In 2012, Royal Bank of Scotland (RBS) experienced a major crisis when its customers could not withdraw cash. Was this the consequence of outsourcing? In June 2012, RBS encountered severe problems compromising quality. Thousands of IT jobs were axed when ten million retail and business customers sud- in the name of 'efficiency', many outsourced to India denly found they could not access their cash. This was with much lower wages than the UK. Indeed in Feb- highly damaging to the bank's reputation and could ruary 2012, RBS advertised it was urgently seeking result in significant customer loss. The problem was computer graduates with several years' experience of faulty updating of CA-7 - critical software that con- using CA-7. trols the batch processing systems dealing with retail banking transactions. Generally regarded as 'a very an all-time high with people changing jobs very quickly common and reliable product, it processes accounts for just a few extra rupees, leaving insufficient time overnight via thousands of pieces of work' such as for adequate cultural awareness training. Quality at ATM transactions, bank-to-bank salary payments and call centres suffered. At the same time, the UK was so on, and finishes by updating the account mas- in recession with a devaluing pound greatly reducing However, India's staff attrition rates in 2012 were at wage disparity between India and the UK. RBS's overseas problems were not uncommon with ter copy with the definitive balance. Described as a huge game of Jenga (the tower game played with interlaced wood blocks), all transactions are related, other banks experiencing loss of private data and in so everything needs to be processed in order. Thus some instances criminal activity. Spanish-owned Tuesday's batch must run before Wednesday's to Santander UK - a bank created from Abbey National, avoid, for example, penalising someone who has a large sum of money leave their account on Wednes- day that might put them in debt but which would be covered by money arriving on Tuesday. In updating major UK financial institutions to bring back its call CA-7, files were deleted or corrupted so the master centres and software from India to the UK, so that copy was wrong for three nights meaning millions of it could take care of its customer base. Ana Botin, transactions were not processed. RBS branches had Santander UK's Chief Executive, said the move was to extend their opening hours to reassure customers the most important factor in terms of satisfaction with Alliance & Leicester and Bradford & Bingley - also found that outsourced IT systems for these banks could not be trusted and so became the first of the about their accounts. the bank.' This 'inshoring' of strategic assets raises the Unions argued that the disaster was due to 'offshor- question of whether strategic assets can afford to be ing' UK IT jobs to India. 'RBS has 40 years' experience 'out of sight and out of mind'. running this system and banks as a rule don't drop the Sources: Guardian, 25 June 2012; http://www.hrzone.co.uk/topic/ ball like this,' remarked one bank employee. However, business-lfestykeshoring-new-shoring-call-centres-come-back-uk/112654. the general banking crisis had pressured UK banks to reduce their costs. RBS, which had suffered badly from the banking crisis, let thousands of UK staff go and transferred their roles to Chennai, India. As one Questions former employee complained, 'We were having to pass 10-20+ years worth of mainframe knowledge onto 1 In terms of transaction and capability costs, why might outsourcing be attractive to companies?

2 What might be the risks of insourcing ?

In June 2012, RBS encountered severe problems when ten million retail and business customers sud- denly found they could not access their cash. This was highly damaging to the bank's reputation and could result in significant customer loss. The problem was faulty updating of CA-7 - critical software that con- trols the batch processing systems dealing with retail banking transactions. Generally regarded as 'a very common and reliable product, it processes accounts overnight via thousands of pieces of work' such as ATM transactions, bank-to-bank salary payments and so on, and finishes ter copy with the definitive balance. Described as a huge game of Jenga (the tower game played with interlaced wood blocks), all transactions are related, updating the account mas- so everything needs to be processed in order. Thus Tuesday's batch must run before Wednesday's to avoid, for example, penalising someone who has a large sum of money leave their account on Wednes- day that might put them in debt but which would be covered by money arriving on Tuesday. In updating CA-7, files were deleted or corrupted so the master copy was wrong for three nights meaning millions of transactions were not processed. RBS branches had to extend their opening hours to reassure customers about their accounts. Unions argued that the disaster was due to 'offshor- ing' UK IT jobs to India. 'RBS has 40 years' experience running this system and banks as a rule don't drop the ball like this,' remarked one bank employee. However, the general banking crisis had pressured UK banks to reduce their costs. RBS, which had suffered badly from the banking crisis, let thousands of UK staff go and transferred their roles to Chennai, India. As one former employee complained, 'We were having to pass 10-20+ years worth of mainframe knowledge onto people who'd never heard of a mainframe outside of a museum ...'. Offshore outsourcing was once heralded as the saviour of UK IT departments, cutting costs without compromising quality. Thousands of IT jobs were axed in the name of 'efficiency', many outsourced to India with much lower wages than the UK. Indeed in Feb- ruary 2012, RBS advertised it was urgently seeking computer graduates with several years' experience of using CA-7. However, India's staff attrition rates in 2012 were at an all-time high with people changing jobs very quickly for just a few extra rupees, leaving insufficient time for adequate cultural awareness training. Quality at call centres suffered. At the same time, the UK was in recession with a devaluing pound greatly reducing wage disparity between India and the UK. RBS's overseas problems were not uncommon with other banks experiencing loss of private data and in some instances criminal activity. Spanish-owned Santander UK - a bank created from Abbey National, Alliance & Leicester and Bradford & Bingley also found that outsourced IT systems for these banks could not be trusted and so became the first of the major UK financial institutions to bring back its call centres and software from India to the UK, so that it could take care of its customer base. Ana Botin, Santander UK's Chief Executive, said the move was *the most important factor in terms of satisfaction with the bank.' This 'inshoring' of strategic assets raises the question of whether strategic assets can afford to be 'out of sight and out of mind.

Questions 1 In terms of transaction and capability costs, why might outsourcing be attractive to companies? 2 What might be the risks of 'insourcing'?

VERTICAL INTEGRATION ILLUSTRATION 8.3 Out of sight - out of mind'? Outsourcing at Royal Bank of Scotland In 2012, Royal Bank of Scotland (RBS) experienced a major crisis when its customers could not withdraw cash. Was this the consequence of outsourcing? In June 2012, RBS encountered severe problems compromising quality. Thousands of IT jobs were and when ten million retail and business customers sud- in the name of efficiency, many outsourced to India denly found they could not access their cash. This was with much lower wages than the UK. Indeed in Feb. highly damaging to the bank's reputation and could ruary 2012, RBS advertised it was urgently seeking result in significant customer loss. The problem was computer graduates with several years experience of faulty updating of CA-7 - critical software that con using CA-7. trols the batch processing systems dealing with retail However, India's staff attrition rates in 2012 were at banking transactions. Generally regarded as a very an all-time high with people changing jobs very quickly common and reliable product, processes accounts for just a few extra rupees, leaving insufficient time overnight via thousands of pieces of work such as for adequate cultural awareness training. Quality at ATM transactions, bank-to-bank salary payments and call centres suffered. At the same time, the UK was 50 on, and finishes by updating the account masin recession with a devaluing pound greatly reducing ter copy with the definitive balance. Described as wage disparity between India and the UK. a huge game of Jenga the lower game played with RBS's overseas problems were not uncommon with interlaced wood blocks), all transactions are related other banks experiencing loss of private data and in so everything needs to be processed in order. Thus some instances criminal activity. Spanish-owned Tuesday's batch must run before Wednesday's to Santander UK-a bank created from Abbey National, avoid, for example, penalising someone who has a Alliance & Leicester and Bradford & Bingley - also large sum of money leave their account on Wednes- found that outsourced IT systems for these banks day that might put them in debt but which would be could not be trusted and so became the first of the covered by money arriving on Tuesday. In updating major UK financial institutions to bring back its call CA-7, files were deleted or corrupted so the master centres and software from India to the UK, so that copy was wrong for the nights - meaning millions of it could take care of its customer base. Ana Botin. transactions were not processed. ROS branches ad Santander UK's Chief Executive, said the move was to extend their opening hours to reassure customers the most important factor in terms of satisfaction with about their accounts the bank. This'inshoring of strategic assets raises the Unions argued that the disaster was due to offshor question of whether strategic assets can afford to be ing' UK IT jobs to India RBS has 40 years experience out of sight and out of mind running this system and banks as a rule don't drop the 25 June 2012 ball like this remarked one bank employee. However, beroes.com/11264 the general banking crisis had pressured UK banks to reduce their costs. RBS, which had suffered badly from the banking criset thousands of UK staff and transferred their roles to Chennai, India As one Questions former employee complained, "We were having to pass 1 In terms of transaction and capability costs 10-20+ years worth of mainframe knowledge onto why might outsourcing be attractive to people who never heard of a mantrame outside of companies? a museum Offshore outsourcing was once heraided as the 2 What might be the risks of "insourcing? saviour of UK IT departments, cutting costs without