in the business side to request work.  Far more of their time must be spent just trying to communicate a work request.  What's the cost of that to the company? It's a complete farce, and it's destroying our country.  The first CEO of a major corporation who figures this out will have given his/her company a great competitive advantage.      

Jobs to Watch