IT staff at insurance giant Zurich Financial Services are bracing themselves for redundancies after the 11th-hour collapse of a planned outsourcing deal with IBM.
The proposed five-year contract, worth about £400m according to sources close to Zurich, would have seen nearly half of Zurich's 1,800 IT staff transfer to IBM Global Services.
Contractual negotiations broke down in September - seven months after the deal was first announced.
The Swiss insurer has warned IT staff of the potential for job losses. The news could not come at a worse time for Zurich's IT staff as the economic downturn continues to bite.
Outsourcing experts said the demise of the deal highlighted the cultural and operational challenges facing companies when negotiating outsourcing contracts.
Robert Morgan, chief executive of sourcing consultancy Morgan Chambers, said, "An outsourced service may be seen as less personal and as a factory-type service [to non-IT staff]. "Company staff may be dealing with someone [employed by the outsourcing provider] who has never dealt with them before," he said.
The original deal - part of a drive to cut costs across Zurich's business - was supposed to save the firm £60m in IT costs over five years from systems development and support. It was Zurich's first major IT outsourcing deal in the UK.
But despite months of intensive negotiations neither side was able to agree on an outsourcing contract.
Zurich chief information officer David Carrie told Computer Weekly the original negotiations with IBM had been ended by mutual consent.
The insurer would continue its push to cut costs and maintain quality in IT services through measures including selective outsourcing and offshore resources, Carrie said.
"We have always been open about the fact that we will need few IT people in the medium to long term," he said.
"However, we will always regard redundancy as a last resort."
IBM said the "scope" of the deal had changed. Finance union leaders had backed the proposed deal, first announced in February, as a way to safeguard the IT jobs at Zurich.
The proposed deal had been sold heavily to Zurich IT professionals, according to sources close to the company. IBM had made presentations that had emphasised the greater career opportunities a deal would bring to IT staff.
Allan Wood, general secretary for the Union of Finance Staff, said, "The deal was sold to IT staff as a way to ward off redundancies. Now it is off, staff are wary that redundancies are back on the table.
"When you bear in mind that [the outsourcing deal] was officially on for seven months this comes as a bit of a disappointment," Wood said.