Big Blue deal goes belly-up

Internal turf wars at IBM have cost the company a major outsourcing deal with the Co-operative Bank, and are stunting its ability to deliver effective outsourcing services across the board, writes Dan Sabbagh.

This week the bank confirmed that following a six-month review it has decided not to outsource its existing IT staff. IBM - as Computing revealed in July - was the only external supplier with which the bank held negotiations.

IBM's failure to secure the Co-op deal comes after a year of serious let-downs for the company in the outsourcing market.

In April this year, head-to-head negotiations over a #350 million contract with British Steel collapsed acrimoniously. Last week, it also emerged that IBM had failed to convince investment bank Dresdner Kleinwort Benson that it should strike a deal with the supplier.

Sources close to the negotiations at Co-op said IBM clearly had difficulties in pulling together its services to create an integrated outsourcing offering. The company's deficiencies were described as 'bloody obvious'.

Had the deal gone ahead, IBM would have taken on Co-op's 100 remaining IT staff - primarily providing data centre services. But it is understood that the scope of discussions was much broader, including the delivery of new applications and the support of a range of business processes.

The deal was expected to last 'about 10 years', but the discussions were never finalised. A contract of this size and scope would be expected to be worth at least #10 million a year.

A representative for the bank said: 'The Co-op has conducted a review of its IT requirements, including the option of outsourcing. It has concluded that it will continue to run its own IT operation in-house.' The bank gave no explanation for its decision.

If the Co-op had signed up with IBM, it would have been a landmark deal in the UK banking sector, which has so far remained resistent to large-scale outsourcing arrangements.