IT Outsourcing Gives Flexibility and Cost Savings at Prudential
In reviewing the costs of its IT service provider PruTech, Prudential, a UK insurance leader, chose to outsource key IT operations to Capgemini.
Under a new long-term contract, Prudential will realise cost savings and, equally vital, a move from a rigid cost burden to one able to adapt to changing needs.
Client Profile
Prudential is one of the largest life assurance companies in the UK, with over six million individual customers and 3,500 company pension schemes.
Prudential plc, through its businesses in Europe, the US and Asia, provides products, services and fund management to many millions of customers around the world. Prudential’s reputation for integrity, security and value-for-money products and services has been built over 150 years.
Business Issues
While Prudential enjoyed high rates of profitable expansion into the new millennium, it also faced, in its home UK market, the same issues of competition and rapidly changing regulatory requirements as other financial services providers.
In particular, there was an immediate need to operate competitively and profitably within the new Stakeholder Pension regime. Legislation in force since the beginning of fiscal year 2001 has limited annual charges to one per cent of a policyholder’s funds. Prudential and other financial service providers believed that the ‘one per cent’ concept would have an impact across a broad range of financial products and services and the reduction of operational IT costs was a key focus area.
As a result, PruTech initiated the market testing of its UK mainframe and midrange services with an emphasis on reducing cost and achieving greater cost flexibility.
Solution
The resulting selection process led to the award of a five-year outsourcing contract to Capgemini. The contract was won against three other short-listed bids with a detailed and carefully costed plan to achieve savings on budgeted IT costs while maintaining, and where necessary enhancing, the existing very high service levels. The agreement included the transfer of some 90 PruTech IT staff and its data centre at Reading, UK, to Capgemini.
Key factors in the Capgemini plan to deliver cost savings included:
- installing improved technology and a higher degree of automation through a technology transformation over the first 12-18 months of the five-year contract
- achieving economies of scale through infrastructure consolidation and Capgemini’s purchasing power
- opening the data centre to other Capgemini customers while converting it to full 24x7 operation.
Cost flexibility was as important to Prudential as cost savings. Dynamism in the Company’s product range and in its channels to market means that IT support can never remain static. It must facilitate a fast response to increasing or decreasing needs in any given area of the business.
With its multi-client plans for the data centre, Capgemini could offer a clear capability to ‘flex’ resources as required. This was reflected in the commercial terms of the contract, which are based on cost per unit of processing - a ‘pay as you go’ approach that combines fairness to both parties with high flexibility.
To ensure ongoing service levels, a detailed agreement was drawn up involving the regular monitoring of some 90 quantitative performance measures.
There were several reasons for the final selection of Capgemini as IT partner:
- an impressive track record of running mission-critical outsourcing contracts for major corporations
- enthusiastic current client references from the insurance, banking and other sectors
- a specific and detailed bid that scored highly both for credibility and cost-effectiveness
- a strong reputation on the human resources front for respecting the letter and spirit of TUPE (Transfer of Undertakings, Protection of Employment) requirements
- a good cultural fit evident from a number of assignments successfully carried out by Capgemini for the Prudential over the past 20 years.
Benefits
Prudential has confirmed that the benefits that will result from outsourcing are truly significant ones. The Company believes:
The contract with Capgemini secures the flexibility of cost that is vital when operating in an environment that changes as rapidly as financial services.
Fixed costs have been converted into variable costs and Prudential is now free to explore product and service innovations with the right level of IT support and expenditure.
Service levels, including such vital factors as availability and response times for the several systems involved, are being very carefully and objectively monitored and there is confidence that those levels will be maintained or enhanced.
The technical transformation has already started and, based on past experience of Capgemini’s approach to project management, successful completion on schedule is expected.
There is great benefit in having access to Capgemini’s pool of technical expertise so that it is now quicker and easier to deploy experts in many areas of IT, without the issues of recruitment in today’s tight labour market.
Written in co-operation with Prudential plc