Hewlett-Packard (HP) Canada says its “flexibility” helped it win a four-year, $700 million extension to an outsourcing agreement with the Canadian Imperial Bank of Commerce (CIBC)
The original contract CIBC signed with HP Canada was for $1.5 billion. The new deal adds $700 million to that pushing the combined value up to $2.2 billion over 11 years.
HP Canada says, in addition to quality of service, its willingness to accommodate changes in the original 2002 contract agreement played a big role in the extension. “It’s a give and take,” said Paul Tsaparis, president and chief executive officer of HP Canada.
Historically, the HP Canada chief said, many companies treat a contract as non-negotiable and deliver only what it stipulates. “We took a collaborative approach where were worked with CIBC staff to change the structure of the agreement to benefit both parties.”
However, Tsaparis did not reveal what parts of the contract were amended.
An HP Canada statement said the company would provide services and technology support for CIBC’s enterprise infrastructure, including Internet banking, branch teller operations, automated banking machines, point-of-sales operations, wire payments and fraud detection systems.
HP is also responsible for CIBC’s data centre and network management, midrange transaction processing, application services, operating systems, storage and desktop messaging.
CIBC will retain responsibility for the desktop support infrastructure, help desk, and related network services.
The HP-CIBC deal exemplifies the rapid growth of outsourcing in certain sectors of the economy, says one Canadian analyst.
Outsourcing has grown to a $7 billion industry, notes Jason Bremner, director of outsourcing services for the Toronto-based research firm IDC Canada.
However, he says that some sectors are less inclined to contracting out key information technology (IT) operations. For instance, government offices and the health sector are not pre-disposed to outsource services, he said.
In addition, Canadian enterprises have not been as swift to jump on the outsourcing bandwagon as their U.S. counterparts, Bremner said. “We have a political environment and labour laws that discourage the notion of outsourcing.”
An IDC market analysis done by Bremner and fellow analyst Sebastian Ruest reveals network and desktop outsourcing services (NDOS) outpaced information systems outsourcing (ISO) in 2005.
IDC estimates Canadian businesses spent $4.28 billion on ISO rather than the $4.34 billion that analysts predicted. On the other hand companies spent $1.37 billion on NDOS, slightly higher than the $1.36 billion expected for that period.
Bremner said information systems outsourcing is driven by large contracts. Historically, Canada experienced one mega deal averaging $100 million each year, but 2005 did not see any contract of such magnitude materialize.
Contract values are declining, he said, because of sliding technology costs and the fact that outsourcing vendors are opting for cheaper offshore labour.
For example, Air Canada outsourced a large portion of its IT operations to Hexaware Technologies Inc., an Indian IT business processing firm.
IDC believes the IT outsourcing market is dividing further into two segments: IT outsourcing, which includes ISO, application outsourcing, network outsourcing and desktop outsourcing; and utility services, which encompass hosting infrastructure services and software-as-a-service.
IDC also said that while managed services have been a part of outsourcing for years, it seems to be further evolving into a separate segment.
Managed services have key advantages, IDC noted. These include customer ownership of the technology, offerings standardized for simplicity and lower costs, and the fact that companies get to keep their staff.
A large outsourcing deal can involve the transfer of the user’s entire IT department – sometimes upwards of two or three hundred staff.
In IT outsourcing, ownership of technology is often shifted to the outsourcing provider. With utility services the technology is owned by the provider from the beginning. IT Outsourcing also requires customized offerings that can drive up cost.
“This doesn’t mean IT outsourcing is diminishing; it merely says that managed service offerings may be appealing to a segment of the market,” the IDC study said.