IT and outsourcing executives from several banks this week said government directives such as the Sarbanes-Oxley Act are driving improvements in the internal management of outsourcing deals -- but at a cost.

For example, the regulations are forcing companies to spend significant time and money to ensure that their outsourcers comply with the laws. As a result, some users said they face pressure to centralize outsourced projects by hiring a single large firm with the resources to meet all their requirements. That means they may have to ignore smaller outsourcing vendors that could provide an IT edge.

"My biggest concern right now is that it"s almost impossible for us to do business with small companies, especially small innovative companies that aren"t well financed," said Patrick Ruckh, chief technology officer at First Horizon Bank in Memphis. "This is going to be a problem for us as an industry and as a company over time, because a lot of innovation comes from them."

Ruckh was among a group of executives speaking on governing IT outsourcing processes at the American Bankers Association"s Bank Outsourcing Forum here this week. He said First Horizon has turned to Fidelity Information Services Inc. to centralize its IT systems management.

Consolidation benefits

Ruckh said First Horizon is in the process of expanding a 2-year-old outsourcing pact with Jacksonville, Fla.-based Fidelity Information Services that has centralized management of the bank"s core IT systems. With Fidelity, he said, his company has gained better overall IT project results for less money and more consistent delivery on service-level agreements.

First Horizon consolidated many of its other vendor outsourcing agreements into a more centralized one with Fidelity, according to Ruckh. The bank"s IT budget is about US$120 million, and "a good portion of that is with Fidelity," said Ruckh, who wouldn"t disclose the value of the deal.

Landy Dutton, director of operational risk management at Regions Financial Corp. in Birmingham, Ala., said the federal Gramm-Leach-Bliley Act, which requires financial institutions to ensure customer privacy, prompted her company to centralize control of outsourcing to reduce risk.

Through its consolidation effort, Regions has reduced the number of its service contracts from 500 to 30 over the past several years, Dutton said.

The financial services firm created a single outsourcing information database and central vendor management program that has outsourcing managers report to top-level executives and includes risk assessments of all outsourcing vendors.

By centralizing management and contract information, the company can better keep track of its outsourcing efforts, Dutton said. "When you manage outsourcing in the business units, you never know how many contracts you have," she said.

In contrast to those who favor larger, more centralized outsourcing contracts, Louis Rosenthal, an executive vice president in charge of IT for the North American operation of ABN Amro Bank NV, prefers multivendor deals because they let him use best-in-class providers of any size.

Over past 10 months, Rosenthal has been evaluating vendor proposals to run the majority of Amro IT operations in 60 countries. Rosenthal expects the effort to save his IT operations $800 million annually.