The outsourcing debate

June 21, 2013 | by Rebecca Hellmann

Famed management consultant Peter Drucker spoke extensively about outsourcing and is often credited with the idea as we know it today.

"Most look at outsourcing from the point of view of cutting costs," he said in an interview with Brent Schlender of CNNMoney in 2004, "which I think is delusional. What outsourcing does is greatly improve the quality of people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management."

Drucker is also famously quoted as telling Jack Welch at GE to, "Make sure your back room is their front room."

Defining 'front room'

So what is the financial institution "front room"? What is the retail "front room"? Are ATMs a part of that core competency? For retailers, the argument involves little debate. ATMs and ATM management are clearly not part of the core competencies of a store focused on the sale of products and services to the general populace. By Peter Drucker's estimation, the outsourcing of ATM management for retailers is a must.

The financial institution, however, the question is murkier. ATMs can fall under three major categories: financial services, customer care, marketing and technology. While two of these, financial services and customer care, clearly fall under the definition of "front room" for FIs, the latter two clearly do not. Further evaluation is required to determine the true status of the ATM.

Quality as Goal

"Believe me, the trend toward outsourcing has very little to do with economizing and a great deal to do with quality." – Peter Drucker

"Members [and customers] tend to judge based on the quality of the services they receive," stated Wendell Fountain, president and principal consultant of Fountain & Associates Business Consultants. This assertion seems to jive well with Drucker's main point ... that a company should, ultimately, aim for quality when considering outsourcing anything.

In light of this, perhaps attempting to divide ATMs into simply "front room" or "back room" status is a wasted attempt. Instead, consider what goes into running the ATM efficiently and effectively and the institution's capability of providing these services.

Most FIs must contract at least a portion of ATM functions to outside vendors. Processing and maintenance are two of the most frequently outsourced services. Only a few financial institutions are large enough to pull all aspects of their ATM network fully in-house.

For some FIs, the many different services and requirements to run an ATM network have to be divided up throughout the institution, making reporting and coordination difficult. For others, the task of maintaining an ATM network is too taxing. Few institutions have an entire department devoted to ATM network management with a career path leading to senior management.

To outsource or not to outsource?

Is the institution capable of providing the excellence in service that customers and members expect at the ATM? Can the institution support an ATM network as a core competency, managing the network efficiently and effectively? If not, is it better to work with a single vendor to arrange all aspects of the network or with multiple vendors?

Taking core competencies as well as quality of delivery into consideration, the question should always become, "What is best for our clientele?" Keeping this question at the forefront will better direct the FI to the correct decision about whether to outsource — or not to outsource — the ATM network.

Download the free ebook, "Outsourcing the ATM Network".


Topics: Outsourcing

Rebecca Hellmann / Rebecca Hellmann is the marketing manager for Welch ATM, an independent ATM company that currently manages more than 20,000 ATMs throughout the United States.
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