One year removed from the splash J.P. Morgan & Co. made with its $2 billion technology services deal, the bank outsourcing market is still feeling the ripples.
Though the contract did not touch off the frenzy of U.S. banking megadeals that some had predicted, it has contributed to a changed approach to outsourcing by many large banks and technology providers.
The Morgan agreement differed from standard bank outsourcing fare in that it created an alliance of vendors to handle a wide range of functions.
Historically, a bank that wanted to hand over a variety of its technology operations would either find a single, large vendor to handle them or would break the functions apart and farm them out separately in a series of smaller, strategic deals.
The Morgan contract showed another way to accomplish the same thing. The bank used its clout to convince four vendors - Andersen Consulting, AT&T Solutions, Bell Atlantic Network Integration and Computer Sciences Corp.-to cooperate in the Pinnacle Alliance, which will handle about one-third of the bank's technology operations over at least seven years.
"We think the Pinnacle Alliance is an excellent example of the future trends in outsourcing," said Len Bergstrom, executive vice president and founder of Gartner Group's measurement unit, Real Decisions.
The alliance reflects a number of trends in outsourcing. First, it shows how increased competition for banking contracts has resulted in vendors bending more to accommodate the wishes of customers.
Also, it demonstrates how larger banks are growing increasingly open to farming out large portions of their computer operations.
Bank outsourcers said plenty of prospects for bank megadeals exist, but some of the most lucrative opportunities are overseas.
One example is a pending 10-year deal at Commonwealth Bank of Australia that could be worth up to $4.7 billion. Electronic Data Systems Corp. and Computer Sciences are competing for the contract.
The rise in large-company outsourcing extends beyond banking. According to a survey from Stamford, Conn.-based Gartner, one-fifth of Fortune 500 companies will sign full-service outsourcing megadeals by 2000. Many of them will follow the Pinnacle Alliance model.
Though Pinnacle is somewhat of an oddity within banking, vendors noted the concept of vendor alliances has been around for some time in other arenas.
John Meyer, president of EDS' financial services group, said people are "trying to spin Pinnacle as unique-as if it's never happened before, and that's not really the case."
He noted that EDS has worked in the past with International Business Machines Corp.'s services unit in providing government services, and people should not surprised to see similar alliances in banking.
One such alliance arose in March when Fiserv Inc., Carreker-Antinori Inc., National Processing Co., and UPS World Wide Logistics agreed to form Infiteq, a company providing cash management services.
George Dalton, chairman and chief executive officer at Fiserv, said the alliance shows how important vendor cooperation is becoming in the modern outsourcing world.
"You need more components than an individual organization can offer," he said.