Outsourcing can save time, money and other resources, but how do you decide which services to give to a third-party vendor and which you should keep within the organization? Here are 10 questions to help guide your decision-making process.
Are you a small investment advisor shop looking to compete with bigger firms? Are you a large enough manager where entire teams and departments might be impacted? To stay viable, boutique operations need to keep their business simple and highly focused on their core competencies – outsourcing anything that doesn’t directly add value. Bigger firms have more flexibility, but many of the same considerations apply.
It takes time to build infrastructure – a team, a department, a proficiency. It also takes time to put technology processes into place and design them to exceed the expectations of your investors. It’s essential to take each component in your business and make the determination: in or out? Can I build this in time? Can I build my staff in time? Or am I better off buying this service?
Outside vendors and consultants can be a great way to learn from professionals who’ve gained insight from their experience “looking under the hood” of other firms – best practices, what works, what doesn’t, etc. Rather than having, for example, an internal individual responsible for compliance (i.e., doing), consider shifting your approach so they’re instead accountable for compliance (i.e., overseeing). That way, you can bring more outside perspective into your business.
Your business’s competitive advantage likely won’t be compliance, information technology (IT), marketing or your customer relationship management (CRM) system. Those are important components, but your primary focus should be on your clients. When you expand, it’s advisable to rely on resources who advance your core investment management competencies (e.g., analysts, portfolio managers, etc.). Other responsibilities can be easily outsourced.
Whether you’re insourcing or outsourcing, your focus should always be on leveraging your firm’s strengths and improving weaknesses. This requires a model of constant reevaluation to ensure you’re not overcomplicating processes and wasting resources. Look at every aspect of the business and ask: could this be simpler? Would it be more efficient to do this ourselves or find someone to take it off our plate?
Over the past decade or so, the ecosystem around supporting asset managers and funds has developed tremendously. As talent pools, vendor competition and service levels increase, it’s becoming easier to find quality support. However, it’s important to seek out companies whose management teams are on your same trajectory and who share your ethos for client service (because your clients will now be their clients.)
Tenured staff can be wary of change. Although the firm might be moving in a certain direction, sometimes you face internal resistance. Are you upending someone’s day-to-day operating model? Are you shifting someone’s workflow? As you implement new structures and organization, pockets of individuals can hold a different view. You need to manage change internally by slowly introducing new processes and winning over the people they impact.
To maintain a high-level of client service, you need to be careful of what (and how) you outsource. You can’t have a situation where your service provider presents a reputational, legal or occupational risk. It often makes sense to implement your outsourcing model incrementally – adding vendors and responsibilities over time rather than through a giant, global overhaul. This gives you greater control and the ability to monitor and adjust if service starts to suffer.
It’s important to go into a vendor relationship understanding you can end it if necessary. If you’re getting negative client feedback – perhaps where they feel the level of service is declining – that would be an immediate indicator to reassess. Be willing to “fail quickly.” That is, be willing to quit a relationship and find a replacement before too much damage is done. Sticking with an unsatisfactory vendor hoping they’ll improve over time is a bad strategy.
To keep your strategy future-oriented, follow these guiding principles:
While outsourcing has many advantages, it’s important that you ask the right questions to determine the best approach for your organization’s needs. Utilizing third-party vendors strategically can have lasting benefits and support future growth.
U.S. Bank offers customized operational solutions combined with the strength and security of a major financial institution. Visit us at usbank.com/investmentservices to learn about our investment services solutions.
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