Aon Corp. and California-based Computer Sciences Corp. (CSC) announced that they have agreed to negotiate the outsourcing of the majority of Aon’s U.S. information technology (IT) infrastructure. The transition to CSC would begin in fall 2004, subject to completing a final contract.
“The outsourcing and related consolidation of data centers and other functions, if completed as planned, are designed to produce an estimated $300 million in savings over seven years,” said the bulletin. CSC indicated that it expects the contract to generate in excess of $600 million in revenue over the life of the agreement, which covers Aon’s U.S. insurance brokerage and consulting business units.
“CSC has a strong track record for large outsourcing contracts and they will help us achieve an IT outsourcing solution that offers benefits for Aon, our clients and shareholders,” stated Aon Chairman and CEO Patrick G. Ryan. “CSC also shares Aon’s commitment to a smooth transition for our IT professionals and the processes they manage.”
Describing the scope of the agreement the bulletin noted that it includes “data centers, telecommunications and data networks, desktop support, related help desk services and various IT support functions.” It indicated that “these areas employ approximately 600 people across the United States, including contractors. Most of the affected employees are expected to transition to CSC. Aon will keep responsibility for IT strategy and leadership, architecture and application development and maintenance.”
“The outsourcing and related financial benefits will occur in phases,” said CFO David Bolger. “With CSC, we believe we’ve identified an approach that will enable us to maintain or improve client service and meet our administrative needs while contributing to improved overall profitability.”
“We are delighted to have been selected to negotiate a definitive agreement with Aon,” stated CSC Chairman and CEO Van B. Honeycutt. “We look forward to applying our experience to help produce business results for this important market leader.”
“Outsourcing” seems to have replaced “IT” as the latest buzzword for technological strategies. While giving a specialized company like CSC responsibility for tech support seems logical from both a financial and technical standpoint, it raises an interesting question. Aon and other large brokers are themselves in the outsourcing business, handling the back office processing of numerous insurance entities, notably, self-insureds, captives, rent-a-captives, sponsored captives, insurance pools, associations and groups, risk retention plans and risk purchasing groups. While the announcement states that Aon will “keep responsibility for strategy and leadership,” it seems inevitable that many of these entities could eventually make their own agreements with CSC and companies like it. After all, cutting out the middleman has always been a traditional way to cut costs. Maybe someone would like to explain why that won’t happen with outsourcing.