In one of the largest-ever overhauls of an IT department, financial services company ABN Amro is cutting 1,500 internal tech jobs, and transferring a further 2,000 to external vendors with which it has signed a total of $2.2bn in outsourcing contracts.
Amsterdam-based ABN Amro hopes to cut IT costs by 258m euros ($320m) annually from 2007 by outsourcing its server and desktop infrastructure to IBM Global Services in a 1.5bn-euro ($1.9bn) deal, and handing over its applications maintenance to Tata Consultancy Services and Infosys Technologies in two contracts worth a minimum of 300m euros ($372m) combined.
These three vendors will also compete against Accenture and Patni for a share of an estimated $1.5bn spend on applications development work over the next five years.
ABN Amro employs 5,000 in-house IT staff. The company’s share price barely moved on the Amsterdam Stock Exchange following the announcement of the contracts, although the market has known of ABN Amro’s plans to extensively outsource its IT functions since late last year.
Several features of ABN Amro’s strategy are remarkable, including the signing of the largest-ever contracts for Indian software services companies.
TCS said its share of the applications maintenance deal was worth 200m euros ($250m). S Ramadorai, chief executive at TCS, told Global Computing Services: This is a landmark deal for Indian services companies and TCS. People will be watching this deal closely, and I think we will see a lot of traction on the back of it.
Infosys’ share of the applications maintenance project is worth at least 100m euros ($125m), with the chance to rise up to $250m over the course of the five years. Shares in TCS and Infosys rose 1.4% and 2.1% on the Mumbai Stock Exchange after the contracts were reported.
A second noteworthy feature of this string of contracts is that it is another example of multi-sourcing, whereby a client chooses to work with a number of best-of-breed suppliers rather than hand over its entire infrastructure to a single supplier.
Lars Gustavsson, CIO at ABN Amro, said: We wanted to use offshore locations, and no single vendor could satisfy all the different needs of the bank. We were looking for something that would prove more business-aligned and agile over time.
BG Srinivas, senior VP EMEA at Infosys said. ABN Amro has taken a modular global sourcing approach. A lot of companies are realizing that outsourcing to a single turnkey vendor can create serious challenges of being locked-in.
ABN Amro’s outsourcing program might not end here. Gustavsson said that while the company will retain control of managing its outsourcing relationships and IT security functions, it is looking at different ways its telecoms and data networks, which could include outsourcing.