The software outsourcing by major banks has long been the bread and butter for the outsourcing industry, but things are changing. There are lessons learnt and the changing landscape calls for quick action to be taken.

Banks Cutting Down Software Outsourcing

Recently, the Times of India published a well-researched article on how major banks are cutting down on software outsourcing in favor of building it inhouse, and how that is impacting billions of dollars of revenue for the established IT vendors. The article also cites that a study done jointly by HFS Research and KPMG found only 30% of the companies willing to renew their outsourcing contracts.

The trend is clear. (Check the cited article for elaborate statistics if you still have a doubt.) However, if both the banks and the IT vendors take a step back and look deeper into the reasons behind the trend, then that might lead to the process becoming tighter and efficient. The decision of doing outsourcing or insourcing won’t matter much!

The reasons cited are:

  1. Knowledge Retention: Need to retain strategic and market-differentiating expertise within the bank
  2. Increase in Productivity: A result of agile environment and ease of knowledge transfer to inhouse staff as opposed to a contractor
  3. Billing Based on Time: Service companies charge on the basis of time spent and there is little incentive to save time by adopting more efficient technology / processes.

From the banks’ perspective, moving from outsourcing to insourcing is a big change that needs to be managed. A large part of this change is to train the internal team on the software which was previously developed and maintained by the vendor. By the same token, moving from one vendor to another is a big change (in today’s pre-Xsemble scenario, just to clarify). This takes effort and has cost associated with it. Given the current sentiments in the market, the banks are prepared to cut the cheques for the 3 reasons.

What If We had a Solution that Addressed These Reasons Even Better?

That would be great, isn’t it?

The new technology solution, Xsemble, would benefit not just these large banks which are shifting to insourcing model, but also the other banks who would rather outsource it (and for good reasons).

  • If the banks embrace Xsemble along with their insourcing model, then it will help them make an impact on these areas even better.
  • For the other banks who are sticking to outsourcing, it will help them too.
  • On the other hand, if the IT vendors embrace it, then they would be able to re-position themselves as a very attractive outsourcing hub. Let’s now see how.

Xsemble lets you develop tiny components, which are woven together into a software application by automatically generated glue code. The glue code is based on the flow definition and that’s where domain expertise primarily lies.

Here is how this model addresses the above 3 issues:

  1. Knowledge Retention: The domain experts can now own the software — as they can define the flow visually, create the software and visually monitor how it works in practice. This all can now be done without the need of any programming. The domain experts need to go to the programmers only for creating individual components. The working of the software is more open in terms of the flow diagram, and the knowledge is retained in terms of that. The companies would be able to plan a feature change in terms of the change in the flow, and thus respond to market needs quickly.
  2. Increase in Productivity: The visibility into the working of the software makes everyone concerned grasp it easily. The programmers need to understand just enough corresponding to the component at hand, and not the whole domain. Handling small components increases the productivity by orders of magnitudes, along with reducing the risk.
  3. Billing Basis: The programming effort can now be valued very objectively in terms of components completed. The complexity levels are defined at the component level and that provides quantitative basis to measure the work. This is as close to the outcome based billing as one can get. Also, completely modular development means that one could distribute components between multiple vendors, or between inhouse team and vendor, depending on how it works best for the bank.

Understandably, there is a one time cost and time associated to refactor existing product in Xsemble components. However, if the banks are prepared for the change management cost to get the benefits, then investing in a better technology so that the development and maintenance become painless over the entire life of the software might make a good business sense.