The essence of co-sourcing

The essence of co-sourcing

Co-sourcing combines the advantages of outsourcing and insourcing as it provides access to external expertise without having to completely give up internal control over processes (Gross, 2006).” 

Co-sourcing has helped many companies that don’t have the staff capability to deploy new systems. For example, co-sourcing has been successful for information services projects ranging from consolidation of electronic mail to establishing electronic data interchange systems. Companies can also use co-sourcing arrangements to bring in needed expertise in fields such as engineering and architecture—or even foreign language skills to be used for a temporary assignment in an overseas location. Although initially only small to midsize professional service firms offered co-sourcing, larger firms now offer a wide range of co-sourcing services to partnering companies of all types and sizes. Examples of the diversity of services now offered are:
  • Internal audit support, such as reconciliation of specialized accounts; valuation, disclosure and Environmental Protection Agency compliance issues for certain types of inventory; and reconciliation of foreign accounts where business customs pose review problems.
  • Diagnostic review of specialized areas, such as secondary marketing in the mortgage industry; hedging practices and valuation methods for mortgage servicing rights; and valuation and accounting for securitizations, residuals or other hard-to-value assets.
  • Evaluation of personnel, training or development of training programs; or development of specific reporting systems that use standard business software and database programs.

Reasons to Consider Co-Sourcing

A co-sourcing model provides alternative investment managers with an operating model that supports five essential attributes. These attributes, which evolved from a highly successful engagement executed in partnership with one of today’s largest global alternative investment asset managers, are:
  1. Quality. Asset management firms demand business models that deliver a consistently high level of quality. Such engagements must provide access to skilled resources and quality infrastructure.
  2. Control. Managers need complete control in selecting resources, scale of operations and quality of infrastructure required. They would like to retain control across business functions, including outsourced processes. Managers increasingly seek service models that can be extensions of their existing businesses. This helps ensure seamless delivery of processes in line with desired quality and timelines, using the same underlying processes and technology platform.
  3. Independence. Managers require third-party independence to mitigate conflicts of interest and control. Furthermore, engagements that are flexible and can be customized provide greater ease of integration between in-house teams and third-party services.
  4. Scale. Growing investor demands and regulatory pressures pose operational and budgetary challenges. Operating models must enable managers to leverage and manage significant increases in assets and complexity through economies of scale.
  5. Economics. Staffing costs represent about 70 percent of overall expenses for asset managers in the US, with an average split of 40:60 between front-office and other operations. Non-front-office operations account for 40 percent to 50 percent of total expenses, of which 10 percent comprise IT and systems costs. Managers are seeking solutions that will provide reduced expenses and convert fixed costs to variable costs without compromising on scalability or quality.


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