Commonly repeated outsourcing myths have painted an inaccurate picture of the reality.
Half-truths at best, these outdated misconceptions ignore or downplay the benefits of outsourcing, and such misunderstandings lead to many financial services firms losing out on real opportunities.
Check out these frequently shared viewpoints on outsourced activities.
These terms are often used interchangeably, and while there is overlap at times between the two, their meanings are not inherently the same.
Not all outsourced work is offshored, and not all offshored work is outsourced.
Outsourcing is the act of hiring a person or entity outside your organization to perform tasks. That person or company could be in India or Indiana.
Offshoring is the act of getting work done outside the country where a company is headquartered.
A company can hire overseas staff who are direct employees of the company, and that is an example of offshoring. For the company, this example of offshoring is not outsourcing because the staff are members of the company.
Now if a company hires an outside entity that is based overseas to do the work, then that is both offshoring and outsourcing.
One of the biggest outsourcing myths is that financial firms lose control when a third party takes over.
The reality, however, is you maintain control.
When establishing a partnership with an outsourced vendor, you set the parameters: what tasks they work on, what files or folders they access, and in which environment.
As for oversight, a reputable outsourced provider will perform the work in a physically secure location where staff are supervised and electronic devices are strictly monitored.
Additionally, the outsourcing company should allow independent auditors to assess their setup and be transparent with their findings.
They should also hold relevant qualifications, like SOC and ISO certifications, as Empaxis does.
In a global marketplace, investment outsourcing services providers who put the clients’ interests first will beat out their competition.
Shady, fly-by-night companies stand no chance.
A professional outsourcing partner will always do their due diligence.To be the best, they have to hire the best.
When it comes to investment management, you can’t just hire anyone off the street.
The vendor has to attract qualified applicants and assess the candidates’ educational background, work experience, certifications, notable achievements, and personal character.
Candidates will be subjected to criminal background checks and allow for the employer to contact references.
Every major outsourcing player, including Empaxis, follows these protocols.
For our part, investment firms can see our leadership team and get to know them before working with us.
When the partnership is formally established, the client will develop close working relations with their points of contact, who report to our leadership team.
One of the main benefits of outsourcing for the financial services industry is cost savings.
But too often, there is a misconception that with lower costs = lower quality.
The reality is that in most cases and with the right outsourced partner, investment managers can enjoy reduced costs and equal or better results than if it were done in house.
Think of it this way:
If you devoted your entire business model to performing one or a few tasks really well, you’ll find ways to do the work better and faster than others, and potentially at a lower cost.
That’s what outsourcing is all about.
You hire specialists who focus on a specific area, be it accounting, payroll, taxes, compliance, IT services, or investment operations.
They’ve spent years honing their craft, developing efficiencies in their processes. Surely they will do it better and at a lower cost than an investment manager who spends less time in that area.
We’ve all seen headlines about companies that outsourced work to a factory in a developing country, and reports emerge of staff being exploited.
While such mistreatment is inexcusable and employers should be held accountable, those bad examples do not represent outsourcing across the board.
In many cases, outsourcing-related work brings quality jobs that pay well by local standards, complete with benefits. These jobs can provide valuable skills training and allow employees upward mobility in their career.
So long as companies abide by local laws and treat employees fairly, many countries welcome these opportunities for their citizens, opportunities that might not exist otherwise.
Regardless of law, treating staff with dignity and respect is in everyone's interests, including the employer itself.
Happier employees are more productive and are more likely to stay at a company longer,
This is perhaps the biggest outsourcing myth.
While there are instances where outsourcing has negatively impacted certain jobs and supply chains as we saw during COVID-19, those instances do not define outsourcing in its entirety.
This isn’t to downplay concerns or suggest that nothing should be done to help those negatively affected, but there is always another side to the story:
Outsourcing is about getting work done that others would rather not do, or it’s about getting non-core yet essential work done that is unprofitable to do in house.
At Empaxis, we’ve worked with hundreds of investment managers over the last 19 years. These firms come to us because they want us to do work that they and their staff no longer want to do.
And rightfully so.
They don’t like manual and time-consuming operational work. Why not partner with a firm that can manage their data and reports more efficiently and accurately?
Investment firms would rather allocate resources to focus on activities that grow their business, and in most cases, that growth requires hiring more onshore talent.
Looking at the broader picture, unemployment in the US is at historic lows.
Meanwhile, outsourcing is more commonplace now than it’s ever been.
Rates of American entrepreneurship are near record highs, with 5.1 million new business applications filed in 2022, and 1.7 million of those businesses plan to hire workers.
Additionally, there are well-documented labor shortages (or soon to come) in healthcare, education, STEM fields (science, technology, engineering, and mathematics), the trades, law enforcement, and yes, financial services.
Again, it’s not to say others haven’t been on outsourcing’s short end of the stick, but to say that outsourcing has hurt the overall economy more than it has helped, that is a myth.
The jobs data and economic growth over the last 30 years paint another picture.
Regardless, Empaxis supports the following views:
The myths related to outsourcing are many, and these inaccurate portrayals lead to wrong impressions.
Those wrong impressions have led firms to miss out on the benefits outsourcing brings.
But with a clearer understanding, the financial services industry can have a more informed view on the topic and take full advantage of working with outsourced vendors, if and when ready