Friday, September 21, 2007

IBM, Scotiabank expand relationship in $480-million IT outsourcing renewal

Scotiabank (TSX:BNS) is expanding its relationship with IBM Corp. in a new IT outsourcing deal that's expected to cost $480 million over the next six years.

Under the arrangement announced Thursday, IBM will manage the big Canadian bank's information-technology operations, including its data centres, branches and automatic banking machines.

The deal extends a contract signed in 2001, when IBM began to manage Scotiabank's IT operations and will provide a new "international" framework that will adapt to the bank's needs as it expands abroad.

"A lot of the agreement covers the very same scope that the original agreement covered," J.P. Savage, Scotiabank's chief technology officer, said in an interview.

"I covers our data centre operations, which includes both our mainframes and our midrange services, as well as our distributed desktops and our branch environment," Savage said.

He leads a number of teams within Scotiabank that determine what is needed from the IBM-managed IT infrastructure. In the original outsourcing deal in 2001, about 450 Scotiabank employees and 100 remained with the bank to oversee the relationship with IBM.

In addition, the bank kept software development in-house, with about 600 Scotiabank employees plus outside contractors.

Those parameters remain unchanged under the new deal but "what's somewhat different going forward is there's a bit of an offshore component here, with respect to what I would call more traditional operational jobs - monitoring, and those kinds of things," Savage said.

Bank of Nova Scotia is one of Canada's largest financial institutions and the most international of the country's Big Six banks.

The Scotiabank group and its affiliates operate in about 50 countries.

Because of IBM's expertise and global reach, the bank will be able to quickly gear up its IT capacity in the event of large-scale acquisitions or introduction of new computer programming, Savage said.

"As you can imagine, if you go out with a program that's going to have an impact on market share, that drives capacity requirements throughout the organization and we have to be responsive to that. So this allows us to be more nimble," Savage said.

The agreement calls for Scotiabank to pay IBM on a monthly basis on a per-service basis. The bank can also increase or decrease the services it gets from IBM.

"So this creates quite a lot of flexibility from the organization for growth," Savage said.

IBM Canada's Mark Wilson, who led the computer company's negotiations with Scotiabank, said a lot of work went into creating a "whole new global framework" for the relationship to the bank's growth.

In addition, IBM is bringing to the bank a new range of capabilities, including a centre in Brazil that will deliver select services to Scotiabank over time.

"It's one of our global centres for server operations, so they'll be doing monitoring and operations of computer servers over time in Brazil," Wilson said.

Scotiabank's servers are in Canada and will remain there, he added.

"We're not moving any servers or any customer information to another country. We're just taking advantage of skill pools in different countries and making sure that they (will) provide services to Scotiabank."

IBM Corp. is one of the world's biggest information-technology companies, with global revenues of US$91.4 billion in 2006 from the sale of computer hardware, software and services.