VIDEO | To outsource or not to outsource, that’s the question. At the PostTrade 360° Nordic 2024 conference, Rob Verheul of Achmea Investment Management and Ulrik Modigh, formerly of Nordea Asset Management, gave the audience both sides of the story in the session titled “In-house versus outsourcing – striking the perfect balance for the operating model”.
“One of the golden rules I have learnt is, do not outsource your mess,” said Bastiaan Aalders, session moderator and director of EU operations practice at financial consultancy firm AlphaFMC. “If you outsource a mess, chances are, nothing will change.”
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Verheul’s experience in Achmea illustrated Aalders’ point. Over a period of rapid growth, the firm doubled its assets under management from €70 billion to €160 billion. It was then that the team noticed “a tremendous rise in costs” with every onboarding of a new client.
“We had reached the end of the scalability of the operating model,” explained Verheul. “An analysis was done, and we found that the reason was a lack of automation and standardisation.” Additionally, the capabilities of the people working in the organisation no longer fitted what the organisation had become.
“Get the right people on the bus, then decide where to ride, is one of the analogies I always use,” said Verheul. “Make sure that you have the right team to manage the change and be able to realise the ambition that you have… Don’t expect that your service provider is going to solve everything for you.”
The in-house conundrum
Despite the challenges, outsourcing remains a strategy that works for Achmea. The same cannot be said for Nordea, where most things are kept in-house.
For Modigh, having specialists in-house “gives a lot of value” when it comes to developing the business, products, and services, as well as living up to regulatory requirements. “You can build a competence domain; build the necessary scalability and efficiency in your operating model.”
Nevertheless, he acknowledges that Nordea’s strategy might not work for everyone or for every context – even in the Nordics, where the environment highly favours an in-house model. The region is highly digitalised, with software providers available that can “support the entire value chain”. Looking ahead however, “cost is going up across the board… Margins look like they are going down.” “If you are a small player, it would become more difficult even in the Nordics to have a fully in-house model because you have to cover such a broad part of the value chain,” he predicted.
This makes keeping things in-house a demanding choice that requires an operational strategy. “You are basically in competition with an outsourced service provider,” Modigh pointed out. Even at Nordea, the processes that do not have the size of transaction volumes to justify an in-house team are ultimately outsourced.
Just the right touch
Verheul reminded the audience that outsourcing doesn’t mean handing over control completely. The nature of the company should determine what they subscribe to from a service provider. A firm focused on sustainable investing, for example, might have the knowledge and an established system for dealing with ESG requirements in-house. It should therefore skip the ESG module provided by an asset servicing company.
This comes with a caveat, of course. “If you have a strategy of outsourcing bits and pieces of your organisation, you’d need an oversight team that has very good, thorough understanding of these services,” he said. Done right, the oversight team should only have to “look at the dashboard in the car instead of opening the bonnet to see how the plumbing is done in the engine”.
Verheul suggested that decisions in outsourcing should always be made with the client’s perspective in mind. “We start with an analysis of what our clients need. What did they subscribe to and what did we agree on with them? We then make the translation to our organisation – what are we good at, and what are we lagging on, in the automation of processes, knowledge, and the skillset of our people?” The ultimate question to answer is, “where do we add value for our clients and where do we not add value”?
Panelists:
Rob Verheul, Director, Operations & Transformation, Achmea Investment Management
Ulrik Modigh, Chief Operating Officer, (former) Nordea Asset Management
Moderator:
Bastiaan Aalders, Director, EU Operations Practice, AlphaFMC
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