LETTER TO BUMIPUTRA
COMMERCE ON OUTSOURCING
Dr Rozali bin Mohamed Ali
Chief Executive Officer
Bumiputra Commerce Bank Bhd
6 Jalan Tun Perak
50050 Kuala Lumpur
4 September 2001
Dear Dr. Rozali,
1. We refer to the briefing on 2 August 2001 on the Banks intention to
outsourcing numerous functions to a new Operations Company (OPCO).
2. After due consideration and careful study, we are of the view that
the outsourcing plans as it stand, would not be in the best long-term
interest of the bank and its stakeholders - i.e. customers,
shareholders and its employees.
3. Outsourcing as a business tool has its obvious advantages, quite
apart from the fact that it is the latest fashion for companies to
outsource their non-core functions. However, studies and experience
throughout the world has not produced any convincing support to show
that all outsourcing will achieve the desired results.
4. It has constantly been shown that outsourcing for the sack of
outsourcing, without careful study and research, more often than not
will result in adverse consequences to the company in terms of service
level, cost effectiveness and ultimately, flexibility. This last
consequence is indeed ironic, given that one of the main motivation
for companies to outsource is to enable it to concentrate on its core
competencies and hence to have greater flexibility to meet a rapidly
changing business environment.
5. More often than not, the company that is awarded the outsourcing
contract is unable to provide the necessary flexibility in both
systems design and at a competitive cost. An example would be software
upgrade to accommodate a new product.
6. Given the BCB outsourcing model, we can identify several
A. Lack of experience/ No economies of scale
i. For the OPCO to succeed (i.e. to be able to provide a service to
BCB that is cheaper then current existing in-house system and to
generate a profit) OPCO need economies of scale. OPCO can only achieve
the desired economies of scale if can attract a large enough clientele
- meaning it has to attract other banks apart from Bank Muamalat.
ii. OPCO's potential ability to market/offer its services to other
Banks and companies is not tested and it may suffer from the perceived
low standards and image - i.e. would the OPCO be able sell its
services to other banks for example.
iii. Given that the other banks are competitors to BCB itself, they
will jealously guard their sensitive customer database and customer
profile. To convince them to engage OPCO to provide outsourcing
service is difficult, to say the least.
iv. The BCB outsourcing model is nothing more than to transfer those
functions, lock stock and barrel, to another legal entity (which will
be almost entirely made up of existing BCB staff). Therefore no added
value is being created and no new expertise/technology transferred.
Outsourcing of core operation has almost the same obstacles as
integrating different computer system/corporate culture after a
merger. BCB only just completed the integration of its operation
system, and various other facets of its operations are yet to be fully
integrated. To outsource a massive part of its operations will further
C. Lack of Consultation
i. Apart from the briefing on 2 August 2001 where the unions are
basically told of the Bank's intention, there is no consultation with
the employees, and more importantly with customers. Without the
support and cooperation of the employees, as well as the understanding
and confidence of its customers, the outsourcing project may spell
disaster for the BCB.
ii. Customers must be convinced that any cost saving be passed on to
them whilst employees must be comforted that their interest would not
7. Outsourcing requires several factors to be successfully. Amongst
There has to be several outsourcing providers to generate competition
and hence improve efficiency and reduce cost.
B. Corporate governance Transparency of contracts
More often than not outsourcing can suffer the same consequences
similar to the government privatization programmes- i.e. the awarding
of contracts to perceived cronies rather than those who can provide
the lowest cost and best service.
The Malaysia Airlines example is a classic example, where operations
are outsourced to companies controlled by certain individuals and
which do not provide a more cost-effective service. When the airline
outsourced its catering services, the cost of nasi lemak goes up, not
Unfortunately the above two crucial prerequisite are not convincing in
the BCB model, given the plan to put OPCO under Commerce Assets and
ultimately under Renong.
8. Given the above, we urge you to review the outsourcing plans so
that the long term interest of the Bank, its shareholders, employees
and more importantly, customers are not jeopardized.
We seek your indulgence.
ANDREW LO KIAN NYAN
Minister of Finance
Minister of Human Resources
Federation of Bank & Financial Institutions Employees Union