2005 was a mixed year for outsourcing in the financial services sector. The good news was that the number of deals announced increased from 2004. Most commentators acknowledged that there were more than 20 substantial City deals, with particular growth in the fund managed accounts and property administration sectors. The bad news was that some of the biggest outsourcing providers experienced high-profile problems with their older outsourcing arrangements. The widely publicised termination of Schroders’ outsourcing deal with JP Morgan in July 2005 after five years and the decision by F&C Asset Management and Mellon in November 2005 not to proceed with the extension of F&C’s existing agreement with Mellon were the most notable.
Many of the larger outsourcing arrangements that were entered into around 2000 are now reaching the middle of their terms and some are not ageing well. The reasons for this vary, ranging from poor due diligence on the part of the supplier and customer at the tender stage to consolidation among markets making the original business model for the outsourcing redundant. The science of outsourcing has also changed and developed in the past five years and many of today’s ‘middleaged arrangements’ are much less flexible and dynamic than newer arrangements. The result is that many suppliers are stuck with an unprofitable line of business and many customers are stuck with poor service and no capability or right to take the service back in-house before the end of the arrangement.
