IBM bags billion pound utility deal
Published: 02 Oct 2003 09:15 BST
IBM has won a billion-dollar deal to provide utility computing services to Nordea, one of Northern Europe's largest financial services companies.
Nordea said on Wednesday that the IBM outsourcing pact, worth 2.2bn (£1.55bn) euros, is part of a push to consolidate its internal information technology production operations. In addition, the deal will move Nordea from paying fixed costs for its IT production to paying only for the systems and technology it needs via IBM's "on-demand" services.
"Shifting our IT operations from a fixed investment to on-demand is valuable from a financial standpoint, as it will eliminate excess capacity and also give greater transparency to overall resource consumption," Jarle Haug, head of group IT at Nordea, said. "This also represents a technology consolidation effort that would have been a giant challenge to try to do ourselves."
In order to lower IT overhead and focus on core business operations, companies have been turning to service providers such as IBM, Electronic Data Systems and Hewlett-Packard to take over computer systems and provide other services. One branch of this is utility computing, also known as on-demand computing, in which corporate customers buy applications, storage or processing power on a pay-per-use basis, much as they do for electricity or telephone service.
IBM labelled the Nordea deal as its third-largest on-demand customer win yet, behind agreements with American Express and JP Morgan Chase. The tech giant continues to tout its momentum in outsourcing services, in particular in utility computing.
Under the 10-year deal, IBM and the banking company will form a joint venture that employs about 900 former Nordea employees. Haug said Nordea plans to consolidate a number of IT operations in the venture and will merge four separate data centres into one. Nordea also aims to standardise of all of its network and desktop management operations, as well as automate the company's asset-tracking and workflow-scheduling, among other tasks.
"An important thing to point out is that we're foreseeing a reduction in IT costs, despite experiencing volume growth in (IT-heavy) businesses such as e-banking," Haug said. "We thought IBM was the only vendor able to provide everything we'll need to execute on this."
The companies said they would jointly staff a Transformation and Innovation Centre, designed to help Nordea make further cost savings and improve its IT performance.
"This is the biggest deal of its kind ever completed in this part of the world," Leif Lindqvist, general manager of IBM Global Services for the Nordic region, said. "It's important to point out that we're not only adjusting Nordea's finances in regards to usage, but also transforming the company's infrastructure to make it more flexible in respect to its IT demands."
While giant IT outsourcing deals often carry significant costs for IBM, in terms of capital expenses and personnel additions, Lindqvist said there would be no immediate investment on Big Blue's part to launch the Nordea joint venture.
In related news, a report released Wednesday by research firm IDC named IBM Global Services as the leader in the worldwide outsourcing market. The study said that in 2002, IBM captured more than $15.3bn in revenue, or a 22.4 percent share of the segment, compared with $11bn in revenue, or a 17.3 percent share, in 2001.
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