CBA sources a home-grown hope

Ian Narev has resisted the temptation to outsource overseas, banking instead on home-grown product growth. His longer-term thinking puts him at odds with his three major rivals and Telstra.

The chief executive of the Commonwealth Bank has taken a totally different view to the organisation of his business to Telstra’s David Thodey and the chief executives of the other three Australian big banks.

In simple terms, while he does not name them, he believes his counterparts have got it wrong by outsourcing overseas their call centres, computer operations and similar functions.

Ian Narev is the first to say that he could increase his profits tomorrow by a substantial amount if he took his computer work and call centres offshore. And of course that’s exactly what his counterparts in the other banks and Telstra have done.

But Narev believes that in the longer term that’s the wrong strategy.

The key to the Commonwealth Bank’s growth is going to be selling more products to its customers and that’ll be a complex task – a task that you can’t expect overseas people to be able to achieve.

Similarly, in the computer fields he believes longer term the outcomes will be better for the Commonwealth Bank if the people who are doing the work are part of the Commonwealth Bank culture and part of the Commonwealth Bank product network.

It will be some years before the Narev stance is proved right or wrong. Those who go overseas say there is a huge local turnover in call centre staff, making it hard to achieve continuity.

In the meantime, his rivals and Telstra will enjoy better profits because of the lower costs in overseas outsourcing.

Of course, if there was ever a fall in the Australian dollar then the costs of going offshore might be a lot greater (An energy menace to bank balance sheets, February 19).

The question of whether a chief executive is responsible for the short-term outcomes as well as the long-term outcomes is one that worries many Australian executives.

Increasingly, the pressure on chief executives is to produce short-term returns even if there can be a long-term risk or penalty as a result of those decisions.

What the Commonwealth Bank chief is saying is that he will sacrifice short-term returns because he believes the long-term benefits will be great.

It’s a debate that few Australian large corporates have had. But almost certainly that’s what will take place with new intensity following the KGB interview with Narev.

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