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Managing suppliers key to ABN Amro mega deal

Christian Annesley
ABN Amro's "excellent" preparations for the multi-supplier outsourcing deal it announced last week should enable it to retain control of supplier relationships over the five years of the contract, analysts have said.

The investment bank has signed one of largest outsourcing deals by a European bank, comprising contracts with five suppliers worth a total of £1.23bn. Projected savings from the deal have been put at £176m for 2007 and at least £410m a year thereafter.

Robert Morgan, chief executive at outsourcing consultancy Morgan Chambers, said, "One of the characteristics of multi-sourcing is that you have to retain more control." But he said ABN Amro's careful approach augured well for the long-term maintenance of clear relationships with suppliers.

Morgan said the bank offered a good example for IT directors preparing for outsourcing.
The complex deal marks the most important step to date in ABN Amro's Group Shared Services (GSS) programme, plans for which were revealed late last year. The multi-layered arrangement encompasses in-house consolidation, partial outsourcing, multi-supplier strategies and offshore outsourcing.

ABN Amro has been making preparations for the contract for at least two years, and analysts have expressed confidence that it will be able to manage its multi-supplier relationships. They said the bank's GSS programme has paid sufficient attention to governance issues to retain control of the relationships in the years ahead.

The bank could drive value from its IT service partners because of continued competition for work between them, said Ovum consultant Samad Masood.

Because Accenture, IBM and Indian suppliers Infosys, TCS and Patni can all bid for application development work under the deal, the bank could retain sufficient control without burdening projects with additional bureaucracy, Masood said.

Under the deal, IBM will from November assume management of most of the bank's global IT systems, including servers, storage and desktops.

The exception to this arrangement is the IT infrastructure of the bank's business unit wholesale clients, which was outsourced to EDS in 2003.

The deal will radically change ABN Amro's IT staffing arrangements. Of the 5,000 or so IT staff employed by the bank worldwide, about 2,000 will be transferred to the five named suppliers, with IBM taking on the bulk of these posts. Within 18 months, the bank expects to have halved its remaining in-house IT staff to 1,500.

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