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According to research by KPMG, ineffective governance of provider contracts can cause value leakage ranging from 17% to 40%. So how do you maintain quality and reduced costs in this complex environment?

One of the biggest problems in outsourcing is the loss of value during the life-cycle of the project. In times of unstable economic forecasts for many organisations, this loss of value can undermine the success of the project. In conducting outsourcing contracts and relationships, users are often faced with ‘value leakage’. This loss of value often comes about during contract development and governance.

Failures in implementing good governance and establishing effective contracts both damage cost savings and value.

George Davies, CEO of MooD International, a next generation software provider, comments: “The key to reducing value leakage lies with the client and supplier working together every step of the way.” He adds that, “It is not enough simply to award an outsourcing contract and then just expect the supplier to get on with it. Both sides need to make things happen. The supplier will need things from the client to be successful, and vice versa. The answer is having a common approach to the way you view the contract and the data. Rather than leaving one side or the other to monitor everything, both sides should have access the same data, a single pane of glass along the whole contract through which both sides can look at any time. That way both sides can monitor where everything is simultaneously, keeping the value where you want it – in the business outcomes.”

‘Value leakage’ can be more common place in certain outsourcing relationships than in others. Shared services can represent a fertile ground for loss of value through mismanagement due to scale and multiple suppliers. The focus can shift rapidly when using shared services with multiple vendors, often the shift in focus comes too early.

Loss of value can also come from rigid organisational structures from both sides of the supplier/user relationship. Sachin Shah, a London-based partner at global management consulting firm Bain & Company’s IT practice, said “people who remain within the business after transition to shared services do not actually change their roles or develop new skills, resulting in more duplication, and less transformation.” A government plan can prevent these issues from occurring, if properly introduced in the planning phase of the outsourcing project.

Multi-sourcing – the challenges for Governance and Compliance

Establishing accountability during service delivery prevents both users and suppliers from neglecting communications and services. Accountability also serves in rapidly identifying and acting against errors while holding users and suppliers to account for collecting data and ensuring value.

As already mentioned, management of the outsourcing relationship is fundamental aspect of any relationship. Ensuring that both sides understand the required deliverables and obligations at the outset of the engagement goes a long way in preventing loss of value from miscommunication and misinterpretation of roles and services.

Colin Craig, Director, Information Services Group, comments: “ In my experience, those relationships that display a strong degree of trust also have a much better, deeper understanding between the parties, a greater focus on the longer term relationship and a desire to adopt risk sharing rather than a risk avoidance approach – all resulting in delivering greater value from the contract. Strong governance will be the key differentiator between effective, efficient outsourcing relationships, and those leaking value and long turned sour.”

Managed governance services can reduce value leakage. It is vital that users manage suppliers and both sides understand and manage the services to be delivered, the implementation of a governance plan is essential.

The establishment of a government plan must include the management of:

Financials

This is designed to avoid loss through inaccuracies in accounting, including invoice and payment errors.

Performance

Managing performance is necessary to identify ‘value leakage’, such as where targets are not being delivered, so that such loss can be prevented.

Consumption

In large outsourcing contracts resources can often be under or over-used, even in small contracts it is easy for services to be mismanaged and become under or overextended.

Relationships

Failure to effectively manage relationships between users and suppliers can lead to loss in value, establishing effective communications is a large part of relationship management and preventing ‘value leakage’.

Strong governance is the key element to reduce value leakage, generating a government plan in the early stages of an outsourcing project can prevent loss of value at later stages of the project. Governance can be expensive and time consuming but comes into its own in the long run, where cost savings and speed of delivery gained form reducing value leakage out ways the initial expense. While it is important to monitor multiple areas with the project in order to reduce loss, relationship management is at the heart of any outsourcing relationship. Facilitating the creation of a strong relationship can often be the best practice for reducing ‘value leakage’.

The financial services industry is under an enormous amount of pressure from regulators at the moment and is finding itself getting fined on a regular basis for not having the correct Anti-Money Laundering (AML) controls in place. These fines not only damage a firm’s reputation but also mean that the FSA is going to be keeping a close eye on them in the future.

AML is really in the spotlight for regulators at the moment, and almost every large financial organisation has been fined for an AML failure. Many financial services IT departments face a similar issue - legacy systems that have been developed and expanded organically (often in-house) can often lead to data becoming siloed and disconnected. As one of the top 10 concerns for banks looking to achieve compliance and avoid fines, what exactly should banks be doing to overcome this challenge? For me, the answer lies in Business Intelligence.

Man and Machine

A couple of large banks that I know of employ around 1500 analysts to carry out AML investigations. Even with this enormous number of skilled analysts banks are still getting fined. Whilst some automated systems do exist to help, financial institutions have a way to go before they can say that they are intelligently using all of the data in the business to help solve this huge problem of being AML compliant. Carrying out manual investigations into suspicious transactions is obviously not very efficient. ‘Googling’ a person becomes difficult when you start to think about the potential variations in spelling of that person’s name or address for example.

Guilty by Association

Social media is an excellent and often untapped resource that can and should be used to help in AML investigations, but without the correct business intelligence strategy in place, this too would take too much time and could become more of a hindrance than a help. However by employing the correct data infrastructure and technology, 80-90% of false positive suspicious activity alerts could be eliminated automatically, leaving the analysts to investigate the real criminal activity.

What banks should look to do is employ the technology to match structured and unstructured data both internally and externally to the enterprise to build a picture of an account holder who has been flagged as suspicious. This means linking a person’s bank account with their job or their recent activity for example, have they just won the lottery? If so, that would explain the huge deposit just made into their account.

It really comes down to ensuring that you have a single customer view. If you could immediately see all of the accounts that person holds you would know that a large, unusual transaction is the result of a mortgage being paid off by a savings account for example.

The right business intelligence strategy would allow data from sources that aren’t usually linked to be automatically scanned at the same time, and integrated with the bank’s existing database. For this to work master data management is vital. The correct data warehouse with information stored in a meaningful way is essential, and being able to link individual transactions back to this will mean that banks really will have a single customer view, that can be shared across the organisation, and leave them less vulnerable to AML compliance fines.

A Catalyst for Change

So why aren’t banks doing this? As it stands the investment that banks are making in the regulations space tend to be carried out on a tactical basis. FATCA and Basel 3 for example will all have been dealt with separately, as and when it’s been absolutely essential.

However if the financial services began to think more strategically it would become clear that a common factor in all these regulations are the skills and data sets all of these regulations require the same skills and data sets – if businesses integrated their data across the entire organisation once and for all, it would mean that they could increase their agility and become much more reactive in their response to the unrelenting barrage of regulations. This often boils down to a shift in outlook for businesses who have traditionally seen investment in technology as an expensive outlay rather than an opportunity to transform the business with better decision-making processes.

Effectively managed quality data is the lifeblood of successful AML implementation and ensures the effective integration of risk considerations into the decision-making that underpins it. The extent to which financial services companies are able to capitalise on their investment in data infrastructure will depend on their commitment to invest time in understanding and harnessing the data for business intelligence and competitive advantage.

Arriving quickly on the horizon for financial services IT departments is FINREP COREP which comes into play next year as banks will need to be sharing all of their data on a monthly basis – AML compliance is a requirement; using it as a springboard for better business intelligence is a smart business decision.

A survey has shown that organisations are increasingly storing confidential and sensitive data on the cloud, with nearly half of CIOs polled, admitting that they carried out the practice.

The survey "Encryption in the Cloud” by Ponemon Institute surveyed 4,000 IT professionals around the globe.

While 35 percent of IT professionals said that there organisations carried out encryption of sensitive data before uploading to the cloud, however only 11 percent of cloud providers offered encryption as service.

Larry Ponemon, chairman and founder of the Ponemon Institute, said “two-thirds of those that move sensitive data to the Cloud regard their service providers as being primarily responsible for protecting that data, even though a similar number have little or no knowledge about what measures their providers have put in place to protect data.”

The reports from KPMG and the Recruitment and Employment Confederation (REC), have shown that while job vacancies are still increasing slowly, IT workers are in strong demand in comparison.

IT jobs that are in demand include business analysts, specialists in digital marketing, infrastructure, .NET, PHP, and SAP, along with project managers and IT architects.

Information supplied from the Office for National Statistics, shows that internet based recruitment rose by 4.6 percent in the first quarter of 2012, compared to overall job vacancies increases of 2.6 percent.

Google is preparing to invest $185 million into a data centre based in Finland.

The move comes as Google seeks to increase storage data capacity as internet usage increases.

The data centre is situated within a former paper mill which has seen $198 million worth of investment including sea water cooling tunnels.

The investment is expected to double Google’s capabilities at the datacentre site.

The UK government has managed to achieve savings totalling £249 million in ICT savings over the last financial year.

The Cabinet Office has revealed these figures and stated that the enforcement of strict policy regarding ICT spend has been responsible for the savings.

Cabinet Office minister Francis Maude “given the size of the deficit this government inherited and the ongoing tough economic climate, we were determined to cut the fat from Whitehall.

Because our controls on spending are working well and saving unprecedented amounts of money, I’m determined they will be a permanent feature of good governance.”

While the government have highlighted the savings, analysts have identified the risks of failing to invest in ICT in prolonging the recession.

Domino’s Pizza UK have transitioned there online ordering systems to a cloud platform.

The online payment gateway, corporate email, and back office have been transferred to the cloud using Rackspace hosting services.

The new cloud platform is designed to take advantage of increased online demand, with a 43 percent year-on-year rise.

Rackspace Cloud provides a scalable platform which will allow for Domino’s to add smartphone and digital device accessibility and applications at later stages.

Colin Rees, Domino's IT Director, said: “To maintain our current growth trajectory and to keep improving our customer experience we needed to outsource our hosting infrastructure."

Tesco has launched a virtual supermarket at Gatwick airport. The online shopping site allows customers to place an order via smartphone devices, for delivery shortly after they return home.

Tesco launched a similar trial last year in South Korea at rail and bus stations.

The move comes as Tesco takes advantage of increased sales through online devices as the number of smartphone users increases globally.

Macmillan Cancer Support has employed a ITIL-based IT service desk, allowing for standardised processes, agility, speed and avoiding the use of spreadsheets and paper formatting.

The charities past use of paper systems and spreadsheets had caused “huge headaches”, with 2,000 employs over more than 11 locations.

Andrea Kis, service delivery manager at Macmillan, said: "With our IT team continually relying on spreadsheets and paper forms, data wasn’t being documented in a way that provided a clear picture of activity or the problems that our employees were encountering".

Google has invested £5.2 million in DocuSign which specialises in digital signatures for electronic documents.

The software is employed for digital invoicing and business agreements and is currently employed by over 20 million users.

Google Ventures have invested in the growing technology as more businesses adopt digital signature capabilities.