Report
357
Number
Mar 04 2015

7 Questions for Smart Outsourcing

Traditionally outsourcing has been viewed by many as a vehicle for cost savings. Today many credit unions are outsourcing business functions to enhance strategic performance, increase operational flexibility and access talent. In this report, we explore the key questions credit unions should be asking themselves as they consider various outsourcing arrangements.

Report Number 357

Executive Summary

Think back to the successful companies of the 20th century: GE, General Motors, IBM. The prevailing business model for the first two-thirds of the century was “a large integrated company that can ‘own, manage, and directly control’ its assets.” But as we hit the 1970s and 1980s, “integration” turned to bloat for many and vast internal resources were often seen as a drag on efficiency and agility.

Enter the idea of outsourcing. Although it wasn’t recognized as an official business strategy until 1989, the idea certainly wasn’t new a quarter century ago: Companies had long tried to find the right balance between what they managed internally and externally. Early outsourcing tended toward the non-core—back-office functions, accounting and legal services. But as companies dealt with international competition, increasing pressure to cut costs and an intensifying regulatory environment, many began to push the boundaries on what it made sense to do in-house vs. out.

A survey by PricewaterhouseCoopers found that today’s outsourcing is the “explosive outsourcing of services, increasingly defined down to precise functions that can each be performed in the most optimal location anywhere in the world.” Although credit unions may not have felt an “explosion” of this magnitude, you’d be hard pressed to find a credit union that hadn’t increased its level of outsourcing in recent years.