John Hancock Financial Services, Inc. has announced its intention to outsource some of its information technology work to IBM. Under the proposed, multi-year agreement, John Hancock will adopt IBM’s on demand technology services to create a new, flexible IT infrastructure that responds quickly to fluctuations in computing demand, allowing the company to save money.
IBM plans to assume responsibility for several services currently being performed by the company’s Infrastructure Support Services department, which is part of Hancock’s Information Technology Services Sector. Infrastructure Support Services (ISS) currently maintains the company’s mainframes, servers, networks, desktops, Help Desk, and 24 X 7 operations.
“By providing computing applications on a pay-as-you-go basis, John Hancock will be free to focus on its core financial business, become more adaptive to changing market conditions, and better able to drive greater efficiency and value from its business processes,” said the bulletin. It will, however, continue to directly manage all of its other information technology work, including development and maintenance of the company’s application systems.
According to company officials, the decision to outsource some of its information technology services was made based on IBM’s expertise in those areas and the Sector’s need to reduce expenses without diluting the quality of technology support it must provide to the company. They noted that a number of other financial services companies have already made similar outsourcing decisions. The decision was also spurred by “IBM’s new on demand computing model, which will allow Hancock to move fixed technology expenses to a variable basis, providing the company with greater flexibility and cost savings.
“The expected savings will be more than $90 million for the contract period. John Hancock will take a charge in the first quarter of 2003 for severance,” stated Tom Moloney, Hancock senior executive VP and CFO. “The impact for the full year 2003 will result in a small net cost, less than one cent per share, given a four month transition period.”
The outsourcing initiative was spearheaded by Bob Walters, EVP and CIO of John Hancock, and is an extension of the company’s continuing expense reduction program.
The announcement indicated that “Of the approximately 300 employees in the affected groups, about 180 are expected to transition to IBM as part of the deal. John Hancock will retain an additional 20 employees to oversee the new arrangement. John Hancock will provide severance packages to employees that are not offered positions. The company expects to sign a contract with IBM sometime in the second quarter, with the functions to transition over the following four months.”
Walters noted that “IBM is the clear market leader in providing these types of technology services on an outsourcing basis. As a result, I expect the transition will be seamless and that the change will be invisible to the business units we support throughout the company. I am especially pleased that IBM anticipates providing career opportunities to so many of our people and retaining so much of our infrastructure right here.”
He also explained that IBM anticipates establishing an office in the company’s Berkeley Building and that the vast majority of the employees it hires will work out of that building, too. At the same time, some specific functions will be provided by off-site IBM offices.
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