Global bank HSBC says it is beating outsourcing suppliers at their own game by driving operational efficiencies internally and regularly benchmarking to ensure the competitiveness of its internal IT function.
And it expects the gap to widen as it pushes to cut its transaction costs still further in the years ahead.
Speaking at last week’s Gartner ITxpo in Cannes, Ken Harvey, chief information officer at HSBC, said, “We go out to tender IT services and most outsourcers cannot match our own internal IT operations.”
The bank runs six separate business units that sell IT services to HSBC-owned banks, with all the services on offer being benchmarked internally and externally.
“I spend £3.5m a year to prove we are the best in class for more than 80 IT services,” said Harvey.
HSBC also uses the services of research firms Gartner and Compass to test how the bank measures up against competitors such as Deutsche Bank and Citigroup. Harvey’s goal, set by the business, is to lower per-transaction costs by 10% year on year.
With a £2.6bn annual IT budget, Harvey said, “Every time we save 1%, the bank saves $50m [£26m].”
Every member of his 28,000 staff has a remuneration package based in part on IT achieving this goal. “Every programmer can earn 15% on top of their salary, and my direct reports can make 70% of their take-home pay based on these metrics.”
Half of HSBC’s software development work is conducted offshore, with 4,000 engineers in India, 1,000 in China and an operation getting underway in Brazil that is expected to house 200 programmers by the end of 2006.
Although salary inflation in India is running at 14%, Harvey said IT engineering costs were still 60% lower than the UK. And, overall, Harvey said he had been able to reduce the cost base for IT programming by 2% by growing offshore operations while incentivising onshore team leaders for successfully integrating the bank’s multicultural, multinational teams.
“Among other things, I set the IT programming team leader’s bonus based on integration of the Indian developers.”
Harvey said the integration incentives meant that onshore team leaders’ salaries were rising.
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