EDS sees huge growth in Asian IT outsourcing

George Newstrom, president EDS Asia Pacific, talks to FinanceAsia about outsourcing, the finance industry and the death of ATMs.

Electronic Data Systems (EDS) bills itself as the world's leading pure-play global IT services company. By pure-play it means that it isn't coming from a background of selling hardware, or databases. And if its revenues are anything to go by, this strategy seems to be working. EDS reported revenues of $18.5 billion in 1999, and a new business strategy aims to have its revenue from the Asia Pacific region double every two years.

As part of that strategy EDS opened its Asia Pacific headquarters in Hong Kong earlier this month to further build on its 15 years of operations in the region that have seen it have the most success in Australasia. In this interview, the exuberant George Newstrom talks about future trends and challenges in the key industries that EDS serves.

Q: What’s your focus in Asia Pacific in the next 12 months

A: In the financial sector – and I could almost say the same thing for the communications sector – there is a lot of excitement. It’s moving so quickly.

With the banks there are some, not all – in Japan there’s a select few, that have discovered financial institutions are now truly global. You can now no longer do business in an isolated geographically bound area. Or more precisely, you can, but you’ll be competing against entities that do business across the world. So whether you’re the largest bank in Australia, or Korea, or Japan, whether you like it or not you’re going to be forced to expand the wireless borders in which there are no geographic boundaries.

Banks, financial institutions by the pure nature of financial transactions, have to do business 24 hours a day, 7 days a week and they have to have product offerings far beyond the movement of cash. So it’s a natural for them to move a lot quicker than other industries. Based on what I’ve seen, in the next 12-24 months some of the largest opportunities we have are specifically in that industry.

Q. So what kind of changes do you expect to see?

A. If you even think of the term ‘financial industry’ it’s changing shape right in front of our eyes. It used to be the old bank you walked into to get a cheque or deposit money. It’s no longer that at all. The entire entity of insurance is going into the banks, banking is being used to drive telecommunications and telecommunications bills, and vice versa. The institution called the bank is taking so many forms and I use Citibank as a perfect example – they’ve got this big building here, branches everywhere and that could be their downfall. Now you’re seeing wireless banking, no brick and mortar existing at all. That’s an interesting new paradigm that the finance industry is having to deal with.

Q. EDS has some huge outsourcing contracts, in particular the Commonwealth Bank in Australia which signed the largest ever financial services IT contract at $5 billion over 10 years. Do you see this kind of complete outsourcing becoming more widespread?

A: Two different answers. One is, I’m not sure that it’s a trend yet. We’ve certainly seen the door opening in Asia for outsourcing in the way we define it, in the way we do it. It’s prevalent in the United States, it’s catching on in Europe. But with the exception of South Australian government and Commonwealth Bank it’s not a trend yet here.

The conversations we’re having with customers from Korea to Japan to Malaysia to the Philippines are trying to get them to get their head around the notion of outsourcing, which is take your technology, take your people, take your legacy systems and your new developments and let someone else do it. And that’s turning over the crown jewels if you will, of the company. But I’m enthusiastic that these discussions are happening more.

The other thing is the way we define outsourcing. IBM for example has signed some big outsourcing contracts, but their model, in my opinion is different. They sell a lot of hardware, they put services behind the hardware – and they’re very good at that. What they’ve done is call that outsourcing – outsourcing of the hardware components and services.

EDS approaches it totally differently. Our delivery is a continuum from A.T. Kearney, our boardroom level management consulting business, to business process management, backroom type services, e-business and information solutions, running and maintaining solutions. We have a spectrum that goes from the boardroom to the backroom. That’s not the model that IBM has, although they call it the same thing as we do – outsourcing.

Q. With the forces of technology change and globalisation we’re seeing consolidation not only in newer industries but also more established ones, particularly in the finance industry. What do you think of the IT services opportunity that this consolidation brings.

A: Banks have a number of things they’re challenged with. They have a number of legacy systems that have served them well for a long time. These legacy systems have to be updated. Y2K was only the first drop in the bucket of where they have to go.

Two, there’s the entire notion of online banking, wireless online banking, with multiple vehicles, not just ATMs. I’m willing to venture and be bold enough to say that the ATM will be a relic, a dinosaur in the next two to three years. Three years at the outside. You will not have an ATM, there’s the ATM it’s right there, it’s called the telephone and that’s how we’ll do transactions and, by the way, it’ll be very, very secure. That’s one of the greatest challenges we have right now. But that’s the bank, that’s the ATM that we’re talking about right now.

The other potential challenge in financial institutions is the way commerce is done across the world. That’s why I say the banks that understand that you don’t do business in a  geographic sense any longer are the ones that are going to figure it out quicker. Because commerce is moving across the world, across timezones and across geographies totally different to the way  it did 12 months ago and that’s going to keep moving faster as we go along.

Q. What you’re saying conjures images of a cashless society. Is this where you think smart cards are going to come into play?

A: I’m a  really bad guy to ask that because I always thought we were going to go toward a paperless society. But we’ve got more paper than [ever]. I’m not sure there’ll be a true cashless society, however I’m also not sure about smart cards. We’re working with the US government right now for medical records capture. For me it’s not the technology it’s the ability of society to accept, for example, smart cards. The next evolution has nothing to do with anything physical. The smart card is that telephone. It can do everything, it can store everything, it is easier to use. And by the way, right now it’s a physical entity, but it doesn’t necessarily have to be a physical entity either. 

So the smart card and its capabilities technologically are there and the financial industry is well equipped, in most cases, to use the capabilities that are there. But I think the next evolution is substantially more than the physical card that you use. It’s the true coming together of telecommunications and the financial industry and that to me is pretty exciting.

Q. So how do you deal with convincing leaders within the telecommunications and finance industry, who might not share your vision, that this is going to be the way forward?

A: The people that I talk to and hang around with, all they do is look at the numbers. Most of them are pretty good at math. And they look at numbers, possibilities and market sizes. That will drive their decisions, and most likely the decisions will go the right way. It’s the people that don’t think. That’s not where I think the direction is going it’s being competitive in a global marketplace where there’s a convergence between the telecommunications industry, the finance industry, the wireless industry is going to take a tremendous load off the infrastructure industry. The large developed countries will be overtaken by underdeveloped countries that don’t have to worry about infrastructure into the ground. They can make their investment up rather than down. I see is it as a positive. It will re-shape the way commerce is done in the world.