Online Extra: IndyMac's Indian Adventure

The lender's decision to move its high-skill jobs to India has required extra supervision but resulted in increased offerings

By Manjeet Kripalani

Outsourcing its tech and back-office functions has proved such a successful move for IndyMac Bancorp that its ranking among the largest U.S. mortgage lenders has soared from No. 22 to No. 9 in just three years. That's quite a ride up from being a small, money-losing division of California's Countrywide Financial in 1990. Michael Perry, the bank's 43-year-old chief executive, was then one of only three employees of the company's mortgage division, and he decided to buy the Pasadena (Calif.)-based operation after it was spun off. He planned to use technology to help the bank eliminate its losses, then to leapfrog over its peers.

Outsourcing software development and back-office transactions would help make Perry's dream come alive. In 2002, IndyMac (NDE ) hired consultant McKinsey & Co. to help develop a pilot outsourcing program for what it calls first time "welcome calls" to its loan customers. Then in 2003, IndyMac hired Ashwin Adarkar, the McKinsey partner who had worked with IndyMac, to implement outsourcing as a business strategy.

IndyMac had already developed a system called E-mits -- an Internet-based mortgage-pricing system. Because it saved mortgage brokers lots of time and paperwork, the system quickly became a benchmark in the industry, drawing more customers to the California lender.


  But Perry wanted a new breakthrough for the business, including the technology to process mortgages for first-time lenders more quickly. He decided to turn to India partly because he couldn't get enough talent locally in California -- and also because the price was right: Cost savings of 40% to 60% could be passed on to consumers in the form of cheaper loans and services.

Perry and Adarkar spent months pulling together a detailed analysis on which processes to move to India and how. IndyMac had a number of Indian engineers in its tech department, so they were familiar with outsourcing. Unlike most companies that export low-skilled jobs and keep the rest at home, IndyMac's strategy was to automate the low-skilled processes in California and send the high-skilled work to India.

It was a controversial time to be accelerating an outsourcing program. In 2004, debate about outsourcing in the U.S. was stirring a backlash against the business trend. To allay any fears, Perry sent a letter to all his employees explaining the reasons for moving work to India. Most important, Perry committed to no job losses at IndyMac on account of outsourcing. The bank signed contracts with three Indian service providers -- Cognizant Technology Solutions for IT and software development, WNS Global Services for analytics and research, and EXLservice Holdings for customer service through call center. Rather than losing jobs, IndyMac is growing, and its workforce has doubled to nearly 6,000 in four years.


  How did outsourcing help IndyMac? The bank used India to develop services it could never have afforded in the U.S. Having an operation in India meant 24-hour service, extended banking hours, and weekend and holiday banking. More agents meant a faster turnaround time for customers closing a mortgage. And IndyMac was also able to initiate some personalized touches, such as welcome calls for first-time lenders. "We can afford to offer these services now," says Adarkar, who's now executive vice-president for IndyMac's global outsourcing operations.

IndyMac also scored by getting its senior management involved in India, with most of the bank's top management visiting the offshore operations. Back home in California, a team of seven mid-managers monitor outsourcing projects full time, identifying new opportunities and constantly evaluating cost savings and performance. The bank has a senior executive posted permanently in Bombay to keep communication smooth.

"It takes up a lot of our time, and it's not easy, but it's the only way to do it right," says Adarkar. Most important, the chief executive "has to be committed to it," he adds, because at times it's a difficult path to follow, and "it takes a lot of staying power." That only comes with support from the top.

Kripalani is BusinessWeek's Bombay bureau manager


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