On the strategic shift in outsourcing strategies:
There are three key reasons why this is happening:

I. The advent of global sourcing model:The monolithic "to outsource or not" decision has been replaced by multi-location, multi-business model. Firms choose a blend of outsourced and insourced models, using a multitude of locations. This flexibility does come at a cost: the firms need a new cadre of management skilled in managing geographically dispersed resources and multiple business relationships.

II. Componentization: Just as it happened in the manufacturing sector, the service sector has begun to decompose business processes into self-contained modules. These modules can be "processed" in remote locations using the newly available bandwidth and "re-assembled" in an onshore location to provide the desired outcomes. And this componentization also obviates the need for "single-model" outsourcing (where a company may hire EDS or IBM to manage an end-to-end business process.) Now some components can be sent to "best-of-breed" vendors or locations thus enjoying access to specialized and skilled resources specific to the activity being sourced!

III. The distinction between Core vs Non-core not relevant for Global Sourcing: The global sourcing model does not assume a pure “captive” or “outsourced” model. Therefore a firm can choose to offshore a core process with the same zeal it would apply in offshoring a non-core process. For proprietary processes, a firm may choose to do so via a “captive” model though individual components of so-called core activities can still be outsourced. For example, stock-market research is a core activity for most investment banks. Yet certain elements of the underlying research processes can be outsourced to specialized firms such as eValueserve or OfficeTiger as demonstrated successfully by some U.S. institutions.

The next-generation approach to sourcing will be characterized by…

I. Fewer full-service end-to-end business process outsourcing contracts.

II. Adoption of global footprint by the India-based outsourcing firms

III. The India-based technology outsourcing majors would find it increasingly difficult to win big BPO contracts unless they develop and/acquire specific domain experiences and skills.

IV. Emergence of true hybrid "outsourced-insourced" models for offshoring.

On emerging trends in the finance and banking sector…

• Emergence of industry utilities, e.g., reference data, reconcilations, corporate actions, research, etc. for institutional banking
• The finance and banking sector will the early adaptor of the true global sourcing model
• The componentization trend will drive further consolidation of the outsourcing industry

Differences between retail banking and institutional banking approach…
There are broad differences between institutional and retail banking. These differences invariably drive adoption of different models for specific components: the b2b nature of institutional banking will place a premium on domain knowledge and risk management; therefore only a few 3rd party firms can aspire to be credible suppliers in this space. Frequently, firms would choose to set up captive centers for want of available experience among the potential providers. In the retail sector, however, the economies of scale would enable 3rd party providers to make the requisite investments in their capabilities for winning significant business.

Outsourcing best practices that can make all the difference…

• Careful analysis in "componentizing" business processes
• Avoid "one size fits all" approach; use a business model most suited to the component being outsourced
• BPO outsourcing is different from IT outsourcing: it demands a dramatically different approach to vendor selection, contracting, governance and risk management
• Avoid "India-centric" approach to offshoring: consider adding other countries to the outsourcing mix
• Over-invest in Vendor Selection and Program Management

Success factors specific to the finance sector…

• Domain experience is the key; IT firms, regardless of how many years they spent in developing applications for the finance sector, are not necessarily qualified to support finance sector BPO!
• Encourage "co-opetition" among the vendor community to promote knowledge sharing
• Pay particular attention to regulatory constraints and risk mitigation when offshoring
• Promote development of industry utilities

On Capco's business model and its differentiators…

Capco is a solutions company exclusively focused in the financial services sector. We intend to leverage our domain knowledge and experience in the finance sector in providing consulting services and replicable solutions. There is dearth of such experience and capabilities among the current providers. We do not aim to be "one-for-all" Solutions Company in the finance sector. Our strategy is to focus on areas of "maximum pain." For example, most financial services firms spend enormous amount of time, effort and money on reconciling "breaks" in the street side transaction processes. We intend to provide BPO and technology solutions aimed at preempting some of this effort by creating industry-wide solutions. Thus our focus is on reducing duplication of effort and hence operating expense incurred by leading firms.

The challenges of operating in this segment…

• The regulatory frameworks around the globe
• The importance of robust risk management: a financial transaction if not handled accurately could result in tens of million-dollar liability; a relentless focus on error-free operating environment is the key!
• Agility and flexibility needed to attract and develop experienced and skilled resources

Capco's growth strategy …

We expect Capco India to continue to broaden its capabilities. We offer offshore services to leading North American and European firms in the FS sector for specialized technology development and analytical BPO work. In addition, we have begun to provide consulting services for Indian financial sector clients. India is a revenue centre for Capco, and our business plans for India factor in significant growth in sourcing as well as consulting revenues.