TowerGroup: ABN AMRO Outsourcing Agreement Signals Evolution of I.T. “Megadeals”

Needham, MA, September 7, 2005 – In the latest major IT outsourcing deal, ABN AMRO, a global financial services institution headquartered in the Netherlands, announced last week that it will contract with five IT vendors to help the bank improve performance across all IT services and achieve significant operational efficiencies.

TowerGroup views this move as a signal that IT outsourcing “megadeals” are not going away. Despite the high-profile unraveling of major deals between IBM and JPMorgan Chase or Perot Systems and UBS in the past year, the outsourcing megadeal is continuing to evolve.

TowerGroup believes technology outsourcing agreements in the financial services industry will transform in the following ways:

  • True operational efficiency is an important competitive differentiator for large financial services firms. Outsourcing must thus deliver business process improvements and sustainable operational efficiency gains that go far beyond herding people across company lines for cost cutting purposes.

  • Institutions will increasingly pursue deals targeted to specific vertical or horizontal IT functions or business processes – resulting in smaller deal sizes and shorter contract lengths, accompanied by stronger IT governance and better execution on the part of the institutions themselves.

  • As a result of this more targeted outsourcing orientation, traditional outsourcers are seeing a competitive shift within the industry. The ABN AMRO deal signals Indian offshore vendors’ new competitive position at the negotiating table for major outsourcing contracts. As institutions pursue best practices in vertical functions and processes, they will split up their contracts just as ABN ABRO has done and farm out work to multiple vendors instead of just one.

TowerGroup estimates that the broader outsourcing market will continue to grow at a healthy rate and over the next three years outsourcing IT spending will increase from $34.3 billion in 2005 to $47.9B in 2008.

To arrange an interview with Virginia Garcia, director in the Cross-Industry practice at TowerGroup, regarding the evolution of the outsourcing megadeal in the financial services industry, please contact Rachael Adler at +1.212.455.8037 or radler@cooperkatz.com.

About TowerGroup: TowerGroup is the leading advisory research and consulting firm focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North American, Europe, and the Asia-Pacific region, TowerGroup serves a global client base.