Outsourcing

A matter of strategy

When Yes Bank decided to outsource its entire IT infrastructure, it took this decision from the strategic standpoint of reducing its expenditure upon IT and to gain flexibility. Here's why the bank did what it did, and the benefits that it derived from its decision. by Soutiman Das Gupta

A BFSI start-up, Yes Bank wanted to make a difference in the crowded retail and corporate banking segment. It aimed to be a high-quality, knowledge-based, technology-driven company catering to 'Emerging India.'

Realising that the best way to go about its task was to focus on its core business of banking and strategy, the bank has gone ahead and left all technology-related aspects in the hands of specialists by outsourcing all its technology requirements to a service provider.

As a result, Yes Bank is in a position to focus on doing business with its account holders without the hassles associated with staffing and managing a full-blown IT department.

The urge to perform

"There is opportunity and space for a quality bank," says H Srikrishnan, the bank's Executive Director, when asked about the scope for a new entrant in the already crowded and competitive banking space.

Since it began operations in August 2004, the bank has made plans to gradually target wholesale banking, financial markets, corporate and transactional banking, and retail and private banking business lines across the country.

Its efforts have borne fruit, and Yes Bank will open around eight branches by March 2005 and progressively expand across India with the goal to establish 100 branches in three years. The bank already has operational branches in Mumbai and Delhi, and more are being commissioned in cities like Chennai, Bangalore, Kolkata, and Hyderabad. 200 people have already been employed, and more are set to join as operations expand.

Strategic business tool

The bank is using IT as a strategic business tool for competitive advantage to achieve superior standards of customer service in a cost-effective manner. It has also created a documented IT strategy in consultation with Gartner Consulting Group to optimise and develop an IT blueprint in accordance with the bank's business strategy and technology architecture.

The documented strategy has allowed Yes to build operations, governance and organisational models for the bank's technology initiatives. The strategy addresses the perceived future requirements of the company, and also looks at six critical aspects of running a greenfield project:

• High levels of efficiency through automation
• Centralised database management and processing
• Connecting customers, front office, back office and external agencies (Straight Through Processing or STP)
• Integrating front, middle, and back offices
• Strong built-in surveillance and security systems
• Near 100 percent network uptime via DR and backup systems

Integrated approach

Now that we have capable service providers who provide time-tested mature technology and processes, our aim is to provide an integrated solution approach to the IT needs of the bank H Srikrishnan, Executive Director, Yes Bank

Srikrishnan believes that most banks today have deployed technology in a fragmented manner leading to the lack of an integrated approach. Some areas of business are highly automated, while others are neglected. This, he believes, is perhaps because these areas were computerised at different times. "Being a late entrant we are converting the delay into an opportunity. Now that we have capable service providers who provide time-tested mature technology and processes, we aim to provide an integrated solution approach to the IT needs of the bank," he explained.

The outsourcing gambit

The bank has adopted a business model where a range of IT operations including technology architecture, IT infrastructure, network management and other non-core processes have been outsourced to third-parties.

The decision to outsource was primarily driven by the need to concentrate on the bank's core activity. "We also looked at outsourcing to contain costs, mitigate risks by allowing a specialist to do the job, and insulate ourselves from the HR challenges of building a complete IT organisation," said Srikrishnan.

Evaluation begins

The bank began its evaluation exercise in June-July 2004. A comprehensive evaluation framework was used, and it had up to 150 evaluation parameters.

The classification was based on:

• Managed services capabilities
• Hardware equipment competitiveness and product agnostic approach
• Strategic fit assessment
• Financials
• Soft factors such as relationship, culture, and contracts.

A selection is made

In December 2004, Wipro Infotech was selected as the preferred service provider partner based on the outcomes of the objective evaluation parameters. It has been signed on for a tenure of seven years.

The company chose Wipro Infotech as the company:

• Had a product agnostic proposal
• Offered competitive pricing
• Defined a strategic relation-ship roadmap
• Had a well-defined managed services framework

specific areas to be outsourced

The outsourced services cover many aspects of the bank's IT infrastructure. Wipro will provide the server infrastructure, mostly IBM eServer pSeries p550 and 520s powered by the Power 5 microprocessor, along with a few Sun servers. The storage infrastructure is also on an IBM platform. "The information security solution is very comprehensive and covers three or four world-class providers. Wipro Infotech is deploying the solution and will manage it," explains Srikrishnan. Wipro manages the hosting for Flexcube, CashTech, and all other systems which currently reside at the data centre. The management and hosting of the Flexcube Core Banking System (CBS) and the CashTech cash management application are done by Wipro.

The day-to-day maintenance of databases and operations for these applications are also managed by Wipro Infotech. However, the application control (aspects such as enhancements and product innovation) are managed in-house.

The design and implementation of the network infrastructure and the monitoring and management operations are also Wipro's responsibility. According to the SLA, Wipro manages staffing, but the bank screens staff who are deployed for these activities.

The data centre facilities are located on the premises of Yes Bank and at Reliance Infocomm in Navi Mumbai.

Pay-per-use

The outsourcing services are priced on a pay-per-use basis. The pricing model uses a variable mechanism that is influenced by the number of operational branches and business volumes. "By using this model, we expect average savings of 30 percent over an extended period of time," says Srikrishnan. The initial technology investments of the bank are minimal, and it feels that overall IT spending is variable and predictable in line with its planned growth.

SLA and monitoring

In an outsourcing deal of this size, defining the SLA in terms of breadth and depth of coverage is vital. The SLA has been framed strictly on the basis of business requirements, and it stipulates international standards of service quality. "The SLA has well-defined minimum response and resolution times, and addresses all levels of our IT management needs. It has features such as 99.6 percent uptime and 24x7 support," says Srikrishnan.

The bank uses automated tools to help monitor performance and conducts regular customer satisfaction surveys to help ascertain existing service levels. It also allows the organisation to make plans for improvements in future.

Has it worked?

The bank adopted the outsourced model only since December 2004, so Srikrishnan notes, "It's too early to say that it has worked, but we have early successes in terms of getting better pricing, access to the latest technology and specialised manpower, and a planned initial transition phase."

The bank hopes that this success will continue; it also wishes to continue building its IT infrastructure in this manner. It will concurrently establish and roll out its retail network to widen its market presence. It may also partner with non-competing companies that are already engaged with consumers to build the critical mass required for retail banking.

Soutiman Das Gupta can be reached at soutimand@networkmagazineindia.com