Speakers:

• Lounarda David, Chief Operating Officer, IFM Investors
• Andrew Chan, Chief Operating Officer, Columbia Threadneedle Investment
• Troy Rieck, Executive Officer, Investment Strategy, Equip

Fund Operator: Are external advisers helpful when making operational decisions about in-sourcing versus outsourcing? What are the main benefits and how can you make sure that decisions are championed internally when relying on third-party consultants?

Andrew Chan: I know organizations that were the end result of multiple mergers and acquisitions to build the business.

This means that there are multiple systems and it is not necessarily cohesive: if you need to change one statement, it affects a hundred other elements that you had never thought about and can get to a high level of complexity.

"If you need to change one statement, it affects a hundred other elements that you had never thought about"

Bringing in a third party to help people think more broadly helps enormously and also helps to deal with biases in a more objective manner.

There may be occasions when you already know the answers but you need a third party person to make it objective to all the internal stakeholders.

Lounarda David: Adding a consultant can help to keep the process honest as well as utilize their expertise and experience. You know your business and may know a little about the other businesses as well, but you don’t know the appropriate benchmark for each of components, to ensure that you are assessing to the right standards.

Ultimately with either insourcing or outsourcing you are trying to get to an optimal environment where you have flexibility, efficiency, better cost management, much more sophisticated capabilities and you can improve your time to the market.

These factors are dependent on what this benchmark is and it isn’t always about having the best class systems or the best processes.

"Adding a consultant can help to keep the process honest"

There are many factors that go into this decision-making process and having independent experts helps, especially where complexity of the process can be underestimated. The wrong decision will have severe repercussions for the organization.

It helps to determine the key selection criteria and how you want to weight them and which are more important than the others. This helps in keeping the biases out and minimise debating on small components of the bigger picture, that ends up missing the bigger picture altogether.

The expertise of the people you chose to outsource to is extremely important because with your own organization you can evolve and change your requirements but with outsourcing, the discussions and agreements ends up in a contract.

"Third party objectivity does help, but you absolutely need an internal champion"

This is a contractual obligation that decides what will be provided to you and what your expectations should be from the relationship and if you don’t get that right or make superficial assumptions, could mean with the outsourcing decision you might be worse off. So, it is important to use all the expertise you can get, but ultimately the organisation has to own the decision.

Troy Rieck: Third party objectivity does help, but you absolutely need an internal champion. If you think that you can outsource the ownership challenge to a third party, you are kidding yourself - you need that internal champion as that is the key to long-term success.

Andrew: I absolutely agree and we have been in situations where that was the make or break decision and when we chose the wrong person it was a disaster but when we chose right everything went so well.

Troy: The reason for that is that you can’t just manage for today - you need to be thinking about what happens when the consultants leave the building and who will own the solution then.

This excerpt was taken from a roundtable discussion looking at how to successfully accomplish outsourcing or in-sourcing in an organisation. You can read the full article here.

 

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