When Swedish financial services giant Skandia implemented a new online business model, the group's CIO was left juggling an outsourcing contract designed with very different requirements in mind, while the IT department took on an increasingly important role in the firm's future. Writer John Beck

Over the past two decades, outsourcing has become a common approach to dealing with numerous technology needs. But that does not mean that the process is always hassle-free - requirements may not be clearly defined, delivery may fall short of expectations or poor communications could blight the relationship.

As Rob Hornby, chief information officer at Swedish financial services giant Skandia, discovered, however, in today's swiftly shifting technology environment, one of the biggest issues facing outsourcing clients is how to tackle changing needs while tied to a long-term contract.

When Hornby joined Skandia in 2007 - shortly after its acquisition by international savings group Old Mutual - he inherited a newly inked, £105m ($167m) five-year outsourcing contract with Indian IT services firm HCL, covering application optimisation and remote infrastructure management. During the early years of the contract, Skandia faced some major technology-driven changes.

Moving online

Skandia's UK operation had relied on paper-based processes to conduct its business, but this changed dramatically when the company merged with small financial services portfolio provider Selestia. Despite Selestia's operations being dwarfed by Skandia's, Old Mutual elected to implement Selestia's online investment model across the entire business.

"Skandia, although very innovative in a product perspective, was still a traditional life-and-pensions company in terms of how it transacted business," says Mr Hornby. "So in 2009 we took a major strategic decision to move to an online model for providing investments. And we planned the transition to that model over a two-year period."

The plan was more successful than anticipated, however, and the entire transition was completed in just six months as business moved online far faster than anyone had expected, leaving Mr Hornby in something of an awkward position. "We were left in a situation where our business had become an online business but we hadn't had the opportunity to make all the adjustments that we needed to make," he says.

Skandia now operated very differently from when the IT outsourcing contract was originally negotiated, Mr Hornby adds, leaving the outsourcing deal outmoded. "It was stuck in the old, traditional life-and-pensions context, and all of a sudden we needed new skills and new ways of thinking, so we had to do some urgent work to our infrastructure in order to scale it to meet the new demand," he says. "The old contract didn't help us in those discussions, because all it did was very tightly define the 'old world'."

Career History 

Career history

Rob Hornby

2009 - CIO, Skandia and wealth-management group of Old Mutual

2007 - CIO, business technology services, Skandia

2006 - Software delivery and support director, Sky Television

2004 - Customer relationship management programme director, Sky Television

Developing a new model

Neither Skandia nor HCL had an outsourcing model particularly suited to the financial services firm's desire to create and maintain an online business to be deployed in multiple global markets. In order to tackle this, the two firms jointly designed and created a new organisation to provide the appropriate infrastructure support.

Mr Hornby describes the option of making this sort of drastic change in house as "almost incomprehensible" and notes that the entire future of the company may have been at stake had some of Skandia's IT functions not been outsourced.

"We couldn't have done it in a timely and cost-effective way and I think that actually vindicates our original decision to outsource, because I don't think we would have survived this shift had we been entirely in house," he says. "I think we would have probably had to go to the contract market, and taken a lot of very, very high-cost people to get us through the transition, and it would have hit our financials."

Because technology was now at the heart of Skandia's new operational profile, Mr Hornby and his staff were under increasing pressure, in a sense responsible for the future of the business. "Of course, it was very much an IT-led change, because it was an online channel that had opened up, so we couldn't sit at the back of the organisation as we traditionally had... We were right in the middle of the shift ourselves," he says. "If we had failed, the business would have failed, so the stakes were very high."

Skandia has learnt from the experience and will approach any future outsourcing contracts with a more flexible approach in mind, says Mr Hornby.

"It was difficult for [HCL] and it was difficult for us, and the contractual arrangements didn't help either party, so next time when we go into a new deal, we'll build it from a different set of first principles. We'll contract quite clearly from our start point, but we'll build into it ways of changing in flight, so that everyone already knows how that will work. Even if we don't know what the change we'll be, we'll be able to face it."

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