As Canada’s central bank, the Bank of Canada works to preserve the value of money by keeping inflation low, stable, and predicable. It also ensures the distribution of safe and secure bank notes, promotes a stable and efficient financial system, and oversees key clearing and settlement systems. Here’s how outsourcing manages risk for the central bank.
The Bank is not only responsible for ensuring monetary stability; it also acts as the fiscal agent for the government of Canada, managing the country’s foreign exchange reserves and public debt. This includes Canada’s Retail Debt Program (RDP), which has grown to encompass Canada Savings Bonds, retirement savings plans, and payroll savings programs.
As the programs of the RDP grew more complex and the transactions and requests more numerous and complicated, a disproportionate number of bank resources had to be allocated toward supporting the program. With more than 400 employees doing this work, the retail debt program consumed 85 percent of the bank’s IT capacity while not a core activity, according to Dale Fleck, Associate Chief, Department of Banking Services.
The Bank of Canada needed to find a way to manage this growing and complex business without compromising service levels. Outsourcing looked like a good option but, in considering a third party to manage the business operations and processes, the bank needed a partner that could understand the enormous trust the citizens of Canada have in the Bank of Canada. In addition, the bank has to be very sensitive about security and privacy, according to Fleck. Canadian privacy laws are very strict, he reports.
After going through an RFP process, the Bank of Canada signed a contract with EDS Canada. “EDS presented a cost-effective model that mitigated risk for the bank,” says Fleck.
Business Benefits
Outsourcing manages risk, but it does more than that.
While reputational risk was primary, cost was important, too. EDS has been able to lower the cost of managing the bonds by almost 30 percent over the life of the 10-year contract, according to Doug Barkley, Account Executive, EDS Canada. That translates into more than $150 million of total cost savings.
Barkley says EDS was able to cut costs by changing the bank’s processes and getting the public to do things in an automated fashion. A large part of the cost was maintaining the call center. EDS installed an interactive voice response (IVR) system and installed a Web portal, which allows citizens to buy and redeem their bonds online. The site also provides detailed information about the bonds, eliminating the need to contact the call center. These initiatives have cut the number of people working on the retail debt program by half.
Fleck says outsourcing brought rigor to the bank’s back-office processes. “The outsourcing has also allowed the bank to understand “the real cost of IT and change management for the program in a way that was not possible when we did the work inside the organization,” says Fleck.
Why This Relationship Works
Barkley says the two parties “spent a lot of time in dialogue” to get on the same page. “We worked hard to align EDS’s view to the bank’s strategy. We had to understand why they needed to do things a different way,” says the EDS executive.
The two organizations created a governance structure premised on a high degree of transparency. The governance structure has one member from a lower committee attending the meetings of a committee the next level up, creating continuity. Over time, this close interaction has created trust between the two organizations as well as a high degree of trust between the leaders.
The two executives work well together because they “maintain focus on the original spirit of the deal,” says Fleck. When the two disagree, they think back to the transaction’s original goals. “Even though we have had some differences, we have never had an issue that triggered our formal dispute mechanism,” he adds.
Fleck says many pundits believe putting the outsourcing contract in a drawer and never looking at it is the hallmark of a successful outsourcing relationship. He disagrees. He says he and Barkley often pull out the contract, using it as a tool to guide their discussions. “It answers the question: What is our real intent?” he says.
He adds he outsourced to an expert, so he tries not to interfere in how they do business. “They want to participate in setting direction but are very good at letting us determine how we perform the operational work,” says Barkley.
Lessons from the Outsourcing Journal:
- Cost is important in outsourcing arrangements in both the public and private sector. But government agencies are also worried about their reputation because that is crucial to their ability to accomplish their mission. So they are apt to shoulder less risk than commercial enterprises. Outsourcing manages risk in this situation.
- Forgetting about the contract is not the only way to create a successful outsourcing relationship. The Bank of Canada and EDS executives often refer to the contract to summon the spirit of the deal.
- A deal has a good chance of success if there is a focus on the relationship and the governance structures reflect this focus.