IBM scores another large European outsourcing contract

The seven-year deal with the Delta Lloyd Group is worth $255M

IBM cornered an outsourcing contract with Dutch life insurance and pensions business Delta Lloyd Group today. The seven-year deal is worth $255 million, according to IBM.

Around 150 employees from Delta Lloyd, which is owned by U.K. insurance company Aviva PLC, will move over to IBM. The first of IBM's services for Delta Lloyd are expected to begin in the second half of the year, according to IBM spokeswoman Etta Pouw.

IBM will run Delta Lloyd's IT help desk, and manage and develop the company's desktop IT environment, administering servers, corporate networks and PCs, said Delta Lloyd spokeswoman Janneke Dijkstra.

"We have two big IT departments within Delta Lloyd. IBM will take over the internal IT infrastructure, while we will continue to operate the IT system that is more related to our financial products," she said. The company has no plans to outsource that portion of its IT system to IBM or any other company, she said.

Delta Lloyd began looking into outsourcing part of its operations two years ago, according to Dijkstra.

"We looked at all sorts of companies, as this is really a new process for us," she said. "IBM was really the best deal overall." Dijkstra declined to say which other companies had made it onto Delta Lloyd's short list.

Delta Lloyd and IBM have worked together in the past on a smaller scale, according to Dijkstra. For example, in 2000 IBM provided a storage-area network to create more flexible disk-space capacity for euro conversion and Lotus Notes expansion.

European companies are increasingly turning IT operations over to large U.S. corporations such as IBM and its competitors Hewlett-Packard Co. and Electronic Data Systems Corp.

"It is an interesting time in the outsourcing industry, where you have massive companies like IBM that dwarf their customers," said Kirk Smith of U.K. IT services provider LogicaCMG PLC. European companies are feeling the pull of U.S. and U.K. business models that require businesses to control the level of costs, playing into the strengths of outsourcing deals, according to Smith.

"Companies in Europe realize they have to exist in a global economy, and in doing so are turning to outsourcing," he said. "The large companies like IBM and HP are appealing because they are well-known brands with a global reach." Across Europe, businesses are outsourcing departments from IT to human resources as well as finance and accounting. "It's now really getting to the heart of business," Smith said.

Last month, Nokia Corp., the world's largest mobile phone maker, announced that it had granted IBM a five-year global IT outsourcing deal also valued at $255 million. IBM will handle Nokia's IT Helpdesk operations as well as manage and develop the Espoo, Finland, company's desktop IT environment.

Other recent outsourcing deals for IBM include an eight-year management and maintenance IT infrastructure agreement with tire maker Michelin covering its North American and European operations, signed in December. Last July, Swiss power and automation technologies company ABB Asea Brown Boveri Ltd. hired IBM to take over 90% of the company's IT infrastructure in a billion-dollar outsourcing deal.

The large outsourcing players are not the only ones benefiting from Europe's move to outsource, Smith said. Smaller Europe-based companies such as LogicaCMG are networking with other companies that also provide specialized service and jointly bidding on projects. "In some cases, we obtain contracts from the IBMs and HPs of the market to provide specialized service, but increasingly, a number of different service providers with specialized services are collaborating together and winning contracts over the big players," he said.

Delta Lloyd said it had considered outsourcing to a network of smaller companies before deciding to contract the work to IBM.

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