Effects Of Outsourcing On Barclays Bank Customer Service: A Literature Review

Analysis of Literature

How does outsourcing affect Barclays bank customer service?

The term outsourcing is not a novel concept in the business world. Since decades now the companies around the world are incorporating the strategies of outsourcing in their business to primarily reduce the overwhelming operational costs. To remain at competitive edge within their industry of operations, companies outsource the peripheral activities, keeping only the core functionalities in house. However, with increase in technological advancements and advent of latest information and communication mediums, the recent decades have seen huge surge in outsourcing of even the strategic services like customer-services. Specially in the banking sector, where the interaction with customers is one of the core functionality of the bank official, the outsourcing has brought tremendous change in the common perception of banking industry. once a highly personalised and customer specific industry, banking is now turning more into a factory-like setup, driven by mass delivery of financial services.  The outsourcing of customer service has its own share of positive as well as negative influences on the company business. Barclays bank is a large bank with its operations across the globe. The organization has to manage the customers from different cultural and social background. Barclays has been using outsouricng to manage its customer service. There are both advantages and disadvantages of outsouricng for Barclays bank. This report concentrates on the literature review of the effects of outsourcing of customer services with respect to the Barclays Bank. The analysis of advantages and disadvantages of the process of outsourcing is thoroughly conducted in this report.

According to the management literature there are various different approaches adopted for defining the outsourcing. The words outsourcing is formed by the combination of words, “out” and “sourcing”, where it literally means the action of sourcing or transferring, responsibilities, work and decision rights to an entity which is outside the company administrations (Power, Desouza, and Bonifazi, 2006). Mainly companies outsource those activities which could be done by some other party with lower cost, in lesser time or in a much better way (Mudambi and Venzin, 2010). Another important definition of the term outsourcing is that it is a process of allocation of responsibilities and risks for completion of certain duties or services to an outside party (Ashley, 2008). In short the outsourcing could be understood as the act of job or function delegation to the third party, with the understanding that it would do it in quicker, cheaper and better way. Outsourcing can be classified as internal outsourcing and external outsourcing, according to the extent of control on the performance of the job which is outsourced. The outsourcing is said to be internal outsourcing when there the job is relocated within the business organization in order to ensure control on its performance. The external outsourcing however, is complete delegation of performance of certain distinct or mutually connected jobs to the entity outside the business organisation (Yakhlef, 2009).

Outsourcing

In the literature of management, there is lot of misunderstanding in how outsourcing is perceived. From the point of view of the external entities, outsourcing could be perceived as the important contribution by external entities and vendors to the specific jobs associated with the core functions of the company (Loh and Venkatraman, 1992). From the suppliers’ perception, the outsourcing is considered as the supply of goods or services by the autonomous suppliers to multinational companies and its extent depends on the components or the complete finished goods supplied by the separate autonomous suppliers (Kotabe, 1992). Further the outsourcing explains the high reliance on exterior sources for completion of various internal activities that generates value for the company (Lei, 1995). Thus the outsourcing is viewed and defined by various scholars and researchers in different perspectives. Nevertheless, outsourcing cannot be only seen as the function of procuring activity from external sources. It has long term business implications and hence the is important in strategic management decisions.

Among various types of outsourcing, the most common one is the based on the fundamentals of substitution. In this type the service or production job in-house is discontinued and given to some external entity. Another type of outsourcing is based on the fundamental of abstention. In this type of outsourcing services or products are essentially obtained within the company but in case of lack of funds or expertise they are obtained from outside vendors. The decision to reject or outsource an activity is one which needs to be taken considering its impact on the overall performance of the organization (Goles, 2003). Outsourcing is also seen as a contractual agreement between a party and supplier for goods or services for the supply of which was being done by the party itself till now (Jones, 1997).

The outsourcing in the banking industry is not a novel concept. However, the traditionally the Information Technology and back end related work of the banks were outsourced. Various banks working in the international banking industry have outsourced their IT related work to the companies which might be geographically across the world from their area of operations. Such as the multinational Barclays Bank PLC conduct all it IT related business by its on-shore facilities situated out of Radbroke Hall, London, and Manchester. Barclays employees its company permanent employees as well as contractual employees for such work. As early as the 1970s, banks all across the world have made use of the outsourcing process for functions which were not directly related to their core business. The functions like, IT, record keeping, clerical work, data processing, accounting, plant maintenance and security. The companies doing the outsourcing work do these internal tasks at higher speed, lower cost and with greater efficiency. Thereby ensuing that the outsourcing of industry grows further (O’ Donnell, 2016).

Outsourcing in Banking Industry

Barclays Bank PLC is a British international financial services and banking company with its headquarters in London, U.K. Barclays has a universal presence and operates in wholesale, retail and investment banking, it also operates in the sector of mortgage lending, wealth management, and credit cards. The Bank has its offices in more than 50 countries around the globe and a strong customer base of about 48 million. The company maintains a steady record of growth and increase in its profits over years. The management of the company effectively control the operational costs by using the strategic outsourcing for its non-core business activities. Since early 2000′s, Barclays Bank started to employ the cheap labour available in India and other similar developing countries. As per the Chief Operating Officer of Barclays, David Skillen, the initial force for outsourcing the tasks at Barclays was the labour arbitrage. This outsourcing provided up to 40 percent of savings when the same function was compared to the labour used in the U.K. The early outsourcing at Barclays to the Intelenet company in 2003, included back-office services which were essentially non-voice services. These outsourcing activities were related to bank’s retail as well as commercial banking. Along with the decrease in operational costs, the off-shore outsourcing of tasks allowed Barclays to be able to serve its global customers on a 24 hours a day, 7 days a week and 365 days a year basis. This gave the bank a great competitive advantage. Specially the customers of the bank using the credit cards, required assistance on holidays, weekends and festival times, when the usual working hours of the bank offices were not available or available on higher costs from the internal call centres. Soon Barclays began to outsource some of its tasks related to accounting, technology, finance, human resources, and other backend office jobs to various service providers in India. Gradually, Barclays began to outsource more complex business functions such as fraud management, underwriting, and payments processing (Rosenthal and Writer, 2010). The company also outsources customer service specially for its telebanking, credit card and online banking division. The operational areas where face to face banking meetings were not necessary were being outsourced by the bank to various external interties in India and other countries. This extensive outsourcing though has great cost saving for the bank, but because of interaction of customers of bank with the service providers with vast cultural differences. Let’s say an Indian executive of the bank is serving a London based consumer by means of information and communication techniques, might give rise to various misunderstandings and confusion. The language barrier and specially accent in the language often create embarrassing situations for the outsourced company’s employees doing customer services as well as the consumers too. The point of sales of the company outsourced for customer services for petty complaint handling has also given rise to various issues which dealt with mismanagement, non-cooperation and ill-treatment of the customers of the bank. This eventually leads to loss of business as well as the market reputation of the bank. Thus the outsourcing has its own advantages as well as disadvantages specially when applies to sensitive fields such as customer services.

Barclays Bank and outsourcing

The literature present on the topic of outsourcing has recognised various probable advantages of it. Among various advantages most widely accepted advantage of outsourcing is enhanced non-financial aspects like implication on the company’s core competencies along with higher financial performance of the company. The firms which outsource gains the higher cost advantages as compared to vertically combined companies (D’ Aveni and Ravenscraft, 1994). The operational costs of the company decreases by the use of well-planned outsourcing. Also the cost of investment in office, equipment, machinery and man-power decreases because of outsourcing (Bettis, Bradley, and Hamel, 1992). The reduction in investment has the capacity to lower fixed costs and leads to a lower break-even point. The short-run cost improvement swiftly reinforces the outsourcing decision. Hence, it is an attractive proposition for companies which are looking for improving their financial performance, however, in the short run. The in-house provision of services and goods rises the company commitment to a definite type of technology and may coerce flexibility in the long run (Harrigan, 1985). While with outsourcing a company can switch between different suppliers of goods or services offering the higher cost effective technologies than the previous one. Also, outsourcing enables the company to response to the environmental changes in a speedy way allows for quick response to changes in the environment (Dess et al., 1995). Therefore, it could be said that the long term advantages of the outsourcing exceed when compared to the companies which rely on itself for managing all the tasks. It is also notes that the other than the core activities, all other backend and value creation activities can be outsourced to be done by the companies with higher expertise and cheaper rates (King, 1994). By doing so the companies gets greater time and effort to be put on its core competencies (Weeks and Feeny, 2008).

One of the major disadvantage of the outsourcing is point that the complete dependency on the external sources, which might cause a loss of overall market performance (Kotabe, 1992). As seen in the case of Barclays, while its customer service outsourcing hampered the overall service performance of the company. Another grave issue is stemming from the high dependency on outsourcing is deteriorating innovation by the company which is outsourcer.  It is also believed that outsourcing would eventually cause loss of competitiveness in research and development (R&D) of the company in long-run (Teece, 1987) as outsourcing generally substitute the innovation. This causes the companies to lack sight of latest technological advancements in its products and services which are outsourced, and hence the chances of future innovation become bleak (Kotabe,1992). Also while the company which is serving as an outsider support gets a deep insight into the operations of the parent company and might in time emerge as the competitor for the parent company (Shieh, 2011). There are many other hazards associated with outsourcing. Primarily the chief aim of cost savings related with outsourcing may not be as huge as it looks, particularly with respect to the foreign suppliers.

Conclusion

It could be concluded that the outsourcing has its own share of advantages and disadvantages. The Barclays Bank has used outsourcing extensively in past. Barclays Bank started to employ the cheap labour available in India and other similar developing countries. This outsourcing provided up to 40 percent of savings when the same function was compared to the labour used in the U.K. Barclays outsourced some of its tasks related to accounting, technology, finance, human resources, and other backend office jobs to various service providers in India. Gradually, Barclays began to outsource more complex business functions such as fraud management, underwriting, and payments processing. It gained cost advantage and also faced various challenges of outsourcing customer service vertical.

 Some of the important lessons learned by the Barclays Bank as that the it takes patience and time for a great outsourcing relationships. With time the trusts could be developed among the parent and outsourcing company.  However, in cases where there is interaction with the customer, a service provider generally has greater chance of giving higher strategic value to the customer when the end to end process control lies with the company itself. In outsourcing relationship both sides have to contribute in give-and-take.  With international outsourcing at Barclays on one hand, it was to be able to serve its global customers on a 24 hours a day, 7 days a week and 365 days a year basis, on the other hand has to face several complaints regarding cultural differences, language barriers and other interpersonal characteristics of people of wide variety of ethnicity coming together for problem solving. Outsourcing when done for the non-core peripheral activities are supported by the banking industry, however, the core competencies functions like customer interactions and services must be done in-house within the company itself. It appears that Barclays would continue to use outsourcing to manage its business operations. It is important that the decision of outsourcing should be based on short-term goals and long term vision of Barclays.

References

Ashley, E. (2008) Outsourcing for dummies, with CD. Chichester, United Kingdom: Wiley, John & Sons.

Bettis, R.A., Bradley, S.P. and Hamel, G. (1992) ‘Outsourcing and industrial decline’, Executive, 6(1), pp. 7–22.

D’ Aveni, R.A. and Ravenscraft, D.J. (1994) ‘Economies of Integration Versus Bureaucracy Costs: Does Vertical Integration Integration Improve Performace?’, Academy of Management Journal, 37(5), pp. 1167–1206.

Dess, G.G., Rasheed, A.M.A., McLaughlin, K.J. and Priem, R.L. (1995) ‘The new corporate architecture’, Academy of Management Perspectives, 9(3), pp. 7–18.

Goles, T. (2003) ‘Vendor capabilities and outsourcing success: A resource-based view’, Wirtschaftsinformatik, 45(2), pp. 199–206.

Harrigan, K.R. (1985) ‘Exit Barriers and Vertical Integration’, Academy of Management Journal, 28(3), pp. 686–697.

Jones, W. (1997) ‘Outsourcing basics’, Information Systems Management, 14(1), pp. 66–69.

King, W.R. (1994) ‘Strategic Outsourcing Decisions’, Information Systems Management, 11(4), pp. 58–61.

Kotabe, M. (1992) Global sourcing strategy: R and D, manufacturing, and marketing interfaces. New York: Quorum Books,U.S.

Lei, D. (1995) ‘Strategic restructuring and Outsourcing: The effect of mergers and acquisitions and LBOs on building firm skills and capabilities’, Journal of Management, 21(5), pp. 835–859.

Loh, L. and Venkatraman, N. (1992) ‘Determinants of information technology Outsourcing: A cross-sectional analysis’, Journal of Management Information Systems, 9(1), pp. 7–24.

Mudambi, R. and Venzin, M. (2010) ‘The strategic nexus of Offshoring and Outsourcing decisions’, Journal of Management Studies, 47(8), pp. 1510–1533.

O’ Donnell, S. (2016) The next phase of outsourcing: Change the bank with digital transformation. Available at: https://www.bankingtech.com/296122/the-next-phase-of-outsourcing-change-the-bank-with-digital-transformation/ (Accessed: 24 September 2016).

Power, M.J.J., Desouza, K.C. and Bonifazi, C. (2006) The outsourcing handbook: How to implement a successful outsourcing process. 55th edn. Philadelphia: Kogan Page.

Rosenthal, B.E. and Writer, S. (2010) How an Offshoring relationship grew from a low-cost provider to strategic partner. Available at: https://www.outsourcing-center.com/2010-08-how-an-offshoring-relationship-grew-from-a-low-cost-provider-to-strategic-partner-article-37309.html (Accessed: 24 September 2016).

Shieh, C.-J. (2011) ‘Management innovation, corporation core competence and corporate culture: The impact of relatedness’, Applied Economics Letters, 18(12), pp. 1121–1124.

Teece, D.J. (1988) ‘Capturing value from technological innovation: Integration, strategic Partnering, and licensing decisions’, Interfaces, 18(3), pp. 46–61.

Weeks, M.R. and Feeny, D. (2008) ‘Outsourcing: From cost management to innovation and business value’, California Management Review, 50(4), pp. 127–146.

Yakhlef, A. (2009) ‘Outsourcing as a mode of organizational learning’, Strategic Outsourcing: An International Journal, 2(1), pp. 37–53.