Complexity often means risk, mess and can easily spell disaster. The fund sector for example, is one that requires constant thinking, innovating and success management; and it’s not always so easy, especially with a myriad of tasks and operations to see to internally. Below Lauri Paal, who used to work with Skype, Microsoft, and is now the Chief Product Officer at KNEIP, discusses with Finance Monthly some things the funds industry could learn from the telecommunications industry, from consumer behaviour to outsourcing and standardization.

Telecommunications has changed significantly in the last ten years. The regulation, technology and approach have all been reviewed and the industry has seen obvious moves. For example, voice to data as well as communications switching to apps. Moving into financial services, I have witnessed complex regulation and, like in the telecommunications sector, this is constantly changing and creating new challenges. However, our approach and business practices have not changed.

From the outside it is easy to think that the reason the telecommunications industry changed is because of the rise of 3G and eventually 4G technology. But the truth is that change is driven by consumer behaviour and I like to believe Skype played a part in how people consume technology today. Skype’s approach to voice services radically changed the market as we focused on lower cost and high quality international calls. To guarantee this standard, in traditional telecoms networks, operators needs to connect to hundreds of networks globally. Quantitative measures are used to monitor performance. At Skype we defined quality of service as a core value. We created a live feedback feature which is used after every call and we built an algorithm which allowed business allocation based on customer feedback. We drove this innovation.

Non-core activities were outsourced to specialist organisations. We did not build local infrastructure as many telecommunications agencies have in the past, we outsourced to partner management operations, including pricing and invoice management. The results were positive for everyone with each industries’ players focusing on their specialist industry, ultimately providing the customer with a better experience.

Now, in the financial services industry, I think there are a number of lessons that we can take from the disruptive approach in telecommunications and change the way our sector operates. Too much of our industry is still reliant on manual operations and systems are not streamlined to free up professionals to work on their area of specialism rather than on back office functions. Just as voice has become a secondary asset to data in telecommunications, so to traditional investment - especially assets under active management - is facing an optimisation drive. We need to find solutions that automate compliance processes, giving better focus to core activities.

I think the industry needs to push for standardised back office functions and compliance process. We have spent months preparing for PRIIPS and MIFID II but this needs to pay off for the end user. These complex regulations have focused on transparency but that is only beneficial if it uncovers inefficient historical processes, and force companies to adapt and innovate, ultimately becoming more effective. The industry, jointly with the regulators, should focus on understanding and enabling technology trends. Markets tend to be self-regulating, driven by customer demand. Perhaps keeping the end customer (or investor) in the centre of the process and making sure initial objectives were met post implementation will ensure processes are improved.

Asset managers currently tend to build a lot of solutions internally. The industry should rather take a step back to determine which tasks are core, such as product manufacture and investment management, and which tasks can be considered as non-core. Doing so could lead to greater business efficiencies and could, given time, lead to a more standardized industry, as we all witnessed in the communications industry.

However, I think the biggest lesson we can learn from the communications industry is the need to put customers in control. We are seeing trends towards younger investors demanding more knowledge of and access to their investment choices. We need to look at systems that allow the end user to understand and put them in control, whether they are an asset manager or an individual. If we can simplify processes, then their needs will define the future of the industry. Customers will decide and putting them in control needs to be our mission regardless of the industry.

The UK’s private sector outsourcing market recorded its strongest quarterly performance in five years in Q1, with businesses agreeing deals worth £2.42 billion, according to the Arvato UK Outsourcing Index.

The research, compiled by business process outsourcing (BPO) partner Arvato and industry analyst NelsonHall, revealed the largest private sector spend since Q4 2011 (£4.04 billion) as companies ramped-up investment in digital transformation.

Of the £1.74 billion spent by businesses on IT outsourcing (ITO) in Q1, 68% (£1.65 billion) was invested in introducing new technology projects, compared with £217 million in January to March last year.

The findings show continued commitment to improving customer experience also led to an increase in spending on BPO deals in Q1. Companies signed customer service outsourcing contracts worth £437 million in the first three months of 2017, with the overall value of private sector BPO deals more than doubling year-on-year to £682 million (Q1 2016: £284 million), according to the research.

Debra Maxwell, CEO of CRM Solutions, Arvato UK & Ireland, said: “The strong start to the year illustrates the resilience of the UK outsourcing market to political and economic pressures, with companies increasingly seeing value in procuring external expertise and experience. From improving customer experiences to delivering new efficiencies across the front and back office, continuing to innovate is crucial to stay ahead of the game, and business leaders are turning to outsourcing partners for selecting and implementing the technology that can help differentiate them in increasingly competitive markets.”

Overall, the findings revealed outsourcing contracts worth £2.73 billion were signed across the UK public and private sectors between January and March, representing a 13% year-on-year rise.

The research found that services outsourced in the UK are being increasingly delivered onshore. No deals agreed in Q1 are to be delivered fully overseas, compared with six% in Q1 2016 and eight% in the period October to December last year.

According to the research partners, a decrease in government spend was partly responsible for the drop in contract volume from 49 agreed in Q1 2016 to 22 in the same period this year, as public sector organisations adopt a ‘wait and see’ approach in the wake of Brexit and the upcoming General Election. Government departments spent £304 million on outsourcing in Q1, compared to £1.6 billion in January to March 2016.

Telecoms investment rise driven by customer services

The telecoms sector accounted for 18% of all UK outsourcing deals agreed between January and March, according to the findings.

The value of contracts signed by businesses across the industry more than doubled year-on-year, with agreements worth £514 million procured in Q1 compared to £217 million in the same period in 2016.

The research reveals significant investment in improving customer experience is behind the rise. Companies in the sector agreed deals for customer service worth £274 million in the first three months of the year, up from the £126 million spent in Q1 2016.

Debra Maxwell added: “The telecoms sector is an intensely competitive marketplace and exceptional customer service is now a key differentiator. Providing a seamless customer journey across digital and traditional channels is key, and a growing number of operators are partnering with third party experts to deliver outstanding experiences.”

The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato UK. The research is based on an analysis of all outsourcing contracts procured in the UK market during Q1 2017.

Other headlines from the Q1 2017 Index include:

• Overall 89% of spend came from the private sector, with 11% coming from government bodies.
• A total of £846 million was spent on business process outsourcing (BPO) deals, representing 31% of the overall UK outsourcing spend.
• The value of ITO contracts accounted for 69% of the UK market, with contracts signed last year worth £1.88 billion.

(Source: Arvato UK & Ireland)