01 June 2004 Features

 

The human factor

With outsourcing deals, the focus is all too often on the hardware and software. But, discovers Nicholas Pratt, it is the treatment of the IT staff involved that can make or break deals

A number of subjects that Banking Technology has covered for many years are now becoming mainstream issues, featured by a number of national newspapers and television channels. None more so than the thorny issue of outsourcing.

Outsourcing in one guise or another has existed for years but the issue has only reached the front pages of the popular press because the movement of jobs is now affecting customer-facing job roles, such as call centres and helplines – an issue accentuated by the recent trend for offshoring.

In the banking world, the trend is still for back-office IT services to be shipped out to an IT services specialist firm. Again, this is nothing new, but the scale of these outsourcing arrangements is increasing all the time.

This is not to say that all banks are in favour of outsourcing. Glenn Martin, chief technology officer at UK stockbroker Cazenove, is a staunch supporter of insourcing. When he arrived at Cazenove in 2001 it was not too long after the company had signed one of the first of the big IT outsourcing projects with IBM at the end of 1999, a deal that was proclaimed as the biggest of its kind in the City of London and was supposed to last for 10 years.

But one of Martin and his team’s first acts was to bring a lot of the IBM projects back in-house. “We all came to the same conclusion – that we were better off performing these services ourselves,” he says.

At his previous bank, Citigroup, there had also been a policy of insourcing but, compared to many of his peers, he feels the fashion for outsourcing is still very strong despite a lack of evidence to suggest that outsourcing always works. “When I’ve spoken to colleagues in investment banks who have undergone an outsourcing project, I have never found anyone who is prepared to say it has been an unqualified success,” he says.

Part of the problem, feels Martin, is the demanding nature of investment banking, as opposed to many other industries. “It’s very difficult for outsourcing companies to provide the speed of response that investment banks need,” he says, referring to the ‘Martini’ culture of the industry – the anytime, anyplace, anywhere demands on IT staff.

“If there is a problem, you drop everything to try and solve it, whether it is 1am or Saturday afternoon. That is not a typical outsourcing culture. If you want them to come in, they will want further payment.”

Such demands highlight what Martin feels is the fundamental conflict of interest between the outsourcer and the customer. “The outsourcer wants to maximise revenue and the customer wants to minimise cost.” Martin is also keen to add that not all outsourcing is wrong and that there are many definitions of outsourcing.

One outsourcing permutation that Martin thinks is particularly flawed is where there is a mixture of on-site contractors working alongside the in-house staff. “It becomes difficult when you have the in-house people adopting the ‘Martini’ culture working alongside those that aren’t. There is definitely a morale issue and the difference in productivity between a very good guy and a mediocre guy can be anything up to tenfold in IT.

“Generally outsourcers have a high turnover of staff and they do not manage to, with some exceptions, keep and retain high quality people on the account. And this means that productivity suffers because, by and large, if people want to be investment bank technologists, they want to work the investment bank, not XYZ bank.”

This issue arose in the landmark deal between ABN Amro and EDS. The deal was worth $1.3 billion and saw the Dutch bank outsource its entire wholesale banking IT operation to the IT services company, including the staff.

Although the contract was formally announced in December 2002, rumours had been rife for a number of months. And at that year’s Banking Technology awards show in November, I met one ABN Amro employee who was far from happy about his change of employer and offered to reveal the extent of his colleagues’ disgruntlement in a London coffeehouse.

But Robert Baldock, formerly of EDS, the outsourcing company involved in the ABN deal, feels that not only is there likely to be more of these deals, they also represent a good move for any staff that are moved across.

“If you are in the back office of a bank, you are treated as a second class citizen. The front office guys are the ones making the money, the back office guys are the ones costing the money. When you transfer a back-office process to someone like us, these guys become the front-office and they love the new-found importance.

“Plus they find themselves with people who are in the same business. They used to be the IT boys in a bank, now they find themselves the banking IT boys within EDS. A couple of years ago people may have been worried about coming across or being outsourced. But now many see it as a career enhancing opportunity because they are now part of a bigger community.”

This point is debateable and different people will have different sentiments. “It is hard to find an IT employee who will feel happy switching from a bank to a vendor,” says Guillermo Kop, director of financial services strategy at US-based research firm TowerGroup.

Kop cites the education that bank IT employees get from the financial services environment, that sense of belonging and also, of course, the often lucrative financial benefits, particularly when the market is buoyant. But he does accept that the outsourcing vendors are aware of this potential stumbling block and, when it comes to the contractual side, have gone to great lengths to improve their human resources functions.

“The transition proposal is personalised for every employee. They know exactly what their competencies are and how they map to their own bank and their career plan. They make the offers very attractive and make people feel that their careers will still develop. But the downside is that such a move [to an outsourcing firm cuts] them off from a possible financial services career. They will never become CIO of a bank.”

So outsourcing may not be great for the staff but that can also mean that it won’t be great for the bank. “A good number of staff, if they are not engaged up front, will become disenfranchised and will go, and typically that will be the top talent,” says Beverley

White, director of business technology at Penna Group, a recruitment agency based in London. “And that can cause an outsourcing agreement to fail.”

“Research shows that it is often the case that an IT outsourcing agreement is initially about protecting the hardware and the software and ensuring that it carries on working the way it did. But perhaps banks are not paying enough attention to the people that work in that environment. You need all three if you are going to be successful.”

Certainly the bigger outsourcing vendors, such as EDS and IBM, have taken the staffing issues much more seriously than in the past. “In the early days this was done on a very hush-hush basis,” admits Baldock. “I can’t tell you how many times I walked into a room full of people wondering what the hell was going on, to have to tell them that they are now being employed by a new company. Now it is a completely different approach. It is much more open, and if it is unionised you have to let them know up-front, which is what ABN did.”

Another example of banks taking the initiative on the employment issues around outsourcing was Barclays. After announcing a deal with Accenture that will see 2,500 IT workers relocated, the bank announced that it had negotiated an arrangement with the bank workers’ union Unifi that would try to limit the amount of jobs lost in the outsourcing.

For Nigel Roxburgh, a founding director of lobby group the National Outsourcing Association (NOA), the Barclays/Unifi truce is nothing new, but it is a sign that the banks recognise that they have to get the employees on board for these outsourcing deals to work.

“What the current politicised nature of outsourcing has done is make employers aware that outsourcing is not just a financial decision,” says Roxburgh. “The NOA’s message is that it is so important to ensure that people are looked after. In part it is a moral obligation, but it is also common sense for the industry. If you don’t look after the people, they will not accept these changes and the whole outsourcing trend will grind to a halt.”