Reversing a recent decision to outsource IT infrastructure, a bank expects in-house IT to boost speed and customer value.

This is a tale of two perspectives on outsourcing: one says that third-party cost cuts and guaranteed service levels are sufficient, while the other says only an in-house model can deliver the customer focus and rapid adaptation required in today’s market.

And what’s particularly interesting about this particular situation is that both perspectives come from the very same company.

Just 30 months ago, First Horizon National Corp. announced it had “signed a multiyear contract” for a services company to “provide technology outsourcing services for its open systems, which includes complete data center management.”

At that time, First Horizon’s then-CTO, Patrick Ruckh, was quoted as saying, “We had been managing our technology support in-house and saw an opportunity to cut costs and guarantee service levels by expanding our partnership” with a third-party services firm. “We expect to see immediate costs savings as well as opportunities for long-term savings.”

But, as we’ve all learned very clearly, a lot can happen in 30 months, and so it was that last week First Horizon executive vice-president and CIO Bruce Livesay reversed the bank’s strategic direction on outsourcing, announcing that its First Tennessee Bank regional operating unit has decided to pull back in-house the “management of its computer technology infrastructure, including all servers and its mainframe, bringing 65 information technology jobs to a bank-staffed Maryville data center over the next three to 18 months.”

The change of heart and soul on the always-complex question of outsourcing’s pros and cons extends to First Horizon’s decision to build a new data center to serve its 180 First Tennessee branches. That new facility will eventually become home for 110 new IT employees, and will be based in Maryville, Tenn., First Horizon said.

Perhaps understandably, First Horizon decided not to identify the outsourcing firm from which the bank will be reclaiming responsibility for IT infrastructure and information management. However, the outsourcing company that First Horizon partnered up with in February 2008, as described above, is Fidelity National Information Services Inc., which refers to itself as FIS.

Back then, the bank made the move out of a clear desire to reduce IT costs, which was underscored in the statements made by both then-CTO Ruckh and by an FIS executive:

• Here’s then-CTO Ruckh from above: “We had been managing our technology support in-house and saw an opportunity to cut costs . . . . We expect to see immediate costs savings as well as opportunities for long-term savings.”
• And FIS executive Roger Leitner, in the same February 2008 press release issued by his company about the new deal with First Horizon, said FIS would “continue to provide solutions to help our clients, such as FHNC, decrease costs and improve service levels.”

First Horizon CIO Livesay would not identify the outsourcing company, saying via an email exchange that “we have not disclosed the company that is currently handling information management.” So while it is entirely possible that First Horizon and FIS are maintaining some level of contractual arrangement, the banks’ press release from last week made it expressly clear that “computer technology infrastructure, including all servers and its mainframe,” would be brought back in-house, and that the bank would be building its own dedicated data center.

Last week, First Horizon said its new intent is to leverage IT as a strategic differentiator to provide greater levels of customer value and to adapt more quickly to customer needs and to rapidly changing consumer-banking dynamics.

“We will be able to more quickly and efficiently respond to customer needs to be as competitive as possible in today’s marketplace,” said First Horizon CIO Livesay in our e-mail exchange.

“Given the dynamic rate of change in the banking and technology industries, there is a significant need for quick, reliable technology solutions to emerging challenges. The need for rapid responses to regulatory changes, positioning with capacity for growth, and the need to operate with efficiency and effectiveness are all key drivers behind the in-sourcing decision.”

Livesay also noted via email that the move away from outsourcing will let First Horizon treat IT more as a strategic business asset and less as a flabby chunk of overheard requiring incessant trimming.

“Information technology fulfills a strategic business enablement role at First Horizon,” he said. “Information management is a core competency and competitive differentiator in financial services. Our anticipated growth requires more nimble and flexible information management capabilities that are better managed within the company.”

In a related comment, last week’s press release about the “in-housing” decision quoted Livesay as saying, “The desire to serve our customers better than any other bank is what’s driving us to bring our technology management back inside the company.”

This look at one company’s radical strategic reversal in just 30 months reveals a long-time truth about outsourcing: like all other tools at the CIO’s disposal, it has its place, it has its value, and it has its limitations. I applaud First Horizon’s decision to reevalute—and to relentlessly continue to evaluate—the ability of its IT operations to not just meet but exceed and pace business expectations and results, whether ministered in-house or by a services provider.

The core message from Livesay is this portion of what he said above, and it applies to non-banks as well as to First Horizon: “The desire to serve our customers better than any other bank is what’s driving us.” Of course, he goes on to say, “. . . driving us to bring our technology management back inside the company; but just 30 months ago, his predecessor, Ruckh, was equally bullish about the business value outsourcing would deliver at that time.

So I’d suggest CIOs think much more about the front part of that statement—”The desire to serve our customers better than any other bank is what’s driving us”—and then pick the best approach to achieve that rolling objective.