Is Now the Time to Consider Outsourcing?

Is Now the Time to Consider Outsourcing? American Financial Services Association What is Outsourcing? Outsourcing is a process in which a company delegates some of its in-house operations/processes to a third party Onshore Outsourcing - Same country Nearshore Outsourcing - Neighboring country (e.g., Canada, Mexico Offshore Outsourcing - Foreign country (e.g., India, the Philippines, Guatemala) 2

Services Outsourced Information Technology Outsourcing (ITO) - Outsourcing of computer or Internet related work Knowledge Process Outsourcing (KPO) - Outsourcing knowledge-related and information-related work Business Process Outsourcing (BPO) - Outsourcing the operations and responsibilities of a specific business function 3 Why Now? Amid the economic downturn, more firms are considering outsourcing to cut costs and gain access to technology and expertise. More specific benefits include a firm s ability to: Bring in a service provider on an as needed basis without adding to fixed infrastructure or operational costs Gain access to capabilities, expertise, and technology not available in-house as outsourcing providers tend to invest in the latest technology as they can offset the expense by sharing the technology among several clients. Be a driver for growth by outsourcing non-core functions and concentrating on core business services and areas in which competitive advantages can be achieved. 4

Outsourcing Trends According to IDC review, outsourcing business processes is expected to grow with a compound annual growth rate of 7.1% through 2009, when the market is expected to reach $355 billion 1 The International Association of Outsourcing Professionals predicts that in 2009 companies will: 2 - Outsource operations closer to home - Demand immediate savings - Put pressure on service providers and advisors to lower costs - Value professional certification and local expertise - Emphasize social responsibility 1. Source: Article Outsourcing Accounts Receivable (ar) Benefits by Mani Malarvannan, cofounder of Cybelink 2. Source: Article Top Trends to Watch for in 2009 by Jagdish Dalal, Managing Director, Thought Leadership, IAOP 5 Polling Question Does your company currently outsource any functions? a. Yes b. No 6

PRESTON MILLER AUTO INDUSTRY EXPERT AND EX-COO AMERICREDIT 7 Outsourcing Principles Do not outsource competitive advantages Maintain ability to bring in-house Consider outsourcing established processes vs. new ones Do not outsource processes requiring judgment material to business 8

Examples of Processes to be Outsourced Customer service and early-stage collections Loan administration/payment processing/data entry Insurance tracking Title processing Bankruptcy processing Post-charge off collections Repossessions 9 Core business is growing When to Outsource Launching new business initiatives Time implementations to launch at cyclical upturns Regardless of timing, outsourcing will be disruptive to the business 10

Keys to Success Adopt a corporate philosophy for outsourcing and stick to it Educate the organization on the philosophy Actively manage the vendors Provide alternatives to effected personnel Create incentives to drive a shared success for affected personnel COMMUNICATE, COMMUNICATE, COMMUNICATE 11 KEVIN BARRY, CEO PEAK5 12

What Can Third-Party Servicers Do For You? Provide a partnered advocate with aligned interests to maximize portfolio s performance by utilizing their focused, specialized processes and infrastructure Enhance your internal operations by developing collaborative program plans focused on your portfolio objectives and maintaining your company s culture Scrutinize existing processes and treatments to validate current methodology while integrating new challenger strategies and alternative programs Continued 13 What Can Third-Party Servicers Do For You? Maintain a partnership utilizing servicer s benefits of scale, industry partnerships, and additional technology that is possibly not possessed by lender institution Significantly reduce costs when addressing new lending strategies or portfolio performance that demands immediate remedial attention Leverage dedicated and skilled manpower backed by high-end technology to accelerate growth and higher returns Gain more time and flexibility to attend to your core business 14

Outsourcing Considerations Define what business processes could make sense to be outsourced to a service provider and prioritize that list, starting with those projects that offer the highest potential benefits Evaluate current conditions and effectiveness of existing, internal processes and assess all aspects Contemplate outsourcing of non-core functions that do not directly affect the products and services that the business offers Continued 15 Outsourcing Considerations Examine candidate outsourcing firms bases on credible referrals and collaborate with them on a potential program. The selected vendor must have experience with similar businesses and be able to serve the client s unique and specific needs Specifically in the area of outbound call centers, end user experience and objective effectiveness is deemed to be of lower quality when a service is outsourced to offshore regions where the first language, culture, and time zones are different 16

Evaluation Highlights When Discussing a Third-Party Servicer General profile - Core business focus, goals, and objectives - Leadership team and management experience - Company affiliations Clients - Current, previous, and targeted clientele - References and testimonials Human Capital - Qualifications, experience level, and skill set of employees - Turnover rates and employment pool 17 Continued Evaluation Highlights When Discussing a Third-Party Servicer Infrastructure - Hardware and software - Contact center critical vendors and products - Operational transparency and client access portals - Facility layout and accommodations - Security of systems, data, and facility Commitment - Training program, initiatives, and commitment - Quality assurance and internal audit process - Assessment of process, systems, and controls (SAS70 II) 18 Continued

Evaluation Highlights When Discussing a Third-Party Servicer Pricing - Overall true cost of the solution - Cost benefit evaluation 19 ROBERT MICALIZZI, DIRECTOR FIRSTCITY FINANCIAL CORPORATION 20

Outsourcing Pros and Cons PROS Allows focus on the core competency of the business Cost savings from reduced overheads and training needs Improves competitiveness through operational performance improvements Improvements in quality Access to intellectual property, wider experience and knowledge Higher levels of service and performance due to specialization of service provider Access to operational best practices that would be too difficult or time consuming to develop in-house 21 Outsourcing Pros and Cons CONS Loss of day-to-day management and control of outsourced services Dependence on the service provider for performance Regulatory obligations still the responsibility of the company 22

In-House vs Outsourcing Decision to Outsource Requires Understanding Outsourcing Objectives Cost reductions Scalability Immediate access to talent or technology Service-level improvements Honest Assessment of In-House Capabilities is Critical Don t outsource core competencies unless it clearly and measurably creates value Don t let internal business process owners get defensive Understand your opportunity costs 23 Considerations When Outsourcing Due Diligence is Important - Ongoing due diligence can be more important than the initial review Relationship is Key - Assign one person from each party responsible for maintaining communication and communicate frequently Select Appropriate Performance Metrics - Must be measurable based on easily accessible and validated data Establish Effective SLA Objectives Penalties and rewards must be clearly defined based on measurable outcomes Performance based incentive compensation can align objectives 24

Outsourcing as a Path to Champion/Challenger Testing Constant Challenging Ensures Risk Management Strategies Perform Optimally - Results need to be incorporated into strategy modifications Outsourcing Provides an Effective Control Environment - Eliminates internal bias Outsource Providers Can Provide the Perspective Needed to Structure Effective Tests - Access to best practices and prior experience 25 Champion Challenger Programs Test specific outsourced services on a portion of a portfolio After the trial period, the challenger program performance is reviewed for improvements and efficiencies If the strategy proves successful, this program provides confidence and assurance in the decision to outsource 26

Question and Answer Session 27 AFSA thanks you for your participation in, Is Now the Time to Consider Outsourcing? Marguerite Watanabe (770) 552-2980 marguerite@connectionsinsights.com Preston Miller (817) 360-1438 prestonmiller3050@yahoo.com Kevin Barry (303) 223-7012 kbarry@peak5.com Robert Micalizzi (212) 554-3722 robert.micalizzi@fcfc.com 28