Frustrated by what they see as a lack of cloud-driven innovation from major IT suppliers, three huge global banks are banding together to form an IT buying consortium that will not only drive down their costs but also give them the option of creating their own highly secure global cloud infrastructure and network rather than relying on IBM, HP, Oracle, and Microsoft to deliver those solutions in a timely manner.
Commonwealth Bank of Australia, Bank of America, and Deutsche Bank are planning to launch the syndicate on May 17, according to a detailed news story (subscription required) this morning in Australian Financial Review (AFR). That article offers some compelling quotes from Commonwealth CIO and group executive for operations and technology Michael Harte, who could well be the driving force behind this explosive idea that would put large global customers in direct competition with some of their primary IT partners.
And in case you're thinking this is just some wacky idea for some little outfit with nothing to lose, here are some quick numbers to show Commonwealth's scale: for the six months ended Dec. 31, 2009, its net profit after tax was $2.91 billion, and Harte controls an $800 million IT budget. And, Commonwealth is willing to pay dearly for his leadership: Harte's 2009 total compensation was projected at $2.8 million.
Some of the first public indications of the plan emerged last week when Harte, during a speech at a meeting of the Committee for Economic Development of Australia, said that Oracle, HP, and IBM are just not moving aggressively enough to keep up with the needs of global financial institutions eager to lower their costs of infrastructure and devote more of their IT time and money toward higher-value initiatives. This excerpt is from another article today out of Australia, this one from itwire.com:
" 'You'd think that IBM and HP and Oracle and Microsoft, the big household names, would be driving this change but they're still very dependent on accounting standards and still very dependent on annuity income, and they haven't made the transition fast enough,' " [Harte] said.
"Harte told the audience more nimble players were coming into the market, but he also flagged the possibility that CBA might play hardball its own way," the itwire.com article goes on to say.
"Firstly, where it found solutions to reduce the cost of its infrastructure, it would 'share' and 'open source' those solutions and make them available 'across a network on demand.'
"But secondly, he said another way of addressing the issue would be to get three banks together internationally and agree on how data could be stored and processed and take it as a standard to regulators" (and of excerpt).
Those hypothetical three banks from Harte's speech last week then became very real in this morning's AFR article:
"Commonwealth Bank of Australia has teamed with Bank of America and Deutsche Bank to create a global technology buyer's consortium that will strip away billions of dollars in back-office computing costs by combining the purchasing power of the three institutions.
"To be launched on May 17, the formation of the bank-owned purchasing syndicate poses a formidable challenge to technology heavyweights including Microsoft, IBM, Hewlett-Packard, and Oracle which, for the last 20 years, have reaped huge profits collecting the equivalent of annual rent for their products," according to the AFR piece.
You can imagine the conversations the CIOs from those three banks had with their CEOs and peers when the idea first came up and and the CIO's said something along the lines of 'We're not getting what we want fast enough from IBM, HP, and Oracle, so we're going to go right around them and create our own global cloud network.' What was the CEO's first reaction: you're nuts? Go lie down for a while and when the fever passes we'll talk about this?
Or did those CEOs enthusiastically endorse the idea and lavish praise on their CIOs for finding an unconventional approach to a very pressing and strategic problem? It looks like the latter outcome held sway because May 17 is only 20 days away.
Playing the maintenance card, the article described Harte's desire: