LAS VEGAS-"Let go of your fear" might sound like the first stage of martial arts training, but it also is advice to the credit union industry on embracing outsourcing.

The advice-giver is Keith Myers, SVP-financial services for Payment Alliance International. Myers told attendees of NACUSO's Annual Conference here some credit unions and CUSOs outsource a number of tasks, but many more "fear letting go."

"On the plus side, outsourcing can save money, reduce capital investment and improve service levels," he said. "But there are some risks."

Outsourcing risks come in three categories, he said: operational, financial and reputational. Problems can come in the form of inaccurate account information, data theft, and penalties or fines.

"Compare the risks to the rewards," he said.

Five Steps

Myers outlined five steps credit unions or CUSOs should follow before outsourcing a function or task to a third party:

1. Specifically define the scope of outsourcing projects, including all components that need to be included and what the CU/CUSO will still do.

2. Establish objectives, including cost savings, service level improvements and new market growth. "This allows the post-outsourcing review to measure the success of outsourcing," he said.

3. Select a partner, a step Myers noted is "very critical." He recommended gathering proposals from several potential partners, which not only helps with due diligence, it will determine if CUs/CUSOs should use several partners for the particular task or just one.

"Considerations include similarity of culture, experience and track record, and product offerings," he said. "Geographic coverage is important if the credit union plans to expand into new markets. Operational scale, or the ability to grow with the credit union or CUSO, also is important.

4. Final selection of partner(s). During this stage, it is important to compare apples to apples, he advised. To assist in this process, Myers recommends creating a weighting matrix that charts key attributes of all contenders. The key question to keep in mind: Which partner is the best fit for the CU/CUSO?

"Perform extensive due diligence on the final two potential partners," he said. "Visit critical operational facilities and meet with key people with whom the credit union will have future interactions."

5. Contract negotiation. Once the decision has been made and a partner selected, make sure the written agreement includes all expectations for both sides. Define and agree on specific service levels, fixed or minimum charges, and the overall partner relationship.

"Make sure there are no surprises," he said.

When announcing the outsourcing agreement, Myers recommends first telling employees at the CU/CUSO who will be directly impacted. He said the most important element is explaining the objectives of outsourcing to address any staff concerns. After the staff is notified, the membership should be told.

During the transition to a third party handling a task or tasks, Myers said the CU/CUSO should have a plan for the timing of each critical component and know the key responsible individuals at each organization. This also is the time to establish testing metrics (if appropriate).

"It takes a lot of communication to make a conversion a success," he said. "Monitor transition activities with scheduled progress meetings."

Managing Partner Relationships

Once a partnership between a CU/CUSO and the vendor is in place, Jack Antonini said, the key is to proactively manage the relationship. Antonini, president and CEO of NACUSO, used to work with Myers when both were at USAA Federal Savings Bank (Antonini was president/CEO, Myers was SVP-operations).

"Establish the governance structure to manage the relationship, and have metrics in place to measure service level objectives," Antonini said.

Every USAA customer who executed a transaction with one of the bank's alliance partners received a questionnaire. Antonini said there were questions covering all aspects of the experience, with the final and most important question being, "Would you recommend this product/service to a member of your immediate family or another USAA customer?"

If the partner did not maintain an aggregate 95% rating in response to the final question, that partner was "fired," Antonini said.

"If the question is asked that way, the credit union will get the right answer," he said.

Antonini said it is important to stay informed of developments affecting external partners for early indications of potential changes, including new product announcements and earnings reports.

"CEOs want to know that they don't have to worry, that appropriate controls are in place and members will be taken care of," he said.

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