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Outsourcing - Source of Contention
By Adam Ripley
Outsourcing can save companies a fortune – but its success depends on testing procedures.
In the UK, the financial services industry has always been leagues ahead in outsourcing and offshoring. Most of the mega deals at the start of the outsourcing revolution involved financial services companies. Realising the benefits of outsourcing IT and processes such as human resources and finance, the investment bank community has began to outsource more critical functions.
For example, last year Scottish Friendly outsourced the lion's share of its £355m life fund to Legal & General. In another deal, Abbey selected State Street Global Advisors, JPMorgan Fleming Asset Management and Barclays Global Investors to run its Abbey National UK Growth Unit trust.
Despite the proliferation of the different types of financial services outsourcing, it has not been without its problems. Earlier this year, the FSA released the findings of its investigation into offshoring financial services, warning companies they face increasing levels of risk if they send processes offshore. The conclusion was that offshoring could contribute a material risk to the industry objectives of market confidence, reduction of financial crime and consumer protection.
However, it is not only risks around offshoring that transpire in financial sector outsourcing. Lack of adequate testing procedures around outsourced systems is another issue that has caused problems for financial services companies. Systems collapsing as a result of poor testing can have catastrophic fallout for the companies concerned, as it can cause deflated consumer confidence, significant reputation damage and can be extremely costly. A high profile example of this is online bank Cahoot. At the end of 2004, Cahoot suffered a security lapse, when a failure to adequately test an upgrade resulted in a breakdown to the password system, exposure of customer account data and significant brand damage.
Problems
In fact, failures in systems testing have caused problems in outsourcing projects in lots of sectors, not just the financial services market. The Child Support Agency is a prime example. Dogged by innumerable problems, the CSA's £456m computer system caused havoc with the organisation's attempts to track and secure child support payments from absent parents. The reason behind the system's failure was a lack of testing – inadequate capacity and performance testing plunged the CSA's working practices into chaos.
Another example of an outsourcing project failing due to insufficient testing is the debacle at the Department of Work and Pensions. Poor testing procedures meant a local PC operating system upgrade was erroneously applied across the organisation, disabling host access. It may not seem the most serious of incidents, but it just highlights how a seemingly simple local upgrade can have such widespread effects if the right testing procedures are not in place. Up to 80,000 of the DWP's PCs were affected, making it one of the worst IT failures in the past year.
As these examples show, the failure of large scale outsourcing deals is regularly down to poor testing. Government failures tend to be more public, but as the Cahoot example shows, system-testing problems are just as likely to occur in the financial services sector.
Software Testing
Research from the National Outsourcing Association has looked at software testing in the outsourcing environment and has found that in general, it is under funded and inadequately conducted. Despite 93 per cent of respondents considering testing a priority, 80 per cent of the sample admitted that it is not conducted thoroughly enough in outsourcing projects. Furthermore, 62 per cent believed that insufficient financial backing is given to software testing. With the litany of software testing failures that litter the outsourcing space, this is something that financial services companies should be paying urgent and serious attention to. Why is it that it is so often overlooked?
One problem is testing is often considered a tick box, operational function, when it should be about the verification of a solution to fit the business. It is not simply checking that the system works. Second, suppliers are often under pressure to meet deadlines and fall within budget, meaning testing takes a backseat. The pressure to push systems out on time can mean software testing is compressed into a reduced time period to decrease delays in implementation.
Clouding judgment
The outsourcing environment can also cloud where the responsibility for testing lies, whether it is supplier or the customer? There is no definitive answer as no two projects are the same. Responsibility should be decided at the outset, at the contractual level and there should be secure testing procedures in place on both the end user's and supplier's sides that are undertaken from the beginning of the project. This will ensure that problems are detected early on. The earlier they are spotted, the more easily and cheaply they can be rectified.
As the success of outsourcing is so dependent on the robustness of software testing procedures, it really is time testing was put firmly on the agenda of any financial services organisation involved in outsourcing.
Software testing failures can result in reputation damage, lost customers, organisational disruption, not to mention the huge cost. As every company involved in financial services is urged to get their houses in order before embarking on outsourcing, testing is another area, which should be urgently addressed.
For more information visit:
http://www.isintegration.com
About the Author
Adam is the Co-Managing Director. He focuses on sales and marketing. With 24 years experience working in IT, Adam has worked in many different roles and in several industry sectors. Prior to co-founding IS Integration, he worked for 7 years as an IT consultant. Today, he spends time understanding the market and aligning the solutions IS Integration provide with the needs of its clients and partners.
http://www.isintegration.com
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