State Street Insources IT Operations to Enhance Control and Compliance

State Street, a prominent financial services firm, has made a strategic shift in its operations by bringing back in-house the IT and back-office tasks that were previously outsourced to partners like Atos and HCLTech in India. This decision, made in 2023, marks a significant departure from the industry trend of leveraging artificial intelligence and outsourcing for cost efficiency. Mostapha Tahiri, the executive vice president and chief operating officer at State Street, highlighted the rationale behind this move during a panel discussion. He noted that the primary reasons for insourcing were the regulatory compliance costs associated with third-party vendors and the challenge of maintaining an incentivized workplace culture when employees are not directly aligned with the company's vision.

Tahiri explained that State Street's transformation within its own operations has been progressing well, and the company aimed to extend this transformation to areas not previously under its direct control. By bringing the India operations in-house, State Street can now pivot more quickly in response to future business directions, as opposed to relying on third-party mandates. This strategic move allows State Street to maintain greater control over its operations and ensure that all aspects of the business are aligned with its overall vision and goals.

Namita Seth, vice president of strategic growth at an IT consulting and outsourcing company, joined Tahiri on the panel. She emphasized that the decision to insource or outsource operations depends on the unique history and structure of each organization. For State Street, with its global footprint, bringing operations in-house makes sense as the company has reached a mature stage in its outsourcing journey. This shift reflects a broader trend in the industry, where companies are reevaluating their outsourcing strategies and considering the benefits of insourcing.

In contrast, Capital One, the ninth-largest U.S. bank by assets under management, has favored a vertical integration strategy. This approach involves operating across the entire supply chain, rather than focusing on a single portion. Capital One's acquisition of Discover Financial Services for over $35 billion is a prime example of this strategy. By merging with Discover, Capital One can tap into Discover’s payments ecosystem, allowing it to issue credit cards on its own network and strengthen its margins. This vertical integration strategy enables Capital One to invest more in building its national bank organically, as stated by its CEO and founder Richard Fairbank.

Corey Lee, the COO of Capital One’s commercial banking division, emphasized the importance of leadership and culture in determining the right operating model. He noted that businesses must consider whether their leadership is willing to defer to a centralized body or if they prefer to make all decisions independently. Lee also highlighted the need for businesses to find a balance between a cohesive corporate culture and respecting local nuances, allowing each operation to do what makes sense for them. This approach helps build a unique and aligned culture that is closer to headquarters.

EmblemHealth, a not-for-profit insurer serving over three million customers in New York City and the tristate area, faces the challenge of delivering technology solutions horizontally in a cost-effective manner. As a heavily regulated business, EmblemHealth offers a variety of health insurance plans, including individual plans and government-backed offerings through Medicare and Medicaid. The company has developed "expertise centers" to serve its various regulated entities, providing technology solutions for billing, paying customer claims, IT, security, and core infrastructure. This decentralized approach allows EmblemHealth to leverage deep knowledge and breadth of thought, ensuring that each core business unit can consume these services effectively.