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The CFO - Moving from back-office to frontline strategy

Banking on Continued Growth

Caja de Ahorros y Pensiones de Barcelona is the largest savings and loan in Europe. The financial institution, which had $95 billion (US) in assets at end of 1999, wanted to grow even bigger. Its strategy was to do this through acquisitions, adopting the slogan, "We'll have a branch nearer to you every day."

However, this strategy is successful only if the regional bank it just bought behaves like the acquiring institution as quickly as possible. Bank customers of the La Caixa, as the S&L is known in Europe, must be able to walk into the lobby of the new bank and be able to receive the same services that are available at their home branch.

The executives at La Caixa realized they were unwilling to handle in-house the IT demands of this aggressive acquisition strategy. "They are growing at a tremendous clip and didn't want IT to get in the way of their expansion," explains Javiar Ribas, business development manager for Electronic Data Systems (EDS) in Spain.

In addition, La Caixa didn't want to be distracted by keeping up with the changes in technology that today happen at mach speed. "They needed an IT partner to ensure they were on the cutting edge of technology. They didn't want to fall behind," Ribas says because executives at La Caixa felt IT was a competitive banking tool.

In March 1996 the bank signed an eight year contract with EDS, which has been working with Spanish financial institutions since 1980. "We provide growth without impediment," says Ribas.

Managing IT For 21 Subsidiaries

The outsourcing agreement gave EDS the responsibility to handle the IT requirements of La Caixa's 21 subsidiaries. These include four Spanish insurance companies, four banks in Spain, one in France, one in Monaco, and12 financial companies that provide a wide range of activities including renting and leasing space.

EDS has 800 employees in Spain to manage the IT for La Caixa plus 100 other employees to manage six other Spanish banks. EDS has 2,800 employees in all Spain.

EDS provides full IT outsourcing services for the financial institution, including data center and network management services. EDS also operates La Caixa's call center and internal help desk, which receive 200,000 calls per month.

The cost of human resources was another incentive to outsource. La Caixa doesn't want to increase its employees as its business grows. Outsourcing is the only way to avoid that.

Growing Internationally

Outsourcing became an economic alternative. La Caixa created an IT subsidiary and then outsourced its activities to that new company. Then the bank transferred the subsidiary and all its people to EDS. The managers of the subsidiaries now manage the relationship between EDS and La Caixa. "Our people are professional but don't have the perks. We can provide a high level of service while driving the costs down," explains Ribas.

La Caixa's acquisitions in France and Portugal will continue the pattern of purchasing financial institutions outside of Spain. EDS is set up to handle these transactions, too. "This is an added attraction to outsourcing because they can still deal with the same company as they expand internationally," points out Ribas.

In addition, EDS has an extensive credit card operation with experience with both credit and debit cards. This was important to La Caixa because Spain has one of the highest per capita use of credit cards in Europe. The provider manages card transactions, applications and sales of the cards. Currently there are more than 500,000 cards outstanding. EDS also has La Caixa's credit card operations as part of the contract.

Today EDS manages the communications network which links 4,000 branch banks, over 4,000 ATM machines and 60,000 point of sale terminals. It also services the network that operates 1,200 ServiCaixa terminals, which can handle financial transactions as well as sell movie, theater and opera tickets. Customers can use the terminals to purchase airline tickets. They even accept municipal tax payments.

Shifting Attitudes Toward Outsourcing

During the past three years, the bank has had to transform its system to adapt to the Euro, the new common currency of Europe. The effort required twice the amount of resources than are usually required to maintain its systems. "Thanks to our outsourcing relationship, we were able to double the number of employees working for us during this period. We were able to reduce the number of people working for us after that work was completed," Ribas reports.

Ribas, who has been with EDS in Spain for 20 years, says he has seen a major shift in Continental attitudes toward IT outsourcing. In the early days a bank's management's view was: "I'm going to do everything myself and have the computers in the basement." That "go alone" mentality has changed today. Now outsourcing is an option every bank board needs to consider. And many financial institutions like La Caixa "are effectively outsourcing," says Ribas.

Lessons from the Outsourcing Primer:

• Outsourcing IT is a good strategy for a financial institution that wants to grow through acquisitions.
• Outsourcing in Spain helps lower employee costs.
• Outsourcing IT is a competitive banking tool because the provider can handle a wide range of services.
• Outsourcing IT allows a financial institution to have branches in other countries because it can use the same provider.

Publish Date: May 2000

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