Two of the biggest names in Britain's financial sector splashed out more than #170m last month on managed network services. The Halifax Building Society and Lloyds TSB handed over to BT the development of new high-speed digital networks that will link nearly 3,000 high-street branches.
These deals are unusual not only for their size, but because they involve state-of-the-art technology. BT will build an asynchronous transfer mode (ATM) network for Halifax, which will provide video-conferencing facilities, and give customers access to Halifax systems. Lloyds TSB will also use its high bandwidth network to offer new services to customers.
Until recently, such moves would have been unthinkable in the finance world. Banks and building societies guarded their network infrastructures like the crown jewels. They were regarded as indivisible from the transactions and services they delivered. Some banks thought technology was so important they appointed IT people to key management positions or created separate divisions to oversee electronic banking operations.
Lloyds itself collaborated with IBM to build its early automated teller machine networks. It believed that to make the most of technology the company had to own it. Today, attitudes at Lloyds are very different.
Brian John, managing director of computer services at Lloyds TSB, says: 'Lloyds TSB is a financial services company, not a telecoms company. Ten years ago, banks had only one delivery channel for their services - the branch. Today, they must provide alternatives, based on customer demands, lifestyles and expectations.'
So why has there been a dramatic change in the way businesses view outsourcing?
Money has certainly played a large part in winning senior managers over to service suppliers. During the recession, outsourcing boomed because contractors offered to cut the cost of IT operations. Also, hard-pressed users were relieved to offload the capital costs of building networks to outsourcing suppliers.
Many of those optimistic savings forecasts were unfounded. Some users discovered they were locked into contracts which have prevented them from moving to cheaper technology that could have saved them even more. Others have realised they could have reduced costs by running more efficient in-house departments.
But there is another equally important factor in the growth of outsourcing - the sheer pace of technological change. Inundated with developments such as Computer Telephony Integration, ATM, frame relay, the Internet and now intranets, users have had difficulty making the right technology decisions and implementing them.
Much of that change has involved expanding the number of people accessing networking services, many through dial-up connections. Fixed, private networks are not as appropriate for this wired business, spurring network users to turn to telecoms carriers for services.
Users determined to go it alone have not been helped by chronic shortages of skilled staff. For example, there are only 450 accredited CISCO router engineers in the UK, many of whom have already been snapped up by service companies. The only way to tap into their expertise is to hire the services of the companies they work for.
Increasingly, companies haven't the time or resources to fiddle about with developing networks. Ensuring service to end users is the overriding aim of network managers. In a recent poll by network supplier INS, 71 per cent of managers say this is their chief objective, above productivity, data-gathering and even security.
All this begs the question of how customers ensure they get value for money from outsourcing. Managing outsourcing contracts is vital in reaping the benefits they promise. Halifax and Lloyds TSB may have got rid of the job of developing their networks, but the task of supervising their new business partner has only just started.
- John Lamb, Contributing Editor.
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