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Management Strategies

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ABN AMRO Outsources to Gain Efficiency

Bank sheds nearly two-thirds of IT head count.

In a $2.2 billion, five-year move, ABN AMRO (Amsterdam; $896 billion in assets) will rely upon the support of five key IT vendors to support its Global Shared Services (GSS) initiative. By doing so, the bank aims to bring down its efficiency ratio (generally, expenses as a percentage of income), which, at 75 percent for the first half of 2005, is "not best in class," admits ABN AMRO CFO Tom de Swaan.

"We are convinced that this will have additional downward pressure on the efficiency ratio," says de Swaan. "It is a major step forward in optimizing operations within the bank." By reorganizing its IT service delivery model through the GSS initiative, ABN AMRO expects to generate $317 million in annual savings by 2007.

The bank signed a $1.84 billion contract with IBM (Armonk, N.Y.) to manage ABN AMRO's IT infrastructure, along with contracts for $122.85 million with Infosys and $245.7 million with Tata Consultancy Services (TCS) for application support and enhancements. ABN AMRO also selected preferred partners for application development: IBM, Infosys and TCS, along with Accenture (New York) and Patni. Although no revenue has been targeted in this area, it is expected that part of the anticipated savings will come from process improvement involving new applications.

The application development partners will share common technologies and development practices, while bringing their unique skills and experiences to the fore. "In some respects, they'd like the partners to work together," explains Sumedh Mehta, SVP, financial services, Patni Computer Systems. "In other respects, they'd like the partners to compete to provide the best solution."

Downsizing IT Staff

Head count reductions will bring the bank's IT staff down from 5,000 to 1,800. Approximately 2,000 employees will move onto the vendors' payrolls, mostly at IBM, while approximately 1,500 jobs will be eliminated over the next 18 months. "The bank will still employ 1,800 in IT," notes Ron Teerlink, CEO of Global Shared Services for ABN AMRO. "These people will be predominantly working with the vendors."

ABN AMRO will retain information security and networking within its internal IT organization - at least for now. However, the service delivery methods for both functions also are under review. "We are going to manage networks and telecoms in a different way," notes Lars Gustafsson, group CIO, ABN AMRO. "It may well result in outsourcing or creating a managed service around it."

"We tried to realize through these contracts ... better and earlier access to new technology, which, in the medium term, should lead to more sophisticated product development for our clients," says Teerlink.

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