Financial Services Wary of Outsourcing Key Projects

Computerworld - NEW YORK -- IT managers interviewed last week mostly agreed with a Gartner Inc. prediction that less than 30% of financial services companies will be outsourcing strategic projects by the end of next year.
At the Gartner Financial Services Summit here, IT executives said they do favor using outsourcers for more routine tasks like maintenance or call center operations, but not for important projects where strong oversight is essential.
Though the Gartner report released at the conference suggests that IT organizations should be more receptive to outsourcing, doubts about external developers persist among many managers, who fear a loss of control, fallout from job cuts and the need to ensure data privacy.
Rick DeMaria, technology platform director at mortgage-backed securities dealer GMAC-RFC Ltd. in Bracknell, England, added that IT managers generally view the skills of developers at outsourcing companies as limited.
"The general perception is that the typical experience with outsourcing is great until you try it," said DeMaria. "We've limited our outsourcing to infrastructure support."
"The issues generally are that [IT managers are] not happy with the outsourcing providers" for such tasks, said Gartner analyst Kimberly Harris-Ferrante. However, she said problems aren't always caused by outsourcers but rather often stem from a bank or insurance company's lack of experience with large outsourcing deals.
Nonetheless, outsourcing is growing, Harris-Ferrante said, noting that Gartner expects U.S. financial services firms to spend an average of $65.6 million on such services this year, up from $53 million in 2002. Gartner predicts that figure will grow to $83.8 million by 2009.
Careful Approach
ABN Amro Bank NV, for example, last week awarded a series of IT outsourcing contracts worth $2.2 billion to IBM, Accenture Ltd. and three Indian companies -- Infosys Technologies Ltd., Tata Consultancy Services Ltd. and Patni Computer Systems Ltd.
On the other hand, London-based Barclays Bank PLC plans to more carefully evaluate whether projects should be outsourced, said Stuart Gilmour, head of business development for the bank's group technology office.
In the past, he said, Barclays has sent a "reasonable" amount of tactical IT and applications development work to India, but the company is no longer approaching outsourcing as a standard practice.
"We'll continue to explore [outsourcing] where we see it being the right thing to do. But I think we're getting to the point where where [it has to be] based on its merits," Gilmour said.
Meanwhile, some users at the conference said they're creating their own development centers in India to take advantage of what they described as cheap, motivated and skilled labor. "We went the captive route because of the span of control we get," said Sean Motley, vice president of IT at New York-based Lehman Brothers Inc.'s investment management division.
Motley said that in February his company launched a "massive" recruiting effort in Mumbai, India, to staff a new 1,000-person IT and business-processing center there. Several Lehman Brothers divisions were charged with making plans to outsource some IT development projects to the operation, he said.
Motley said his unit's plan calls for dispatching its Java and .Net application development projects to the Indian operations. Each division is responsible for the success of its own efforts there, he noted.
Motley added that Lehman Brothers still outsources more mundane Cobol and DB2 maintenance and development work to providers such as Tata Group in Mumbai.

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