InformationWeek

January 5, 1998

Safeguards Being Added To Outsourcing Contracts

Daiwa Bank, Chevron aim for IT control

growing number of organizations are taking steps to make sure that entering outsourcing arrangements doesn't result in a loss of control over IT.

Japan's Daiwa Bank Ltd. and San Francisco-based Chevron Corp. recently announced outsourcing agreements that take different approaches to keeping that control: Daiwa Bank by creating a joint venture with outsourcer IBM; Chevron by retaining key IT functions in-house.

Both organizations say they're using outsourcing to cut costs, free up internal resources to focus on core competencies, and leverage IT for competitive advantage.

Daiwa Bank, with $130 billion in assets, may be the largest financial institution ever to outsource its IT operation, analysts say. The bank's IT operations will be run by a joint venture 65% owned by Daiwa Bank and 35% owned by IBM Japa n, in a 10-year deal expected to save the bank about $38 million.

Daiwa Bank executives say partnering with a technology supplier will help the bank improve customer service and respond to business changes driven by the Internet and deregulation of the Japanese financial services industry.

"It's just a matter of time before other banks in Japan [do the same] to stay competitive," says Jason Ream, an analyst at consulting firm G2R Inc. in Mountain View, Calif.

Chevron selected EDS, GTE, and Sprint for a five-year, $450 million outsourcing contract covering mainframe computer operations, voice and data networks, and help-desk support. The deal is expected to shave annual costs by 10%, according to Sheila Taylor, general manager of shared services for Chevron's IT unit.

Chevron's IT unit will transfer about 400 employees to EDS. That will leave Chevron with about 700 shared services staff to handle on-site desk-top and telecom support, contract management, and special projects.

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