Why First Tennessee is Bringing IT Back in From Outsourcing

Yesterday First Tennessee Bank announced that it's terminating an outsourcing agreement with a major core banking services provider and bringing all that IT back in-house. The move will bring 65 technology jobs to a new data center in Maryville, Tenn., over the next three to 18 months. The bank is hiring data storage experts, network engineers, server engineers, and mainframe operations engineers. By the end of the 18 month phase-in, the bank will have 110 employees in the new data center. The conversion will cost $37 million, which the bank expects to recover in four years through reduced service fees and greater use of virtualization.We asked Bruce Livesay, CIO and executive vice president of First Horizon, the bank's Memphis-based holding company, why the company is making this move now, at a time when many regional banks are quietly turning to outsourcing to save money.

"It's probably different for every bank in their situation," he noted. In First Horizon's case, the decision to bring outsourcing in was based on a major change in its overall business - the sale of its mortgage company, First Horizon Home Loans, to MetLife in 2008. "The outsourcing deal was put in place before First Horizon sold its mortgage company, which was about half the company, and that arrangement didn't scale down well." It would not have been cost-effective to continue with the existing contract. "The second issue we had was that it did not anticipate growth. Everything we're doing now is positioning for growth, trying to make sure we're more responsible and nimble," Livesay says.

The bank is one year into a three-year IT overhaul. "We're upgrading all our core systems, we're replacing a lot of the branch systems with other new systems," Livesay says. "We're touching almost every core system in the company, to upgrade, replace or renew them. When we're all done, we'll have a completely new technology infrastructure in terms of applications, operations and data center. We'll be as good as anybody out there."

First Tennessee is doing a lot of work internally toward leveraging shared services, wrapping software in web services to ease integration and to allow applications to run on mobile devices and to use social networking tools such as Yammer (an enterprise microblogging tool) internally. "The tools are out there and a lot of companies are trying to figure out what do with them, I think there's a place for better collaboration internally," Livesay says.

In the future, Livesay says he would consider other outsourcing relationships. "I'm not opposed to outsourcing, I think there are places to do it and places not to do it," he says. "Data management is almost like the keys to kingdom, it's among the things I wouldn't consider outsourcing. There are other things that are less differentiating, such as internal HR systems, that make sense to outsource or use as software as a service."