In an unusual five-year "out-tasking" deal Bank Austria signed with IBM this summer, the bank is easing its way into a core banking system migration by outsourcing the application developers that had been maintaining its legacy core apps. Out-tasking lets businesses turn over a specific IT operation to another organization, rather than the entire IT function. In this case, the Bank Austria IT staff who modify and maintain the bank's core applications would under normal circumstances see their jobs phased out as the bank migrates to the EuroSIG platform developed by the bank's holding company, UniCredit, and used by its sister banks in Italy and Germany. But under the arrangement with IBM, 300 of the bank's 900 IT employees have already been shifted to IBM subsidiary BlueIT, which is setting up a banking solutions center in Vienna.
"Those people who would face the threat of losing their jobs in the future because of bank consolidation in Italy and Germany have been shifted to IBM for the time being to serve us until the applications they support are replaced by group applications," says Herbert Hangel, head of global banking services at the bank. "As soon as we no longer need them because of the group applications, these IT people will be redeployed by IBM for other customers." Bank Austria's go-live date for the new core system is next summer, but the migration will continue over the next three to five years, he says.
Standardizing on EuroSIG across three countries will bring several benefits to the bank, Hangel says. "The EuroSIG system for Germany and Austria will run on the same hardware and the same operating systems with the same development processes and maintenance in every country," he says. "You have one systems management team, one application development team, and if you develop a product for one country, then in the ideal scenario the product will roll out easily to two other countries." The three markets are closely related, both geographically and commercially, Hangel says. The bank will reap "quite substantial" net savings from the outsourcing arrangement over the next five years, he says.
All the bank's hardware and equipment has remained on its premises and is not covered in the contract. Master data management and the customer information file will remain within Bank Austria. Local regulatory reporting needs will also be taken care of by the individual banks in their markets, while global rules, such as Basel II, will be reported on centrally.
Celent analyst Stephen Greer sees a trend among global banks toward out-tasking. "I think the key driver has been the economic climate," he says. "More banks have been looking at ways to cut costs and have been moving beyond simple back-office tasks and into more advanced business processes. As new banks are pushed into the outsourcing world by increasing cost constraints, and larger banks add complexity to their current outsourcing relationships, there becomes a need to retain some kind of strategic and managerial control, especially in areas where an institution might be apprehensive about a full-service host, such as security."
Although he expects most back-office/call-center work to continue to be done through long-term outsourcing deals, Greer sees out-tasking as "a way to explore new processes in a conservative, incremental way that allows for substantial control by the institution."