I am shocked - absolutely blown away with disbelief - that wholesale outsourcing of a core retail banking function like mortgage operations has resulted in total failure for the retail bank that apparently can't be arsed to run its own business.
Co-Operative Bank today 'terminated' Capita's outsourcing contract years before it was due to expire
Co-Operative Bank is terminating its outsourcing contract with Capita years ahead of schedule and is planning to TUPE across staff to provision services in-house again, ending what at times was a fractious relationship. A six-year agreement for Capita to run the Bank's mortgage services operation was signed in 2015 worth £325m …
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Thursday 2nd December 2021 19:06 GMT lglethal
They have, no doubt, already left the bank, having collected their massive bonus for moving the costs from the IT budget into another cost centre (not associated with their bonus entitlement).
Outsourcing doesnt actually reduce costs, it merely changes the cost centre, but thats enough to get some people a healthy bonus, and that's what really matters, right?
Friday 3rd December 2021 07:51 GMT Anonymous Coward
It can be a lot cheaper if it's possible to scale the labour per requirements.
For example, I offer outsourced IT services where I can provide the skills and expertise of 10 people for far less than the cost of employing 10 people.
10 folks would cost a form around £400k-£500k in salaries and wages plus the associated space to encapsulate them all, the energy required to keep them warm, the equipment etc etc.
The difference between an outsourced team and an in house team is that the firm hiring can take advantage of not having to pay for the engineers to sit around for large periods of time.
Dealing with multiple clients doesn't have to affect response time, time to resolution, delivery of projects etc.
If you're as big as crapita it does affect quality of service, but for smaller outsourcing firms it doesn't.
In fact it can improve the service because I can throw as much or as little skill and talent at a problem as is necessary. An in house team you're stuck with what you've got which is often pretty average.
Non-technical firms like banks etc tend not to have the capability to understand or care about staff that aren't part of their core business offerings. Whereas a tech firm will usually understand and value it's technical staff. Not all of them, granted, I worked for an MSP in my earlier years that treated me like shit. Never gave me a payrise in 6 years, never promoted me...just exploited me.
Because of my own experiences, I don't do that. I never underpay and I reward performance.
Friday 3rd December 2021 08:47 GMT SecretSonOfHG
Only for small business
That is completely tryue for organizations that cannot justify the cost of full time staff with expertise in all relevant areas. Thus, this is applicable for small organizations.
Not for big banks. Banks that outsource do it for two reasons: either move IT from one cost center to another or buy services (e.g cloud) where even their size cannot compete in scale with really big IT providers.
Friday 3rd December 2021 09:19 GMT Intractable Potsherd
"... take advantage of not having to pay for the engineers to sit around for large periods of time."
And there lies the problem. So few companies (or anything else) build in a bit of extra capacity for the times that things go wrong. If three companies employ one outsourcer, then there will be fewer than three solutions available when, say, a storm knocks out large chunks of capacity. If all three companies had the staff "sitting around" (which is a lie of monumental proportions anyway), then they'd be up and running much quicker than waiting for the outsourcer to provide the relevant work based on whatever priorities they have.
My belief is that outsourcing is fine for short-term things that are widely outside the competence of the organisation - this might include electric work, vehicle maintenance, setting up servers etc - but, beyond a certain point it is a false economy. There is often a perverse incentive for an outsourcer to do a bad job so that more work comes in, for example. Companies need to keep their core functions in-house if they are to run effectively.
Friday 3rd December 2021 09:46 GMT Peter2
There is often a perverse incentive for an outsourcer to do a bad job so that more work comes in, for example.
I have actually seen this in person. *everything* was deliberately configured in such a way that if it fell over it'd stay dead until deliberate action was taken. I mean, it's obvious that people set mission critical services on servers so that if it stops it automatically restarts and writes to an error log.
Not if your outsourced; the action is set to "do nothing" so you have to phone somebody to them remote in to fire up services.msc and hit the "start" button on it. When the server restarts all services should start automatically? Again; if outsourced it makes more sense for them to be set to "manual" starts etc because that lets them bill for your telephone call reporting a problem, and then again for remote access work.
Redundancy that quietly fails over in the background has to be eliminated of course; you can't bill for things like that. The result in an unholy mess of biblical proportions. Frankly, there are so many things that you can do to systems to make them not work that even after ditching the outsourcer the systems only really reached a high level of reliability after the servers and systems in question were actually taken out of use, wiped and rebuilt from scratch, carrying over nothing but the data.
Friday 3rd December 2021 10:34 GMT Anonymous Coward
I have observed a few large organisations where all or substantial chunks of IT were outsourced. The organisations concerned were seduced by talk of cost savings and failed to realise the value of their experienced staff, who were often doing more work than was realised. Management also failed to realise that their own employees were more likely to be working for the best interests of their organisation, whereas the outsourcer's people were loyal to the outsourcing company. The best of the organisation's staff would typically move to jobs with their competitors. It would be months later that management would realise their error and the irrecoverable loss of staff with years of experience but they would try to hide their mistakes from the board or other top management, until the failures and higher costs became obvious.
Friday 3rd December 2021 11:26 GMT Anonymous Coward
You also have that the outsourcer will l only do exactly what is written in the contract... everything else, even to correct a mistake, is has to be planned and costed and chargeable at exorbitant rates
Hence people like the NHS being charged thousands and waiting months to shift a power point because the PFI contract said put it there when the logical place was elsewhere.
Friday 3rd December 2021 14:23 GMT Anonymous Coward
> Management also failed to realise that their own employees were more likely to be working for the best interests of their organisation, whereas the outsourcer's people were loyal to the outsourcing company
You can also get the worst of both worlds.
I worked for a company which decided to outsource it's DBA roles to one of the usual companies. And to do this, they issued all the in-house DBAs with a TUPE transfer over to their new corporate masters.
Needless to say, the DBAs weren't best pleased with being treated like a commodity, and people who used to be approachable and helpful pretty much overnight became complete Jobsworths who stuck to the exact letter of the contract.
I can't particularly blame the DBAs for feeling the way they did, or for how they reacted. But for me, it did strongly highlight just how much "intangible" stuff you lose when you treat people in this way, and how much it can impact the cost and efficiency of your business processes.
Sadly though, that sort of stuff is hard to document on a beancounter's spreadsheet, and by the time the impact becomes clear, the people who signed off on the change have generally taken their cost-saving bonus payments and/or moved to cause havoc elsewhere...
Saturday 4th December 2021 20:36 GMT keithpeter
"...the DBAs weren't best pleased with being treated like a commodity..."
At least they were still available to the original employer. I've seen - in a place far away and long ago - a really talented small team TUPE'd over to an outsourcer who could not believe their luck. That small team ended up working on a large range of contracts almost like consultants. We hardly saw them again... which caused some issues
Friday 3rd December 2021 15:38 GMT Doctor Syntax
Friday 3rd December 2021 14:15 GMT Anonymous Coward
> I have actually seen this in person. *everything* was deliberately configured in such a way that if it fell over it'd stay dead until deliberate action was taken. I mean, it's obvious that people set mission critical services on servers so that if it stops it automatically restarts and writes to an error log.
I've seen similar in the past, though I'll be generous and say that it wasn't deliberately done.
I was working for a company which had a fairly complex billing system, which mostly consisted of various scripts held together with string and sellatape. And this system had a habit of triggering the old Halt And Catch Fire instruction if it encountered any issues.
Unfortunately, this system was viewed as a "legacy" system, as the company was meant to be getting a new Oracle-based billing system Real Soon Now. But we eventually managed to scare up some resources to do some work on it. And there were two options:
a) Build a "catch" mechanism to trap individual errors, so that they could be cleaned up after the billing run was complete
b) Review and fix all the underlying issues
I argued strongly for fixing the issues - around 99% of the HCF failures were caused by the same half-dozen issues. However, the business decided to build a monitoring/catch mechanism.
And that's why, when I left the company a year or so later, there was someone on the support team who had to spend 2-3 hours a day cleaning up errors. Because those half-dozen errors kept on occurring, and while I managed to sneak a few fixes in under the radar, I was never able to get the time/devs needed to fix the underlying problems.
For an added bonus, that shiny new Real Soon Now billing system ran into major delays; I think it finally started to roll out about 2 years after I left.
Which means that we effectively lost about 25% of a FTE's time for at least 3 years!
To be fair, there's always a definite benefit to having an non-halting error trapping mechanism.
But leaving the root-cause issues unfixed was a definite mistake, not least because the time needed to do the daily cleanups was pretty much unchanged as a result of building this mechanism...
Friday 3rd December 2021 12:37 GMT Pascal Monett
"a perverse incentive for an outsourcer to do a bad job"
So there is a perverse incentive to ruin one's own reputation ?
I would work work with such a guy once, then never again. And I would make to sure to tell everyone I know about how bad a job he did.
I am a freelance consultant. If I want my customers to call me back, the lat thing I want to do is make programs that force them to constantly call me.
I want them to know that, when they call me, they are assured of a product that works and can be relied on.
Friday 3rd December 2021 14:44 GMT Cuddles
Re: "a perverse incentive for an outsourcer to do a bad job"
"So there is a perverse incentive to ruin one's own reputation ?"
Apparently. Are you not familiar with Crapita and their ilk? The trick is to have two separate reputations. It doesn't matter how bad your reputation for actually doing a competent job is, as long as your reputation for handling brown envelopes and playing golf with the right people remains good.
Friday 3rd December 2021 15:46 GMT Doctor Syntax
Re: "a perverse incentive for an outsourcer to do a bad job"
"I want them to know that, when they call me, they are assured of a product that works and can be relied on."
That was also the principle I worked on. (Quite apart from anything else the pimps were excluded from taking their cut.)
However when a client wants to outsource on that scale there are so few alternatives that they can share a common USP of being no worse than the others. In the case of the banks they can understand that - they also share that USP.
Friday 3rd December 2021 13:59 GMT batfink
Agreed. Having worked for several MSPs now, I understand that they don't have people sitting around, and are usually unable to shift people from one account to another in any reasonable length of time, so the whole "capacity" thing is a myth. Also, having unused capacity jic it's needed somewhere would reduce profit margins.
The exception to this is call centres, where people routinely work across several customers, and transferring capacity is merely a telephony problem. Oh, and you might need to move one of the little flags on the end of the rows.
The pieces that outsourcing proposals always miss are the extra unpaid work that in-house teams do, and the flexibility to change what you want from them without having to go through contract re-negotiations. These are never captured in the business cases.
But the business cases don't really matter. I've never seen any organisation revisit the outsourcing decision to see whether it's saving the promised amount. It's been done, bonuses all round, no sense it looking back to discover how much bullshit it was in the first place.
Friday 3rd December 2021 15:34 GMT Doctor Syntax
"Non-technical firms like banks etc tend not to have the capability to understand or care about staff that aren't part of their core business offerings."
You were doing all right until you got to here. There are a lot of businesses, including banks, for which IT is core. Banks have been described as IT operations with a casino bolted on the side. As regulators pry off the casino bit as best they can it reduces to being an IT operation.
Unfortunately the banks seem to be run by people who haven't realised this. That's surprising given that they have opted to close as much of the non-IT functions, i.e. branches, as they can get away with.
Friday 3rd December 2021 10:46 GMT Anonymous Coward
The persons involved have indeed long since left, but I think everyone needs to be clear here this was so much more than IT outsourcing. IT-style outsourcing would be outsourcing the running of the servers, or contracting in some app development, or adjacent to IT maybe farming out your contact centres to someone with fewer morals than yourself. Those are all pretty normal practices these days, and have their place for the right kind of businesses.
As part of this deal Capita literally bought out Co-op Bank's mortgage admin business. They owned and operated every part of the customer lifecycle from applications to payments and servicing through to the nasty business of foreclosures, including running the contact centres and rebuilding + running Co-op Bank's mortgage websites and apps.
For every intent and purpose that matters to an end customer you were banking with Capita, using Capita services and Capita applications. Co-op just provided the capital and the brand and accepted all the risk. It was an absolutely insane situation to be in.
Friday 3rd December 2021 14:07 GMT batfink
That wouldn't have been a bad idea for Crapita. All mortgage systems are pretty much the same, so being able to offer mortgage admin services for a number of banks would be a nice niche to be in.
Back in the Good Old Days, Bradford & Bingley had a similar idea, and (IIRC) were going to partner with an American firm to do the same. Clever idea, but was eventually dropped, not sure why. I think that was about the time when all the top dogs fucked off down to London, presumably having seen the writing on the wall and wanting to be closer to other banking jobs when it all when horribly wrong.
Thursday 2nd December 2021 21:56 GMT unimaginative
Thursday 2nd December 2021 16:56 GMT Anonymous Coward
All the mutuals have gone to the dogs. The Co-op is a waste of space now, their food is junk and overpriced, LV is almost gone, Nationwide is a joke that keeps trying to make a profit - why if its a mutual?
Even John Lewis, which was supposed to be run by its employees is a total disaster and rips off its own staff.
Thursday 2nd December 2021 19:36 GMT Anonymous Coward
Re: Ex Mutual?
Almost all mutuals and not-for-profit concerns need to make profits. ie Take in more money than they spend. Any surplus goes into reserves - 1 year's turnover is the usual metric for charities and the like - and to pay for strategic investments. John Lewis for example doesn't borrow to pay for new shops and warehouses. It buys them with cash. Well-run mutuals avoid borrowing because the members have to pay those debts if the business goes bust.
The key difference between mutuals and regular companies is their profits don't get paid out to shareholders as dividends. Though mutual insurers and pension companies do distribute their profits to with-profit policy holders. They also use their reserves to smooth out these pay-outs over the peaks and troughs of the usual business cycle. Limited companies can't do that because they have a statutory duty to maximise shareholder return - in dividends and the share price.
Mutuals should provide better prices and services, all things being equal, because they're not under pressure to make money for shareholders. On the other hand, membership apathy means clueless idiots like Paul Flowers (the Crystal Methodist) can find a cosy sinecure on the board.
Thursday 2nd December 2021 20:26 GMT Robert Grant
Re: Ex Mutual?
> because they have a statutory duty to maximise shareholder return - in dividends and the share price
I don't think so. Businesses all have reserves to deal with cashflow problems. Share price is just "the price the last person bought a share at", it's not something that businesses pump money into at the expense of knowing where next month's salary run is coming from.
Thursday 2nd December 2021 21:55 GMT Anonymous Coward
Re: Ex Mutual?
Clearly, a company that can't meet its payroll won't have the money to spare for boosting the share price.
Sometimes share valuations are beyond silly: how much is Tesla worth compared to GM or Toyota? Aside from these outliers, share prices are generally based on a company's balance sheet and how its business is impacted by long-/short-term external factors. It's a normal part of business for a company to improve its balance sheet by buying and selling assets, paying off debt, cutting spending, etc. Many companies also have share buy-back schemes which increase/distort the value of their shares because there are fewer shares which now have a slighly bigger fraction of the company's unchanged value.
Of course companies have reserves to handle cashflow issues or whatever. But when those reserves get too big, shareholders can and do exert pressure to get that dosh returned to them.
Thursday 2nd December 2021 20:28 GMT Snowy
Re: Ex Mutual?
<quote> Limited companies can't do that because they have a statutory duty to maximise shareholder return - in dividends and the share price.<quote>
The law does not say that.
This is the law, from the Companies Act 2006:
172: Duty to promote the success of the company
(1)A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to–
(a)the likely consequences of any decision in the long term,
(b)the interests of the company's employees,
(c)the need to foster the company's business relationships with suppliers, customers and others,
(d)the impact of the company's operations on the community and the environment,
(e)the desirability of the company maintaining a reputation for high standards of business conduct, and
(f)the need to act fairly as between members of the company.
(2)Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes.
(3)The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.
So, where does it say that profit maximisation has to be the object of the company? Quite clearly it doesn't.
Sure, 'success of the company for the benefit of its members' clearly implies a duty to generate profit, or at least a positive cash flow, but maximise it? No way! This is at best a constrained requirement, as is clear from sub-paragraphs a to f.
So what is abundantly clear is that in UK law there is:
a) No duty to maximise profit
b) No duty to minimise tax bills
c) A duty to exercise judgement.
Thursday 2nd December 2021 21:33 GMT Anonymous Coward
Thursday 2nd December 2021 21:54 GMT unimaginative
Re: Ex Mutual?
The point is the long list of exception: impact on the wider community, employes, relationships with customers, long term impact and any purposes other than profit (I assume specified in articles or similar).
In the case of mutuals members interests will be good service and prices, rather than profit.
Friday 3rd December 2021 10:18 GMT Our Lord and Savior Rahl
Re: Ex Mutual?
I had to write a whole assignment on the different forms of this for my degree - shareholder returns is often the one that's focused on because it's easy and tangible and you can say "look, I did the best by the business because I made eleventy bajillion quid profit for the shareholders" whereas it's much more difficult to quantify things like reputation, minimizing environmental impact etc.
But just because everyone does something a specific way doesn't mean that's the only (or even correct) way to do it.
Friday 3rd December 2021 11:15 GMT Cederic
Re: Ex Mutual?
Maintaining a functioning business is a success, providing good value high quality services and products to customers is a success, keeping staff in employment is a success, being a responsible contributor to the local economy and culture is a success, managing positive cashflow is a success.
Where does share price come into that? Where do dividends come into that?
Indeed, I am part owner of a company that's never made a profit, never issued a dividend, is approximately worthless and yet is successful, continually doing the things I want it to do. Money isn't everything, and the law understands this.
Thursday 2nd December 2021 23:01 GMT Anonymous Coward
Friday 3rd December 2021 08:37 GMT Jonathon Green
Re: Ex Mutual?
…and yet so many businesses still frame everything in terms of “maximising shareholder value” and reference “fiduciary duty’s to shareholders” as justification for driving down costs to the detriment of employees, smaller suppliers, and the wider communities they exist within.
 In fact “We work to increase shareholder value” replaced a whole lot of more altruistic, socially responsible stuff as the official statement of values at one company I worked at some te ago…
Thursday 2nd December 2021 22:34 GMT ducatis'r us
Thursday 2nd December 2021 17:26 GMT sitta_europea
Friday 3rd December 2021 09:29 GMT Intractable Potsherd
I had a friend (RIP) who was a professor of accountancy. His opinion of accountants was that every single one of them has forgotten what accountancy is for, and that the lot of them should be fired... from a large howitzer. He was very big on business ethics, something that and I agreed was an oxymoron, but something to strive for. Business is about much more than making money.
Thursday 2nd December 2021 17:56 GMT idiot taxpayer here again
Thursday 2nd December 2021 18:03 GMT Muscleguy
Coop’s site is pants
I have a Coop CC. I can never get into the site. I recently rang them first off without bothering to frustrate myself. They reset my account, I got in set it up, recorded what I needed to. Then four days later I needed to get in again. I get to input the texted number. I do that, I am not cross eyed. It then says something went wrong.
I can get into both my bank here and in NZ and my new zero % card (being paid off) with someone else just fine. The Coop is the ONLY site I have this problem with. I answered my query by putting my card in an ATM and getting a balance, amount subtracted from my credit limit told me what I needed to pay to zero it.
When I have paid the Zero card off I shall ring Coop and tell them I no longer want their card since their IT stinks.
Thursday 2nd December 2021 20:10 GMT wolfetone
Re: Coop’s site is pants
I've been with them over 10 years, and it's just got progressively worse.
They "upgraded" their website from the old one, and it's been a bag of shite. The old one looked like something from 1995 but it worked. Now though it's hard to get in to, if you can get in at all.
I do most of the banking I need to do via the app, which helpfully tells me it'll be down for maintenance nearly every weekend.
Like you I've got ties to them for the time being. But I more or less do most of my banking with another bank now. It's sad, because the bank has turned to shite since the vulture funds took over.
Friday 3rd December 2021 10:33 GMT Tom 7
Re: Coop’s site is pants
I started a Co-op account before they had to de-mutualise (I'd get dividends for taking cashback at the local co-op store!). They then closed down the local branch and I never managed to get the online banking working so I ended up travelling 60 miles to the nearest branch and spent an hour in their setting up on-line banking. I returned home to find the online banking I'd set up just wouldnt work and despite numerous phone calls it never worked. They'd ask security questions that I'd never given answers to! I'd several other bank accounts so I used those and then one day I just though sod it I'll see if I can close the account so rang up and gave them a few details and they transferred a very large wedge of money to an account with the same name in a different bank but without any security questions. I dont think I've come across anything quite so shit in a long time.
Thursday 2nd December 2021 19:01 GMT colin79666
Coop must share some of the responsibility for the issues. Too many organisations fail to invest and then expect “transformation” by making it someone else’s problem (outsourcing). Guess what? The outsourcing company sales people told you it would all be wonderful but the reality is they need to do it even cheaper than you in order for them to profit. This is often by sticking rigidity to the contract you signed, charging stupid fees for anything extra and not replacing staff as they leave (usually the good ones go quickly).
Outsourcing of boring business functions like HR and Payroll can make sense but a bank outsourcing a core banking function was never going to end well!
Thursday 2nd December 2021 19:53 GMT Ian Mason
Saturday 4th December 2021 10:52 GMT mark4155
The CO-OP (former slogan "Good With Money" - till their CEO was caught short) and CRAPITA the chief bullshitters of all time.
They get together, pat each other on the back (with a sharp bladed instrument), I can smell the shit from where I live, Manchester CO-OP HQ is a mere mile downwind today.
Shameful behaviour of the CO-OP. Stick to what you do best and operate corner shops.
Though even then you would probably get Crapita to design your POS system.