Source: Finextra Research
Has the banking industry fallen out of love with outsourcing? Within the space of a week two benchmark IT outsourcing deals in the financial sector have ended in divorce, as UBS calls time on its relationship with Perot Systems and JPMorgan Chase dumps IBM.
Neither break-up caught industry insiders by surprise. JPMorgan Chase’s split with IBM had been on the cards from day one of the Bank One merger deal. Indeed, Bank One’s tech savvy chief executive Jamie Dimon had previously pulled the plug on two other similar deals with IBM and AT&T.
UBS meanwhile had been rumoured to be on the verge of bringing its outsourced functions back in-house since April this year, when it centralised its IT infrastructure systems in one unit, known as IT International.
It would be easy to dismiss the unwinding of these deals as isolated, company-specific events. But Finextra believes the market for outsourcing may have reached a turning point. Our own research indicates that banks are unconvinced about the benefits of mega BPO deals. Such transactions gained prominence during the economic downturn as a relatively cheap way to offload a burdensome fixed cost. As the economy has improved we’ve measured a trend for more tactical desktop outsourcing and managed services, and waning support for the full-scale strategic deal.
More worryingly for the outsourcing fraternity, both UBS and JPMorgan expressed a clear strategic requirement to take back ownership of their IT assets.
As Austin Adams, JPMorgan Chase's CIO, says of the decision to terminate the IBM deal: "We believe managing our own technology infrastructure is best for the long-term growth and success of our company as well as our shareholders.”
The implications of this pronouncement for mega-IT outsourcers like EDS, IBM and CSC - and wannabe firms like Unisys and HP - couldn’t be more chilling.
Will other banks sit up and take notice? We await news of developments at Lloyds TSB - rumoured to be negotiating terms with IBM over a mega £1 billion IT outsourcing contract covering computer systems and retail banking networks - with interest.