So Bank of Ireland has got what it wanted: a landmark outsourcing deal that will, at a stroke, allow it to consolidate its entire IT infrastructure.
The question is, will it be third time lucky for the bank, which entered into what was at the time a major outsourcing deal with Perot Systems in 1998?
Bank of Ireland has now begun exclusive discussions with HP. If the negotiations and due diligence are completed successfully — a process likely to take several months — the bank will appoint HP as its supplier of IT services for a period of seven years. The news follows developments last year when BoI entered into talks with rival AIB to combine their IT departments into a technology joint venture company. That enterprise was ultimately aborted, but the bank admitted at the time that simply by considering such an unexpected move, that it was prepared to look at different, even radical ways of making its IT processes more efficient.
The proposed joint venture was to have saved BoI some EUR20m per annum. With the current deal, the philosophy appears to be ‘you have to spend to save’ — the seven year contract currently being negotiated with HP is worth a massive USD600m, which works out at USD85.7m per year.
Under the terms of the agreement, HP will manage the bank’s desktop environment, midrange servers, mainframes, networks, output and printing, and facilities.
HP Services also will provide some customer support, consulting and integration services. HP Services will help the bank to minimise operating costs and reduce volume consumption.
HP Ireland’s Services division will manage the bank’s desktops, midrange servers, mainframes, networks and printing systems, as well as providing some customer support and integration help.
According to Bank of Ireland CIO Cyril Dunne, the agreement with Perot was different, in that it only involved a part of the company, namely its retail operations in the Republic of Ireland.
The scale of the current proposed deal is considerably larger; it encompasses the bank’s entire operations across the UK and Ireland. This includes Bank of Ireland Finance, Bank of Ireland Life, its loans business, its retail operations in the Republic and Northern Ireland, its corporate and treasury divisions, as well as Bristol & West and business financial services, both based in the UK.
The USD600m price tag covers all costs associated with the deal, including staff salaries. It also contains provisions for two full technology refreshes over the lifetime of the contract.
One of the long quoted advantages of outsourcing has been its potential to realise cost savings for participants. Bank of Ireland’s mooted deal with AIB was to have saved it an anticipated EUR20m per year. However Dunne was reluctant to reveal the amount that the bank now expects to save as a result of the deal, other than to say that the opportunity was ‘very attractive’. ‘It’s a different venture [than with AIB]. I’d prefer not to compare it, but we are just as pleased,’ he said.
A statement released by HP noted that the bank and HP have agreed to share any savings made as a result of lower operating costs. There are two elements to this plan, Dunne explained. ‘We’re looking to put in place a partnership relationship underpinned by an outsourcing contract. Within that, Bank of Ireland are making significant savings. HP are commercially making a return on that as well.’
The deal contains a structure for gain sharing, where both organisations can investigate the possibility for ‘additional opportunities’ that may exist within the bank’s IT infrastructure but which are outside the scope of the agreement currently on the table.
Dunne added that the Bank would see the financial and technical benefit from HP’s push into the outsourcing market. ‘As they do that, we will gain. The more successful they are, the more cost-effective it will be for us.’
It is significant that in the statement released by HP last month, the official quoted was Ann Livermore, the company’s executive vice president; ordinarily the custom is to carry a comment from the local manager.
HP Ireland’s recent purchase of the Metromedia data centre in Dublin was a statement of intent about beefing up its own outsourcing capabilities. Dunne hinted that the newly acquired facility played a part in helping HP on to the shortlist for the contract. ‘There’s no doubt about that,’ he told ComputerScope. ‘We could see this was a key part of HP’s strategy going forward. Our expectation would be that our disaster recovery capability will be based from there.’
The Bank’s strategy is to consolidate its entire IT operations. It will most likely maintain a single IT centre in Dublin and another in Bristol for its UK operations. These two facilities will be connected by a high capacity network — the first time they will be integrated, as previously the bank’s Irish and UK operations had separate technology platforms. ‘Now what we are doing is having one overall group IT infrastructure,’ said Dunne.
The deal also puts the bank at the forefront of outsourcing adopters in Ireland, perhaps an unusual role given the traditional perception of the financial sector as being risk-averse. Dunne, for his part, does not consider the contract as a risky undertaking. ‘The role of the bank is actually to manage risk,’ he pointed out. ‘We’ve looked at it from a risk point of view and ensured there is mitigation in place.’
A deal of this size may also prompt other locally based organisations to look at their own IT infrastructures and consider their options, Dunne speculated. ‘Our experience would be that this could actually catalyse the outsourcing market in Ireland,’ he said.
15/05/2003
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