Morgan Stanley has signed a $575m five-year extension for an IT outsourcing contract with IBM which transforms the engagement from a traditional, fixed-cost agreement to one with a variable cost structure based on use.
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The original contract was signed in 1999 to manage the IT infrastructure of Morgan Stanley's Individual Investor Group and Discover Financial Services.
The extension to the contract, signed in the first quarter, allows Morgan Stanley to tap into an IBM datacentre shared with other IBM clients and paying only for the back-end computing power it uses.
Based on IBM's Universal Management Infrastructure, the Morgan Stanley engagement will allow the company to use, on demand, computing resources such as processing power and storage capacity, which will be supplied automatically, and to pay per use as measured by an IBM metering system.
IBM will also provide help desk support to about 20,000 Morgan Stanley users.
By sharing the IBM datacentre with other clients, Morgan Stanley will reduce the cost of the IBM services, said Bob Zapfel, general manager of IBM Global Services.
"If a customer can be in a shared infrastructure, given IBM's scale, then we have the ability to have multiple customers use that infrastructure and since they all don't have the same usage peaks and valleys, we can provide a more economically attractive model," Zapfel said.
Because Morgan Stanley's billing is based on usage of IBM's services and resources, the $575m figure is an estimate of how much the bank will spend over the next five years.
"We have reasonable projections in terms of history and their business plans and what their utilisation of this infrastructure will be, so that's where this figure comes from," Zapfel said.
The key advantage of a services engagement with variable usage and billing is that the services delivery is tightly linked to the client's business operations, as opposed to a more traditional agreement with less flexible variables.
"The main benefit for the client is the close alignment of their IT needs with their business requirements," he said.
The scope of the engagement is global, since both the Individual Investor Group and the Discover Financial Services unit have operations both in the US and abroad.
IBM will handle the entire IT infrastructure of these two Morgan Stanley units.
The help desk component of the engagement applies solely to the Individual Investor Group and is priced on an on-demand model based on number of desktops and of calls or incidents, Zapfel said.
Juan Carlos Perez writes for IDG News Service