Commonwealth Bank of Australia (CBA), the largest bank in Australia, has 6.5 million customers spread over not only its home country, but London, New York, Hong Kong and Singapore, as well. Until late last year, the bank’s internal technology services department with 1,500 people was the second largest shop in Australia.
Now that scene has changed dramatically. CBA and EDS have forged a two-part relationship which includes an outsourcing services contract. The other side of the relationship is a true partnership. CBA bought 35 percent of the EDS business in Australia.
Under the terms of the outsourcing services contract, EDS is providing all technology services to the bank, from running the data center to all the applications development for future technologies. Most of the bank’s technology staff has transferred to EDS.
“What we’ve retained in-house is a very small group which we call Group Technology and which has about 30 people,” said John Mulcahy, who heads CBA’s partnership agreement with
EDS. “That’s 30 people basically just to provide the linkage appropriately to the business units in the bank and maintain an overall responsibility for our going forward strategy. Input for that also is expected to come from EDS.”
EDS’ managing director of Global Business Development for the financial services industry, works directly with Howard Marsh, who heads up the bank’s Group Technology. At the account management level, EDS has account managers to service each part of the CBA business, and account managers within Group Technology support them.
Although the bank recognized that some efficiencies could be achieved with a technology partner over a closed shop, Mulcahy emphasizes that the vendor selection process was not a cost-cutting exercise. CBA wanted a global technology partner that could assist in applying emerging technologies and provide a competitive advantage. Another goal was to provide better career development for the bank’s technology personnel.
“Those were our three key drivers,” said Mulcahy. “It was much more about being more able to have application technology, and we felt that we would much prefer a partner with 100,000 specialists rather than 1,500.”
Mulcahy said the relationship is working well.
“The moving of such a large bank into what is a much more competitive electronic banking era is fairly critical,” he said. “Already we have a number of obviously strategic projects that are repositioning our business in the competitive environment. The application of alternative options to those strategic projects has been to our advantage.”
An example Mulcahy cited was the bank’s need to replace their system for the year 2000. One of the software vendors under contract was offering only limited options.
“Working with EDS, we came up with a better alternative,” said Mulcahy.
CBA has the largest customer base in Australia, including the largest numbers in each customer segment. Mulcahy believes the relationship with EDS will assist the bank in maintaining that situation.
“I believe we’ll be able to leverage our knowledge of technology and application of electronics and technology to financial services so that Commonwealth Bank, as a result of this relationship, will dominate and be the major provider of financial services in Australia,” he said.
CBA already provides transfers of funds, bill payment, account inquiries, applications for home loans and other basic services through the internet, but Mulcahy sees internet banking as being in its infancy.
“In Australia, we have broadband communications to most through cable to a large number of residents,” he said. “I believe you’ll find more financial services being transacted through touch screens in the homes in the future. We need to be at the forefront of that.”
He added that the relationship with EDS allowed the bank to minimize technology risk by providing more expertise to assess rapidly changing technology. When problems do occur, he said, the bank now has better access to skills that can achieve resolution.
The relationship also delivered immediate benefits to EDS.
“The EDS Australia workforce almost doubled with this transaction,” said EDS’ Cothran. “We were almost 1500 strong in Australia with a couple dozen customers already. We’re now over 3,000 strong.”
Cothran sees a bright future for the relationship.
“I think this is one of those cases where one plus one can equal three,” he said. “We’re much stronger together than either one could have been separately.”
Mulcahy thinks the advantages will reach beyond the relationship.
“The emphasis from our side is ongoing partnership, rather than just a supplier relationship,” he said. “Not only will that be a very strong support for the bank and the application of technology, I think the disciplines and the project management skills that EDS brings to bear will actually help banking. Banks are very strong in the process side of things and probably less strong in the implementation of projects.”
The partnership in EDS’ Australia business also is expected to yield continuing benefits for the bank. CBA has four representatives on the board of that venture.
“The whole point of that was to make sure that CBA continued to have access at the highest levels of EDS,” said Mulcahy.
He thinks the partnership also will increase the bank’s commercial opportunity.
“We believe outsourcing will grow dramatically as we go forward,” he said. “More and more corporations will recognize that they just don’t like to make decisions about technology support. Therefore, the business will grow, and we’ll have a share of that business.
“The alliance we’ve got with EDS,” he continued, “adds opportunities for wider alliances as we go forward — not just in Australia, but also in Asia. There is growth in Asia, despite the current problems in their financial industries right now. We intend to try and capitalize on that.”
Lessons from the Outsourcing Primer:
- Choose a reputable benchmarking firm.
- Define the parameters for your benchmark well.
- Understand any unusual investments or unique situations that exist in your operation.