How to strategize an outsourcing project, while maintaining your operational resilience and integrity
Posted by Pierre-Yves Rahari on 11 May 2021
The FCA, the Bank of England and the Bank of Ireland have all recently signalled to the Asset Management industry the importance of ensuring and evidencing strong operational resilience  , especially in case of outsourcing. This shouldn’t come as a surprise, in an industry where downward fee pressure and the need to drive down the cost income ratio cause participants to regularly outsource and further automate their operations. Add to this the necessary integration of digital and collaboration technology, combined with an increasing number of operational integrations resulting from the secular trend of mergers and acquisitions in the industry, and you have the perfect mix that justifies the regulators’ focus on operational resilience and integrity.
Against that background, the mapping of operational resilience is going to be a major theme in the months to come in an industry that has nevertheless demonstrated a strong ability to sustain major operational systemic risks throughout the Covid pandemic. We would argue that this mapping should not be restricted to a mere compliance review, instead should be seen as an opportunity to integrate the strategic, risk, technological, procedural and human aspects of operations in a comprehensive exercise, across the organisation’s ecosystem.
How to achieve this practically speaking? In this article, we take the example of an outsourcing project, which captures most of the key features of an operational resilience review, and recommend a few key points to examine when planning a transaction:
Look at your operational model as an integrated unit
When planning an outsourcing project, it is tempting to focus exclusively on the part of the operations that you are going to outsource. We would argue that you need to look at the connections of these operations with your whole organisation, and the implications of the outsourcing transaction for your ecosystem. All of these parameters must be factored in your planning, at the risk of severing vital mechanisms that may jeopardise your resilience in the long term. Think of yourself as a doctor about to perform a surgery on an organ of your patient; you would probably analyse the links of the said organ to the rest of your patient’s body (e.g., blood vessels, nerves, vital functions etc.), and factor all this information in the planning of your operation to enhance your chance of success and survival of the patient, as opposed to focusing solely on the organ to operate.
Convert first, test, then improve, or is it the other way around?
It is tempting to layer an improvement process on top of an outsourcing transaction, for example digitalising a distribution support model while outsourcing it to service provider. Our experience would prompt us to recommend taking one action at time, i.e., proceed with the outsourcing transaction first, let the dust settle while handling the unavoidable teething problems, then embark on an improvement process. Alternatively, you can do this the other way around i.e., execute your improvement process on the piece of operations you want to outsource, before handing it over to your service provider. Key in all of these steps should be to capture it in your strategic outsourcing plans, and execute it in sequence as opposed to in parallel. The choice and timing of sequencing for your organisation will emerge naturally from your planning conversations internally and with your chosen service provider.
Plan with your people in mind
Outsourcing is a very intense experience for all people involved, not least because it signifies changes in numerous forms, starting with roles and functions. For example, some team members may join your service provider(s); others will move into oversight functions. Integrating these changes in your planning is a strategic requirement, not only to ensure continuity of duty during the outsourcing transaction, but also to ensure that your teams continue to develop with their roles, which will necessarily change post-transaction. All of this requires forward thinking; careful strategic planning; and diligent execution and mentoring of team members during the transition phases.
You always outsource a task, never a responsibility
Whatever the size and scope of the operations you decide to outsource, they will remain under your responsibility. As such, ensuring operational resilience requires that you not only understand how your service provider intends to service your business, but also that you partner with them to ensure the continuous relevance and appropriateness of the operations they support. This requires engaging in a two-way dialogue, which must be seen as a partnership conversation, benefiting all parties involved. There again, we would argue that mapping this engagement model should be done while planning the whole outsourcing transaction.
Contracts, SLAs and KPIs should all be part of the outsourcing engagement model. Yet, they will not suffice to ensure continuity of oversight over time, required of a resilient operational model . There again, our experience shows that a careful, diligent and continuous dialogue with your service provider will allow you to co-design with them a meaningful oversight model, bringing many benefits to your organisation: A “hymn sheet” which all stakeholders can refer to; a platform for forward-looking discussions, to ensure continued alignment with companies changing business environment and set up, as opposed to static reviews of KPIs; and a model of dynamic governance that can best evidence your organisation’s concern for operational resilience. While this governance model will develop dynamically over time, we would once again recommend making the governance model and integrated part of the overall design your outsourced transaction.
Execution is the unsung hero
Overall, it is clear that we are strong advocates of a careful and exhaustive planning when preparing an outsourcing transaction. Yet, success would not be possible without diligent execution during both the transition and development phase of your transaction. While your strategic planning will do the initial heavy lifting, ensure at all times that execution follows and continuously provides you with a feedback loop on the progress against plans. This is a sine qua non condition to ensure your organisation’s operational resilience over time.
 “Operational resilience: Outcome in practice” by Lyndon Nelson – Bank of England, May 2021
 “Building operational resilience: Feedback to CP19/32 and final rules” – Financial Conduct Authority FCA, March 2021
 “Cross Industry Guidance on Operational Resilience” – Central Bank of Ireland, April 2021,
 Brown Brother Harriman (BBH) reports that 38% of the Asset Managers they surveyed in 2020 see the Middle Office as “an area to drive efficiency”; in “C-Suite Asset Manager Survey” – BBH, December 2020
 The FCA’s final rules come into force in March 2022, with a transitional period ending in March 2025
 Which includes all stakeholders of the organisation
 SLAs: Service Level Agreements
 KPIs: Key Performance Indicators
AlgoMe Consulting IQ Spring 2021
Posted by Luuk Jacobs on 14 May 2021Read post