Five Things Banks Can Never Outsource

For all the time banks spend talking about what they can outsource, how often do they talk about what they can’t because the knowledge trade-off is unacceptable?

“I’ve decided to take advantage of outsourcing. My next novel will be written by a couple of guys in Asia.” -Tom Robbins

So, good citizens of Gonzoville, let’s start our brief time together today by stipulating that every bank is outsourcing more, and for good reasons we don’t need to rehash here. But, we all know that every time we outsource a function, we outsource the knowledge and skills that are required for it.

Most of the time, a decision to outsource follows a decision that the trade-off is OK. For example, payments transaction processing, payroll, penetration testing, and some audit functions are all jobs somebody else can do as efficiently, and we’ll say adios take the knowledge trade-off.

But, for all the time we spend thinking and talking about what can be outsourced, how often do we talk about what can’t and shouldn’t be outsourced because the knowledge trade-off is unacceptable? Like, never OK? Shouldn’t our insource list be as long as our outsource list? And shouldn’t it get as much if not much more focus?

We suggest you strategically focus your insourcing efforts on these five things:

1. Information management – It’s a real pain to find good data and reporting people. But we cannot outsource information management to third parties. Every bank has a set of data sources and destinations that are absolutely unique based on the systems used. You all have managers that ask different questions the data must answer. There is no vendor that can meet this many unique needs without you eventually paying the same or more than if you did it yourself. Plus, the ability to quickly and meaningfully create insight and wisdom with data is too important to have anybody else do it.
2. Cross-channel marketing – In the next few years we’re going to see an explosion of data-driven, targeted marketing that will make what I’m getting on my iPhone now look like chump change. The people who know how this works and how to do it well will add major value to banks. But, they are going to have to learn how to do this in an evolving world of tools, data and SEO-driven strategies. Why on earth would we pay somebody outside of the bank to obtain this knowledge and value-creating capability?
3. Commercial lending/banking training progression – We see too many banks that over-rely on a “steal the talent” approach to commercial and business lending expertise (that’s essentially outsourcing). However, the risk of relying too much on any talent theft approach is twofold. First, despite the development of big bank lending talent that happened in the last 20 years, the pool is starting to dry up. Many great lenders are planning to retire soon. Second, there is no guarantee that a national bank pedigree makes for a good community bank lender (everybody has a story about how a hire like this went off the rails, right?). Banks need to start lending development programs that target the hiring of talented people and deep, structured loan training. Consider making this a bank-wide, “C” driven initiative.
4. Customer experience – Too often, we outsource customer experience design – our vendors’ system capabilities form the boundaries of our acceptance of what the customer can and will experience when banking with us. We see their latest release and we adjust based on it. How often has a vendor added any functionality or capability based on the experience you in particular want your customers to have? Too seldom. We need internal knowledge and responsibility for detailed understanding of what customers experience and what we want that to be.
5. Recruiting – I just spent two days with seven really smart human resources executives at a roundtable where I learned that, with the exception of very sensitive “C” and board recruitment, HR search firms are in the same position as travel agencies were five years ago. LinkedIn and other tools have become so powerful that you can do internally what the outside recruiter does with the same tools, insight and effectiveness. More importantly, these HR leaders discussed how recruiting key talent (including all the areas above) requires a strong partnership between HR and lines of business leaders who create a target list of key people and skills they want to hire, then execute a long-term plan to get them. In a digital economy, every manager is a recruiter partnered with HR. This can have a very powerful impact, and it cannot be outsourced.

So, there are five of our “non-negotiables” for insourcing. To play on a famous quote by Groucho Marx, “if you don’t like our non-negotiables, we have others.”

Choosing what to outsource is a crucial component of strategic planning. Choosing what not to outsource is even more crucial. What’s on your non-negotiable insource list?

-tr