SunAlliance falters in bid to cut IT bill by 90%

Directors at insurance giant Royal & SunAlliance have financed in-depth trials of outsourcing work to India in the expectation...

Directors at insurance giant Royal & SunAlliance have financed in-depth trials of outsourcing work to India in the expectation that up to 90% could be cut from the cost of the company's 900-strong development team.

The trials were instigated after directors of Royal & SunAlliance were told that they could have their IT development run in India for 10% of what it costs in the UK. It is the first time a major IT user has carried out an in-depth investigation into such large potential savings in the running costs of a department.

Robert Morgan of specialist outsourcing consultancy Morgan Chambers said, "I have never heard of a board seeking 90% savings. It is unachievable in any circumstances. When it comes to applications, the average saving is 30% to 35%, but there will be 10% to 12% expenses in hidden costs around management and control."

The Royal & SunAlliance board has now backed away from the plan after three trials showed that, although there were advantages in outsourcing to India, 90% savings could not be achieved.

To investigate whether the savings were possible, Royal & SunAlliance instigated three offshore outsourcing exercises. One is being continued but two have not been carried further.

The findings presented to the board found that "huge savings are elusive" but contracting out to India does offer advantages such as freeing up key IT staff for strategic in-house projects.

The results of the studies will feed into a review of Royal and SunAlliance's outsourcing strategy that is currently taking place. Large-scale outsourcing to India is unlikely to happen.

Royal & SunAlliance IT staff have already been coping with a board-level edict to cut costs over the past two years. New cost-cutting targets have been set for 2001.

Details of the Indian outsourcing trials were revealed at an outsourcing conference in London by Jo Myland, resource manager at Royal & SunAlliance. She revealed that the up-front infrastructure costs and other costs of managing relationships with suppliers in India were found to be "incompatible" with the savings sought by the board.

But Royal & SunAlliance's pilot exercises demonstrate the seriousness with which directors of large organisations may treat suggestions of enormous savings on outsourcing contracts.

"Someone told our directors that we could get all our development done in India for 10% of what it costs here," said Myland. "They believed in the possibility. We were empowered to look into that."

She added, "It is the sort of talk that people have at a very high level. They got that idea fixed and we needed to work through the details to see if that was the case."

Tony Collins
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