IBM adds five years to Morgan Stanley outsourcing deal

Morgan Stanley has signed a $575 million five-year extension for an IT outsourcing contract with IBM that transforms the engagement from a traditional, fixed-cost agreement to one with a variable cost structure based on usage, an IBM spokesman said Tuesday.

Morgan Stanley has signed a $575 million five-year extension for an IT outsourcing contract with IBM that transforms the engagement from a traditional, fixed-cost agreement to one with a variable cost structure based on usage, an IBM spokesman said Tuesday.

The original contract was signed in 1999 to manage the IT infrastructure of Morgan Stanley’s Individual Investor Group and Discover Financial Services, the spokesman said.

The extension to the contract, signed in the first quarter, has Morgan Stanley tapping into an IBM data center shared with other IBM clients and paying only for the back-end computing power it uses, he said.

Based on IBM’s Universal Management Infrastructure, the Morgan Stanley engagement will allow the financial services giant to use, on demand, computing resources such as processing power and storage capacity, which will be supplied automatically, and to pay per usage as measured by an IBM metering system, IBM said in a press release.

IBM will also provide help desk support to about 20,000 Morgan Stanley users, IBM said.

The value and length of the original contract weren’t disclosed back in 1999 when it was signed, the spokesman said.

By sharing the IBM data center with other clients instead of requesting a dedicated data center, Morgan Stanley will lower the cost of the IBM services , said Bob Zapfel, general manager of IBM Global Services in the Americas.

“If a customer can be in a shared infrastructure, given IBM’s scale, then we have the ability to have multiple customers ride that infrastructure and since they all don’t have the same usage peaks and valleys, we can provide a more economically attractive model,” Zapfel said.

Because Morgan Stanley’s billing is based on usage of IBM’s services and resources, the $575 million figure is an estimate of how much the bank will spend over the next five years, Zapfel said.

“We have reasonable projections in terms of history and their business plans and what their utilization of this infrastructure will be, so that’s where this figure comes from,” he said.

The key advantage of a services engagement with variable usage and billing is that the services delivery is tightly linked to the client’s business operations, as opposed to a more traditional agreement with less flexible variables, he said. “The main benefit for the client is the close alignment of their IT needs with their business requirements,” he said.

The scope of the engagement is global, since both the Individual Investor Group and the Discover Financial Services unit have operations both in the U.S. and abroad, he said. IBM will be handling the entirety of the IT infrastructure of these two Morgan Stanley units, he said. As its name indicates, the Individual Investor Group deals with individual, as opposed to institutional, investors, while the Discover Financial Services unit operates the Discover brand cards.

The help desk component of the engagement applies solely to the Individual Investor Group and is priced also on an on-demand model based on number of desktops and of calls or incidents, Zapfel said.