Report: Large Firms Rethink Outsourcing
In a possible blow to outsourcing firms, a new study from Deloitte Consulting reveals that many of the worlds largest organizations are bringing operations back in-house and are exploring alternatives to outsourcing. Dissatisfaction in areas such as costs and complexity was found to be the primary reason behind participants negative responses.
The study reveals that 70 percent of participants have had significant negative experiences with outsourcing projects and are now exercising greater caution in approaching outsourcing.
One in four participants have brought functions back in-house after realizing that they could be addressed more successfully and/or at a lower cost internally, while 44 percent did not see cost savings materializing as a result of outsourcing. Almost half of participants identified hidden costs as the most common problem when managing outsourcing projects.
"There are fundamental differences between product outsourcing and the outsourcing of service functions," says Ken Landis, a senior strategy principal at Deloitte. Outsourcing vendors and companies may have conflicting objectives, putting at risk a clientdesire for innovation, cost savings, and quality, he says. "Moreover, the structural advantages envisioned do not always translate into cheaper, better, or faster services," he says.
According to the study, participants originally engaged in outsourcing activities for a variety of reasons: cost savings, ease of execution, flexibility, and lack of in-house capability. However, instead of simplifying operations, many companies found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated.
Bank Leumi Outsources to ADP
Bank Leumi USA, a subsidiary of Israeli institution Bank Leumi le-Israel, has signed a multi-year agreement for integrated transaction processing and regulatory document delivery services from ADP Brokerage Services Group, a division of Automatic Data Processing.
As part of the banks re-engineering efforts to streamline back-office operations, it selected ADPs back-office processing system Brokerage Processing Services (BPS) to handle its securities processing. The BPS platform is a real-time processing system for equities, options, and mutual funds, with automated inquiry, reporting and record-keeping services.
In addition to using the BPS platform for transaction processing, Bank Leumi USA chose ADPs PostEdge suite to distribute confirmations, statements, tax documents, and other investor communications electronically. The system allows for electronic archiving and retrieval of investor-related documents.
SIXTY SECONDS WITH
Edo Segal, chairman, founder and CTO, Relegence
Q: What will be the single biggest financial industry trend of 2005?
A: I think this will be the year that all the major market data platforms realize that their analytics, as it relates to textual information, are below par.
Q: How will you address staff retention as the economy starts to lift?
A: Continue to offer an environment where people feel that they can have a significant contribution to an enterprise that is truly revolutionary in its marketplace. Challenge them to constantly innovate, to keep it interesting, and treat them right.
Q: What can investment firms do to boost their productivity and profitability?
A: Start to focus again on how to make money and not just cut cost.
Q: What was your first job?
A: A Virus Buster for Symantec. I chose to work for the good side of the force. I had an ancient laptop that was loaded with so many viruses I would call it Pandoras Box. I would then go in and hack them to figure out how Symantec Anti-Virus could remove them and remedy the damage they made. It was a good lesson in how software can behave biologically.
Q: Which book are you currently reading?
A: Im reading The World Is Flat by Thomas Friedman.
Q: Who was your mentor and what did they teach you?
A: Michael Engel: He taught me what an entrepreneur-to-investor relationship should look like. He showed me the power of believing in an idea and a group of passionate individuals.
ABN Amro Goes Live with Adaptiv
In an industry wary of large-scale implementations and projects, Dutch banking group ABN Amro is going against the grain. The bank went live with credit risk management software from SunGard in a global implementation that spans 31 countries. The solution, Adaptiv Credit, will manage credit risk exposures and limits, sources say. Before the installation, ABN was using a previous platform from RXM, which SunGard acquired from GE Information Services in 2000.
The implementation is apparently one of the largest of its kind to date. Since the deal was officially announced two years ago, more than 4,000 days of consulting work have been billed for the project, say our sources.
ABNs Adaptiv deployment will maintain a record of more than 200,000 active trades, and will be capable of processing 300 trades per minute and will be accessed by approximately 1,500 end users worldwide, including traders and middle-office staff, each of whom gains access via a Web-based interface. A total of 35 external interfaces have been built into the system in order to perform real-time checks of position limits. The Adaptiv platform is being hosted at SunGard Availability Services European data centers. The main production platform is supported by a total of 26 hardware servers, which are backed up using real-time mirroring to a disaster recovery site, sources say.
Last March, Adaptiv succeeded SunGards previous offering in the credit risk management space, which was dubbed Credient. The latest version of Adaptiv was released in June of last year. The upgrade includes features for credit exposure management and limits tracking and offers a Web-based interface built using Microsofts C# language. The platform has been adapted so that it can facilitate state-of-the-art service-oriented architectures (SOAs), built via Microsoft .Net framework technologies, according to SunGard announcements.
Even after the huge scale of the deployment, there are further project phases planned by the bank, sources say. For instance, bank officials intend to replace their internal analytics engine with the Adaptiv Analytics solution. Sources add that the bank is also looking to replace its credit reporting toolkit, which was built internally.
THE BIG DEAL
NYSE Buys Archipelago
The Deal: The New York Stock Exchange is set to merge with the Archipelago Exchange, the first all-electronic US stock exchange.
The Impact: NYSE is currently a member-owned, not-for-profit organization, and Archipelago is a listed company. The terms of the agreement will lead to the merged company, NYSE Group, being publicly held.
The Waters Analysis: In absorbing Archipelago, NYSE is gaining a sizeable percentage of archrival Nasdaqs trading volume. In the competitive exchange marketplace, the merger is an active step in the battle for market share. And not only is NYSE keeping pace with the marketsin the words of one observer, "The deal acknowledges that electronic trading is the future of the marketplace." While it will take some time for Arca and NYSE to fully integrate their systems, the acceptance of the inevitability of e-trading can only be a good thing for NYSE.
The Price Tag: A "stock for membership" merger, current Archipelago shareholders will hold 30 percent of NYSE Group shares, and the current NYSE owners will hold 70 percent.
TradeWeb Launches CDS Index Trading
Fixed-income liquidity network Thomson TradeWeb has teamed up with liquidity providers JPMorgan, Goldman Sachs and Morgan Stanley to launch global credit default swap (CDS) indices trading on a multi-dealer platform.
TradeWeb is currently developing the online market with an anticipated launch date in Europe and the US in the latter half of the year. Once launched, TradeWeb CDS will be the firms twelfth online market for fixed income and the second in the derivatives markets, officials say.
The online market for CDS indices will let institutional investors simultaneously request quotes from multiple dealers electronically and move from trade execution to electronic processing seamlessly, according to officials. This is enabled by TradeWebs STP network TradeXpress.
"TradeWeb is addressing the need for efficiency across the whole trade cycle in the OTC derivatives market," says Lee Olesky, president of Thomson TradeWeb. "For the CDS index product we will provide the tools for operational risk reduction in the post-trade environment. This targets issues that are a real concern to our buy- and sell-side clients." TradeWeb is an online fixed-income trading network launched in 1998. The trading desks of 34 fixed-income dealers are linked via the network to over 2,000 buy-side institutions globally, according to Thomson.