Machismo is dead in the banking industry - at least as far as outsourcing goes.
Only a few years ago, bankers - particularly those at superregionals - tended to scoff at the notion of handing over the keys to outside service providers. To let a computer company or another bank do your processing was to admit weakness or a lack of confidence in your organization.
This attitude persisted until the early 1990s, when many cash-strapped companies looked to outsourcing as a way to cut costs. The megadeal, in which a regional bank farmed out large portions of its computer operations to a single processor, became common.
The economy has improved, and few bankers still view outsourcing purely as a cost-cutting maneuver. But the big-contract boom from the early part of the decade has had at least one lasting legacy: It removed the stigma from outsourcing.
In the last two years, banks both large and small have handed over computer functions to third parties at an unprecedented pace.
"The shame is gone," said M. Arthur Gillis, a New Orleans-based bank technology consultant. "It's no longer considered a disgrace for a bank to admit someone can handle a particular function better."
According to a survey from Atlantic Data Services Inc., Quincy, Mass., and Tower Group, Wellesley, Mass., 32% of the money banks paid in 1995 to independent technology providers went for outsourcing services.
From the survey, which gathered responses from banks ranked among the top 100 in assets, the companies predicted that service bureau and outsourcing spending would grow at an annual rate of 10% through 2000.
One of the main things driving the acceptance of outsourcing is that the services offered by technology providers have become more focused.
In response to bankers' reluctance to hand over entire processing operations in one-shot megadeals, vendors increasingly offer niche services.
Accordingly, bankers who want to lop off some of their operations can hold onto functions they feel they do well themselves or deem too strategically important to farm out.
"There will always be those who will hand over the keys to the whole thing," said W. Kirk Domingos 3d, executive vice president at Hibernia Corp. in New Orleans. "But there's more outsourcing coming up behind single products, and most are really happy about that."
To be sure, the emergence of more strategic outsourcing does not signal the death of the high-cost, long-term outsourcing deal.
Just last month, Washington Mutual Inc., one of the largest thrift companies and an increasingly aggressive competitor in western retail markets, struck a $533 million deal with International Business Machines Corp.'s outsourcing unit. The unit will handle a variety of network and communications functions, not core processing.
Nor does the more targeted approach translate into less outsourcing by big banks.
On the contrary, many regional banks that were opposed to old-style outsourcing have eagerly begun giving processing contracts for department- level services and for projects with defined life spans, such as the "year 2000" software revision projects.
"The fundamental idea of outsourcing is that a third party takes on what banks are not staffed to support," said William Bradway, a consultant with Tower Group. "There's always likely to be a need for that."
