Onshore Outsourcing of Financial Services IT… Protectionism or Smart Business Practice?
(CYC) Outsourcing of financial services IT is certainly not a new phenomenon; MSPs have been around practically since the birth of computers. So why do we see this issue being increasingly discussed lately?
(BM) For financial services firms generally, and for our alternative investment clients in particular, there is one overriding consideration: the increasingly changing role of today’s CTO. Look at any of the top alternative investment CTOs and what you see is a leader who is playing an active role in the success of their firm. They choose to focus their team’s efforts on achieving important growth goals and not worrying about backups, patches, and other day-to-day tasks, particularly when there are outside service providers that are infinitely capable of doing those tasks.
Beyond the need for more time to help grow their firm, there are three additional reasons that are at the heart of every outsourcing discussion: compliance, flexibility, and cost.
The financial regulatory environment has changed and will continue to change in the months and years ahead. Compliance, of course, is not a choice; one must simply comply and change whatever operations are necessary to meet the regulations. Often, legacy systems lack flexibility and require major costly, and time-consuming, overhauls to adjust to these new realities; this provides the perfect opportunity to look at alternative solutions.
The build/buy/rent question is always with us, and in periods of accelerated change, that question becomes more difficult to answer. However, if the objective is to preserve capital, gain flexibility, and control costs, the solution is clearly outsourcing.
(CYC) So, if outsourcing can help firms to grow, assure compliance, provide greater flexibility, reduce capital expenditures and help control costs, why the negative connotation so often expressed?
(BM) For the most part, politicians and the media have continued to define outsourcing as “moving jobs overseas,” with all the connotations that phrase conjures up. In reality, “offshoring” would be far more descriptive of that particular activity. Outsourcing is simply moving a service from your internal staff to an outside specialist, who may be in the same town or even the same building as your firm is located, which would be “onshoring” not “offshoring.”
(CYC) This raises a big question: It’s generally believed the cost savings or value proposition lies in the offshore provider. Accepting that premise, doesn’t sound business practice demand CTOs, and in your case, alternative investment CTOs, look to offshore providers?
(BM) All things being equal, that would be the case. All things, of course, are never equal. To begin with, almost every comparison looks at IT provider costs from cities in developing countries around the world. These costs typically are compared to costs in U.S. cities such as New York or San Francisco, some of the highest-cost cities in the world. That is an argument inane on its face. I cannot remember the last time I saw offshore cost comparisons using comparable cities such as London or Tokyo. Furthermore, does anyone believe these developing world cities offer the same human and technological infrastructure, as do many of the lower-cost locations in the U.S.?
(CYC) So, in an apples to apples comparison between a developing world city and a lower cost center in the United States, the costs might be closer, but the offshore provider will still most likely have a cost advantage, albeit a smaller one. Are there other relevant factors to consider?
(BM) Yes, there are significant other factors that must be considered. For example, in founding Agio we established as one of our most important goals the creation of a culture that was at one with our alternative investment clients. Walking into our operations center is like walking into a hedge fund, not only by physical design but also by the ways in which we recruit, train, and manage our team members. Critical to the success of any relationship is communication, and by establishing a cultural environment that is similar to our clients, it enables Agio to improve communication with those we serve. Perhaps an equally important factor to consider is we operate in the same time windows as our clients. Our “A” team and their “A” team are always coordinated. When they need us, we are there.
(CYC) Your corporate headquarters are in New York City, and your operations center is in Norman, Oklahoma, an interesting choice. Can you share with us some of the reasons for those decisions?
(BM) Obviously, New York was an easy decision – it is the world’s financial capital, and is unarguably the focus of the largest concentration of alternative investment managers in America. Where else would one get a true sense of the world of hedge funds, private equity firms, asset managers, and venture capitalists? In addition, many of our initial clients were in the New York area making the decision even easier.
(CYC) OK, we get New York. Tell us about Norman, Oklahoma?
(BM) Surprisingly to many, Norman, Oklahoma, was perhaps an even easier decision. We had four major criteria for selecting a site for our op center. One, it must be in a community with substantial existing high-tech employment; we had little interest in being pioneers. Two, it must be within commuting distance of a major, research-oriented, university. Three, it should offer significant economic incentives for companies such as Agio to locate in that community; and four, it should offer our employees a great, culturally vibrant, and affordable community to live in.
Agio found all four in Norman, Oklahoma. The city has a significant, and rapidly growing, governmental and private sector high-tech employment base, which are in no small measure due to it being the home of the University of Oklahoma, one of America’s top research institutions. The Oklahoma “Quality Jobs Program” provides highly competitive incentives for tech companies such as Agio to locate there. Norman is a great, affordable place to live, making the top five of almost every list of small towns to live in, with all the sports and cultural amenities that one typically finds in a major college town. Plus, as a suburb of Oklahoma City, its residents are less than an hour away from all of OKC’s cultural and sports programs as well.
(CYC) So, it’s the unique culture of Agio, combined with a New York headquarters and an Oklahoma operations center, which allows Agio to compete effectively when all relevant factors are considered?
(BM) Without question! As Agio continues to win new clients in this highly competitive environment, and our client renewals and satisfaction scores continue to climb, the correctness of those decisions is reaffirmed every day.