IBM Inks Three Big Outsourcing Deals

IBM Global Services in the last week racked up three more big outsourcing wins with the National Bank of Canada, Mitsubishi Motors Corp. and Royal & SunAlliance Insurance Group plc.

IBM Global Services in the last week racked up three more big outsourcing wins with the National Bank of Canada, Mitsubishi Motors Corp. and Royal & SunAlliance Insurance Group plc.

Although only the National Bank of Canada is disclosing the terms of its 10-year, $700 million outsourcing contract, the three together represent mega-deals for IBM. In the third quarter of this year, outsourcing revenues for IBM Global Services accounted for more than 40 percent of its total revenues.

While the National Bank of Canada extended its seven-year relationship with IGS, Mitsubishi is a brand new customer. IGS will take on IT responsibility for maintaining current applications and system operations, and it will take part in future applications development for the Tokyo-based manufacturer. The Royal & SunAlliance Insurance Group plc contract, which will span 10 years, is also new.

All three contracts focus not only on reducing IT costs on existing infrastructure, but also emphasize innovation for future IT initiatives, according to Bob Zapfel, general manager for outsourcing in Somers, N.Y.

"One common theme we see more and more frequently is the customers wanting to create with IBMs help innovation centers to leverage how they use IT in the future. The IBM research team is a big piece of what the customers are leveraging with their outsourcing relationships. These recent wins are examples of a market that's moved from being predominantly focused on cost savings to one focused on looking for partners like IBM Global Services who can also help them from an e-business and effectiveness standpoint," he said.

For example, with the National Bank of Canada, IBM will form an Innovation Team, dubbed the I-Team, that draws on IBM Research experts and IBM consultants to help create innovative e-business strategies. At the same time, IGS will continue to manage the banks IT operations, including call centers and Web environments.

IGS will also work with Royal & SunAlliance to create an Innovation and Transformation Centre intended to foster business innovation by pulling together the "best and brightest" team members from both organizations, according to Zapfel. "The IBM team includes people from IBM Research and from our Innovation Services organization along with customer business executives that together really frame the next-generation strategies and systems the customer will use to be more effective in their industry," he added.

IBM will also expand Royal & SunAlliances computer center in West Sussex to provide e-business hosting for R&SA as well as other IBM customers. The contract also calls for IBM to consolidate R&SA's IT infrastructure in a two-year program starting early next year. As part of that project, IBM will standardize desktops across all R&SA sites in the United Kingdom. Some 285 R&SA employees in Liverpool, Horsham, Bristol, Halifax and other sites will transfer to IBM in 2002.

Despite the emphasis on innovation, cost savings are still an objective of the R&SA deal. Out of a budget of about $73 million in the United Kingdom, the insurance giant expects to save about 10 percent over the 10-year contract.

Cost savings too are an objective in the Mitsubishi deal, although the auto maker intends to increase its existing budget by 10 billion yen a year. The budget increases will fund new e-business initiatives and integrate Mitsubishi' IT operations with DaimlerChrysler A.G.'s IT operations. DaimlerChrysler has a 37.3 percent stake in Mitsubishi Motors.

An unspecified number of Mitsubishi IT employees will transfer to IBM Japan Ltd. Subsidiaries. Work will get under way in April.

The Mitsubishi alliance is a part of a company-wide restructuring plan, called the Mitsubishi Motors Turnaround Plan, intended to foster stable growth through structural reform.