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David Collins
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We were recently asked to bid on a five year contract, the conditions were to put in a team of a certain capability and do the same thing every year with the same people. Don’t bother to get any better, improve productivity, or automate any tasks; we’ll just pay you extra each year so you can give the team a pay rise. We like to keep the same people despite knowing they become overqualified, bored and start dropping service levels. After five years we’d expect to have a worse service and for it to cost about 30% more.
Of course, it wasn’t actually phrased that way and I am being facetious to make a point: too much of technology or operational sourcing is bought that way, just using fancier language. Lazy contracts, blindly accepting COLA clauses, too people orientated, and with no view to the cost of ownership problem that it creates.
The ask should be outcome orientated with defined service levels. An obligation to continuously improve processes and to automate repetitive tasks. As the team gains greater knowledge they should rotate staff to reduce the seniority with no impact on service quality. This should be packaged as a five year contract with step down pricing forcing the provider to gain efficiency, deal with COLA and improve the way the service is provided.
If you phrased it that way you’d get two types of responses: those that come with a plethora of caveats and conditions, all seemingly plausible but deliberately designed to get out of the efficiency obligations, and those that genuinely take on the challenge and have an approach to service levels along with TCO improvements.
The point is that if banks are really going to do something about the cost of ownership problem, they need to change the way that they buy. Sourcing policy needs to focus on the desired business outcome rather than minimising a single factor in the total cost equation. What matters in TCO and service quality are the outcomes, they are far more important than inputs; the lowest day cost does not necessarily equal the lowest outcome cost.
Measuring productivity in services has always been a difficult task so buyers tend to put a lot of emphasis on inputs, most notably people, cost and time. There is nothing wrong with measuring inputs but on their own they are fairly meaningless. The starting point should be the desired outcome and buyers should expect more from their suppliers.