Case study: Global insurer halves domestic IT workforce
Zurich, one of the world's largest insurers, has revealed how outsourcing helped turn around its IT department and a $3.4bn loss.
In 2003 Zurich Financial Service's sprawling IT department consisted of more than 7,500 employees and 30 CIOs separately servicing different parts of the business. Combined with that Zurich had posted a record loss of $3.4bn the year before.
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Zurich CIO Michael Paravicini said that there was no global IT strategy and that its outdated infrastructure relied on too many data centres and incompatible software platforms, with 30 different claim systems in place.
Paravicini said: "Our operations were ineffective and we did not function as a group, we were more like a portfolio of hundreds of independent businesses."
Today the Swiss insurer outsources nearly half of its IT work, some managed application services are run by Accenture, CSC and Wipro, its network and telephony services by Orange Business Services (OBS) and managed desktop services by IBM.
The three deals began in 2004 and have allowed the company to slash infrastructure costs by 45 per cent, cut numbers of in-house IT staff by 60 per cent to 4,000, reduce data centres by 66 per cent and to shrink CIO numbers to about three.
Each deal was complex. The five-year-plus managed desktop services contract saw 60,000 devices replaced globally across seven countries, with the aim of getting the same software and hardware running across all machines and transfer of 450 staff.
The five-year-plus network deal covers seven countries and has seen a migration to full VoIP capability for more than 30,000 people, an overhaul of data and internet connections and transfer of staff and assets to OBS.
The application development deal saw the transfer of about 1,600 Zurich staff and contractors with work carried out across six different countries.
Paravicini said that each deal faced its own challenges, primarily: acceptance among employees, initial staff attrition and the complexity of overhauling such complex processes.
He warned companies at the start of the outsourcing process to expect revenues and efficiency to initially slump, saying it would take about three years for gains to be realised.
At Zurich, customer satisfaction dipped to about 75 per cent in 2005 and the number of major system outages hit almost 70 per month in 2004 before performance rose, with satisfaction hitting 90 per cent and outages dropping to four-per-month this year.
Paravicini said: "We are reaping the benefits, it is about getting the right mix and managing that attrition risk."
Today, Zurich's IT department manages a budget of more than £1.8bn, more than 200 projects and 3,600 outsourced staff.
Paravicini stressed the importance of building a strong sourcing team, robust communications and comprehensive service agreements.