If you wanted to play the laws of averages or probability on which sector is most likely to enter into an outsourcing agreement, place a large chunk of money on the financial services industry. But the more interesting question is why, more than any other industry, are they choosing this method to conduct business. Big Blue, for one has some insights into why this is a growing trend.
With the financial services industry addressing its own challenges caused by increased competition, globalization and deregulation, its needs have moved from outsourcing simply to save money. “They’re looking for partners who can address the breadth of service in their industry to target into those flexibility issues. It’s progressed to more than just an IT kind of relationship to more of a business relationship,” said David Kerr, financial services industry executive in global services for IBM Canada in Markham, Ont.
He noted that in financial services, unlike the manufacturing sector that is driven by its staff and products, commerce is a very IT-centric business. And beyond its close ties with technology, these institutions require organizations that can provide standard solutions on a global or local level. Currently, he said the financial community is heavily focused on creating new means for application development, broad business partner relationships and packaged integrated solutions. From IBM’s dealing with this sector, he added that these are areas where similarities exist from its customers in terms of what they are seeking from its outsourcing partner.
Kerr offered several tips for firms who are considering outsourcing. Firstly, understand and recognize where your organization is truly competitive and profitable. When entering into an agreement, think long-term about what the company can not only offer your organization now but down the line from a competitive landscape. Lastly, think about who your future customers could be and what needs they may have in the future.
National Bank contract
Last December, the National Bank of Canada opened a 10-year IT account with IBM. The $1.1-billion contract extension will continue to see IBM responsible for the bank’s Web hosting services, IT infrastructure, call centre and future e-business projects. Excluded from the new deal are the areas of telecommunications and application development.
The original deal dates back to 1994 and will now continue until 2011. While the majority of services involved were already contracted to IBM, two major additions include the formation of an IBM Innovation team – an assembly of Big Blue’s research staff that will work with National to develop new business strategies and objectives. Web environment work was also added to the contract services mix.
Given the hefty price tag – $100 million per year for the next decade – some may wonder if the bank might second-guess itself. But that won’t happen, according to Michel Labonte, senior vice-president of finance at the National Bank of Canada in Montreal. Under the agreement the bank also becomes the beneficiary of highly competitive prices from Big Blue.
Labonte said IBM would now provide services to operate National’s computer facility, and reinforce its overall ties with the bank. “They (IBM) were already responsible for the outsourcing. We’re extending our initial contract with them and improving the governance of the contract and the partnership element,” he added.