By Evan SparksOutsourcing sometimes gets a bad rap. Customers complain when their calls are answered by overseas workers with poor English skills. Current employees can see it as a crude way of cutting costs.
But for many community bankers, outsourcing is a critical strategic tool allowing them to focus more on customer-facing activities and to access expertise not available on staff.
At the $202 million Spring Bank in Brookfield, Wis., outsourcing was part of the bank’s culture from its beginning as a de novo in 2008. “We started looking at outsourcing as a way to leverage our then-small staff,” says David Schuelke, president and CEO. “We wanted to focus on our clients and the things most important to our clients.”
As a result, Spring Bank outsources its information technology services and engages a “professional employer organization” to serve as the bank’s out-of-house human resources unit, managing payroll and leveraging its larger size to save on employee benefits. Spring Bank also outsourced its marketing, partnering with a “PR expert who has contacts in the field and has done a great job of helping us get our name out in nontraditional ways,” Schuelke adds.
For Mary Lynn Lenz, the transition to an outsourced bank was a little harder. “I came up in the big banks, so you had everything in house,” she says. But in 2002, she started as CEO of Foothills Bank in Yuma, Ariz., and found herself in a troubled institution with big challenges in asset liability management. To help, she found an ALM partner that worked with the bank for 12 years.
That positive experience led her to see what else could be effectively outsourced. Today, Foothills Bank—now a $298 million institution—outsources 10 of 15 key components of the bank, including IT, HR, loan review, loan profitability review, ALM and core processing. “Internally, we stick to what’s forward-facing—what it takes to bring in customers,” she says.
Aggressive outsourcing requires delicate sensitivity to employees, she says. “When you’re in community banking, you have to be careful with ‘off with your head.’” She tries whenever possible to reassign employees whose functions are being outsourced; when Foothills Bank outsourced HR, Lenz moved the HR director to the sales team, “where she’s done a wonderful job.”
There’s no customer backlash to outsourcing, Schuelke says, because customers don’t care about back-end functions. “Our customers aren’t asking us, ‘Do you have an in-house IT professional?’” And as a de novo, he didn’t face a negative employee response since outsourcing was built into Spring Bank’s DNA from the start.
While demonstrating vendor risk management to regulators becomes more important the more functions are outsourced, regulatory expectations are also driving the outsourcing trend, according to Beth Merle of marketing firm Epsilon. Rising regulatory requirements for cybersecurity, compliance and other areas means having ready access to expertise that may not be affordable to keep in-house.
Spring Bank was able to tap this need as a small revenue stream. “We reverse outsource,” Schuelke says. He hired an experienced compliance officer but only needs about half her time, so he hires her out to other community banks. “This is not a profit center for us, but it does put a big dent in our total compliance costs.”
In the end, whether to outsource large bank functions and how many is a function of balance and strategic planning. Spring Bank is a long way away from needing to have these operations in-house, Schuelke says.
For Lenz, “it’s your forward-facing, customer-centric people that you need to keep inside,” she explains. “If the customer’s not going to see it, outsource it.”