Westpac Banking Corp is mulling the future of $4.7 billion worth of computing and communications outsourcing contracts as it prepares to wind down long-standing agreements with IBM and Telstra in 2010. But the company's proposed merger with St George Bank could lead to insourcing some functions currently handled by third party suppliers.
While Westpac still has two years left on the contracts, it is typical for organisations with such extensive outsourcing arrangements to begin weighing their options well in advance.
The bank has flagged to the market that should the merger with St George go ahead, it expects to strip additional costs from its information technology operations when the $4.3 billion IBM and $400 million Telstra contracts expire.
Executives familiar with early Westpac thinking said that it could opt to bring some services back in house if the $18.6 billion St George deal proceeded. They said the merger would give Westpac access to people with recent experience managing insourced computer services as well as its own knowledge of working with outsourcers.
That would mean that options on the table would include continuing to use outsourcers for the bulk of the merged business, insourcing all computing and communications services, or opting for a blended model.
In recent years few organisations have attempted to insource all of their information technology operations once they have been outsourced, making the retention of the existing structure or a blended model the most likely options.
However, the bank is still some way off deciding how it will run its computer services once the IBM and Telstra contracts have expired, and all decisions will be left to recently named technology group executive Bob McKinnon.
Mr McKinnon, formerly CIO at the Commonwealth Bank of Australia, was named to Westpac's top information technology job last week following the resignation of group executive, business technology solutions and services Diane Sias, after less than a year in the role.
Ms Sias's departure accompanies a restructure that includes the break-up of BTSS with the technology functions carved off into a stand-alone division while the remaining components were rolled into a new products and operations group.
The move is intended to allow the technology division to focus more fully on meeting the bank's computing and communications requirements.
Should the merger with St George go ahead, Westpac's IT workforce will face a challenging few years that will include the costly and high risk integration of the two banks' information systems, the replacement of its core banking technology and the dismantling of the IBM and Telstra agreements.
The bank expects Mr McKinnon's experience as CIO at CBA during its merger with Colonial First State to be an asset during any integration with St George.
Mr McKinnon, who most recently was joint managing director of Brookfield Multiplex Group, was also a strong advocate for the replacement of the ageing legacy transaction systems that drive banking and had firsthand experience working with a largely outsourced environment.
CBA's information systems were mainly managed by EDS between 1998 and 2008 under a $5 billion outsourcing contract.
Fairfax Business Media
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