in its systematic pursuit of such contracts, Canadian Imperial Bank of Commerce is turning an old strategy into a new art form. Having spawned two companies in as many years, the bank is raking in revenue from joint ventures at a rate far faster than projected. It formed one company, Intria-Items Inc., two years ago with Fiserv Inc. and the other, Intria-HP, with Hewlett-Packard Inc. about two months ago. Together, the companies embody CIBC's vision of providing a spectrum of processing services-for pieces of paper or electronic bits-depending on the demands of its customer base. "We're positioned as providing end-to-end paper and electronic processing," said Harriet Velazquez, senior vice president, operations and technology for CIBC. CIBC's position is a result of a strategy it hit upon in 1995. At the time, the bank was grappling with the dual demands of continued investments in its existing back-office systems and new investments in planned delivery channels, such as PC banking, telephone banking, and ATMs. With debit card usage in Canada soaring and check usage plummeting, the bank's investment in check processing equipment was becoming especially onerous. The $183 billion (Canadian) bank didn't think it could effectively manage all the demands on its technology budget on its own, said Ms. Velazquez. But "we didn't want to outsource-we're too big to outsource. We wanted to maintain control." The solution was to spin off the bank's processing operations into a separate company and "become an outsourcer for ourselves and others, but not do it ourselves." A partner was in order. First CIBC analyzed its back-office operations and determined it had the makings of two separate, though related, businesses. One for processing paper such as checks, traveler's checks, deposit slips, statements and sales drafts; the other for processing electronic information like debit and credit card transaction data and branch account information. Now, it seemed, two partners were in order. CIBC's choice for its "paper factory," chosen out of about half a dozen contenders, was Fiserv, Brookfield, Wis., the largest outsourcer for check processing in the United States. The partnership gives Fiserv a 49% stake in the business. In Fiserv, CIBC found "a partner who knows how to make money," said Ms. Velazquez. In addition, the bank viewed Fiserv as having the technical expertise necessary to complete a desired overhaul of its processing infrastructure. For Fiserv, the relationship provided a way to gain access to the Canadian market. Intria Items has just about completed 22 projects it identified as important to modernizing its operation and improving efficiency. For example, it is now offering imaged checking account statements produced by a Fiserv system. In addition, the partners have "demonstrably improved service levels to CIBC," Ms. Velazquez said. The bank carefully tracks 12 critical processes, such as float times and percent of checks cleared nightly, and posts the results in the elevators. Most important, Intria Items has proved there is a market for its processing services. At the end of the second year of the relationship, the partners already have generated the revenues they expected by year five. Revenue is increasing at a rate of 40%, boosted by half a dozen large contracts besides the joint venture's contract with CIBC, and many smaller ones. As customers, Intria Items has banks and nonbanks, such as convenience stores and energy companies. For energy companies, for example, it processes statements and related items. According to Dean Schmelzer, corporate executive vice president of marketing and sales at Fiserv, CIBC keeps all the revenues on its books, and Fiserv gets paid through a combination of fees and dividends. Any new investments in technology are approved jointly. Now CIBC has just executed its second joint-venture transaction, fulfilling the vision it had for Intria three years ago. Of 14 contenders, CIBC chose Hewlett Packard as its minority partner in creating an electronic processing business. The deal, announced in August, is expected to close shortly. As with the Fiserv venture, the partnership will let both parties achieve specific goals. "We had things they wanted," Ms. Velazquez explained. "We're very good at running huge IBM and Tandem systems, while their outsourcing business is mostly Unix and NT. They wanted to be in Canada, while we felt there might be a viable market in the U.S. We complemented each other." She added, "When you're looking to partner, you need someone who shares your long-term goals, and equally brings something to achieve those goals." Intria-HP will market its high availabilty processing services to both banks and nonbanks in Canada and the United States. Already, for energy companies, it is contemplating a number of innovative services. One would send both billing and usage information, supplied by a chip inserted into a customer's meter reader in the home, to a customer's PC banking program. There, customers could inspect their energy usage, perhaps review the cost compared to other energy providers, and pay the bill electronically. Intria-HP would handle all these various electronic transactions. As CIBC moves into its second joint venture, it plans to retain many of the management techniques it has honed at Intria-Items. The joint venture has a board of very senior people from Fiserv and CIBC that meet quarterly. In addition, a joint management committee of all interested Fiserv and CIBC parties meets monthly. The rules for the management committee are that all decisions made should benefit both the bank and Fiserv, and that nothing should escalate to the board level. The management committee has "hacked through all kinds of nasty issues," said Ms. Velazquez who sits on the board. She added, "It takes a different style of management than most people are used to. It's very directed at understanding the other partners' interests." Managing the relationship is "the biggest problem" in any outsourcing or joint venture relationship, said Jim Reichbach, banking segment leader for the Americas at Deloitte Consulting in New York. Typically, when firms draw up outsourcing contracts, "they don't plan for robust management and there's a lot of miscommunication and misunderstanding." Intria's aggressive, hands-on management style is an example of the "more skeptical and honest eye" banks are turning toward outsourcing solutions, Mr. Reichbach said. Banks are "not pretending that outsourcing is the be-all and end-all solution." He said that in a 1998 Deloitte study, 59% of chief information officers cited a lack of vendor expertise as their greatest outsourcing disappointment. "Part of the solution may lie in simply better managing expectations," said the report. Meanwhile, "firms that outsource must manage their outsourcers-they cannot abdicate responsibility and expect to be satisfied." "Historically, banks have not been able to manage joint venture relationships," said Peter Bendor-Samuel, president and chief executive officer of Everest Group, Dallas, a firm specializing in helping companies structure outsourcing contracts. The danger of not managing a joint venture well is that "your outsourcing partner can get all the money and buy you out," he said. But for large banks that own processing operations, forming a joint venture may be the best way to build revenue. The options-building a processing business singlehandedly or selling off the business-each pose problems. "Going it alone is a difficult row to hoe," said Bendor-Samuel. In selling off the business, "you're basically only selling potential, so you're getting a discounted valuation for that." He advised institutions that choose the joint venture to pay careful attention to how the deal is structured. Often, he said, there is a separate contract with the outsourcing firm that underlies the joint venture agreement. "The outsourcer gets two bites of the apple," he said, an arrangement that ultimately could tilt the balance of power in the outsourcer's favor. Mr. Schmelzer of Fiserv said the Intria deal includes an outsourcing contract between the joint venture and the bank, and a management contract between the joint venture and Fiserv. In his view, joint ventures are "an excellent vehicle for doing larger deals." They give Fiserv an opportunity to "take a different approach to making a deal work." He added, "As people get more comfortable with the concept of outsourcing, they are looking at more creative ways of justifying the solution."

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