Making a case for outsourcing to India
March 31, 2005
Mortgage offshoring reduces costs, not U.S. jobs, panelists say
By Janis Mara
Inman News
ORLANDO, Fla. - After outsourcing some of its business processes to India in 2003, IndyMac Bank had cost savings in the double digits the following year, its chief information officer said during a panel discussion at a national mortgage banking convention this week.
IndyMac Bank now has 300 offshore employees in addition to its 5,700 U.S. employees and is satisfied with its outsourcing efforts, Gary Clark, the company's chief information officer, said. Clark was addressing about 100 people at the Mortgage Bankers Association's National Technology in Mortgage Banking conference in Orlando Wednesday.
Outsourcing is predicted to grow to an approximately $400 billion industry by 2008, according to McKinsey & Co., and offshore outsourcing will leap 38 percent by 2008, Clark said.
Global outsourcing in which companies set up call centers or other operations overseas provides an attractive option for mortgage companies looking to gain efficiency and save on costs. The practice is controversial, however, with many attacking offshore outsourcing as stealing jobs from America.
"Rumors of the American white collar sector's death are premature," said Prashant Kothari, Clark's fellow speaker at the "Benefits and Pitfalls of Outsourcing" workshop. The U.S. has fewer than 700,000 employees in India, compared to the 140 million people employed in the U.S., Kothari, the president of outsourcing firm String Information Services, said.
"Outsourcing is not new to the mortgage industry," Kothari pointed out, saying that domestic outsourcing has been around for some time.
Vendor management companies for mortgage brokers are experiencing explosive growth because of the popularity of outsourcing, he said. Information technology is the most commonly outsourced function, and India is the country where these jobs most often go, according to Kothari.
Loan origination functions such as loan file setup, rate lock, borrower communication, loan processing and underwriting are commonly outsourced, as well as servicing and closing.
Kothari enumerated basic rules to follow to determine whether or not to outsource. "Keep what you do best, create a rule-based process, and consider the availability of suppliers and your company's comfort level with the practice," he advised.
If a company decides to outsource, it should treat current employees with sensitivity, clearly define the scope and schedule of the project, evaluate the provider as it would a full-time employee, and start small, Kothari said. "Don't focus only on price or forget about privacy and related laws and legislation. Don't forget ongoing support and client management, and don't forget to get it in writing," Kothari said.
When IndyMac decided to outsource, it started small, in accordance with Kothari's suggestion, Clark said. The only process that was outsourced to a call center in India was "welcome calls," initial phone contacts with new loan holders verifying information and reminding the customer of the date of his or her first payment.
Kothari Panelists discuss outsourcing during technology conference.
"Then we extended it to 1-30-day-late calls, then 30-days-plus calls," Clark said.
IndyMac first outsourced business processes in 2003. Information technology followed in 2004.
When IndyMac decided to explore outsourcing technology functions, it engaged in an extensive review before choosing Cognizant Technologies as its outsourcing firm. IndyMac interviewed a number of companies and visited India before making its decision, Clark said.
"It's important to meet the people you're going to deal with on a day-to-day basis," Clark said.
There were no layoffs as a result of the outsourcing, Clark said. Employees were migrated into new jobs instead.
Also, IndyMac had a strong CEO endorsement – another important element of successful offshoring, Clark said.
All these approaches helped the project succeed, he said.
In retrospect, the CIO said he wished he had invested more heavily in training and providing vendors with adequate incentives to drive process improvement.
Answering a question from the audience, Clark said IndyMac has three offshore service providers. One provides business processes around loans, the other financial analysis, and the third provides Web development, code review, programming and testing.
"First and foremost, top management has to buy into offshoring," Kothari told the audience. "Everyone must buy in. Introduce it slowly." Speaking of his company, he said, "We haven't replaced any workers."
Source: Inman News
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