Deutsche Bank mulls further outsourcing

Despite a hiccup or two, Deutsche Bank AG is more than satisfied with the results of its year-old outsourcing agreement with IBM and is studying opportunities to expand the partnership.

“We are achieving what we set out to do with this outsourcing deal – reduce costs and increase our access to new technology,” Deutsche Bank CTO Clemens Jochum said at the Strategic IT Management conference, which ended Wednesday in Neuss, Germany.

Just over a year ago, Germany’s largest bank pulled off an unusual feat in the land of entrenched unions and stiff labor laws when it outsourced a sizeable chunk of its European IT operations to Big Blue. The $2.5 billion, 10-year contract, which includes the consolidation of data centers in eight European countries, should save Deutsche Bank around $1 billion in annual operating costs, according to the company.

Commenting on the situation prior to the outsourcing deal, Jochum said IT managers at the bank were constantly asked by heads of the business units “to change this and tweak that” and preferably at no added cost. “We were very flexible then but, quite honestly, we don’t want this type of flexibility anymore because, when all the numbers are added up, it’s too costly,” Jochum said. “Now we have an exact price list for every service, something we never had before. We can see exactly what drives costs. In the past, IT infrastructure costs were a big black hole. “

Jochum referred to outsourcing as a “very extreme internal auditing of IT costs.”

Even if the German CTO is a firm believer in outsourcing, he admits it’s a challenging process – and one that isn’t totally free of error. A glitch last year caused an interruption in service, he said, but even that technical problem underscored the benefits of having an outsourcing agreement.

“In the past, when we had a problem that interrupted service, we called it an act of God, bowed our heads and walked away with the damage costs,” Jochum said. “With IBM, we have a risk management deal. There will be an invoice for the service interruption.”

Although Deutsche Bank studied and later decided against outsourcing the European data center operations of its investment banking division, the Frankfurt, Germany-based financial institution is exploring other outsourcing opportunities not only in the area of computer infrastructure but also software, according to Jochum. “We see that (outsourced) coding works well in Eastern Europe and India,” he said.

Repeating a message he has delivered at conferences in the past year, Jochum said outsourcing drives the “industrialization” of IT by standardizing operational processes. “We can learn from the auto manufacturing industry and its focus on process standardization,” he said. “Today, car makers design many different kinds of components with a few CAD systems. Banks, on the other hand, produce fewer products with far too many systems.”

A goal of Jochum’s is to outsource as much of what he calls “commodity” hardware and software to focus the bank’s IT resources on the development of cutting-edge products and services. “We are currently working on an architectural blueprint to foster greater IT innovation in-house,” he said. “If we are to gain a competitive edge from technology that is becoming increasingly commoditized, then we need to become architects with a vision, not craftsmen tightening nuts and bolts.”

The Strategic IT Management conference was sponsored by the German business newspaper Handelsblatt and The Wall Street Journal.