News Feature

IT Outsourcing: Merrill Lynch's Billion Dollar Bet

By Todd Datz

September 15, 2003 — CIO — Even though many companies have put the kibosh on big technology investments these past few years, some, like financial services giant Merrill Lynch, have sucked in their corporate stomachs and taken the plunge in the quest for competitive advantage. For the past nine months or so, more than 400 people from Merrill’s Global Private Client (GPC) and Global Technology and Services groups, Thomson Financial, and a number of other vendors have been working feverishly on Merrill’s biggest outsourcing initiative ever, a highly complex $1 billion makeover of its wealth management workstation platform designed to improve the efficiency of Merrill’s financial advisers (FAs). In the lingua franca of financial services, that means Merrill’s FAs are getting new, more powerful desktops geared toward capturing more of the assets of their high-net-worth customers.

The new platform also represents a major shift in the way Merrill approaches IT initiatives. In the 1990s, Merrill developed its previous platform, Trusted Global Advisor (TGA), as it did any other major system: in-house. The thought of outsourcing a critical business system to a vendor would have been deemed madness by any financial services organization and perhaps a confession that its IT department was not up to snuff. But last year, Merrill inked a contract that outsources much of the responsibility for its new platform to Thomson Financial, a large market data vendor with no previous experience managing an integration project of this size.

In this hybrid outsourcing model, Thomson, which serves as general contractor, is responsible for the desktop and is managing a number of subcontractors—a veritable who’s who of vendor all-stars including AT&T, Cap Gemini Ernst & Young, Dell, HP, IBM and Microsoft. Merrill retains control of the integration layer, which connects its proprietary databases, and manages Siebel, the platform’s CRM component.

Merrill and Thomson are working in a tight partnership, the bedrock of which is a voluminous contract containing lots of service-level agreements spelling out bonuses and penalties. And Merrill has not only outsourced much of the project, it has also shed itself of the responsibility of dealing with the subcontractors. "Thomson is on the hook for some SLAs, so it’s in their interests that the subcontractors are successful," says Byron Vielehr, cohead and CTO for the GPC.

Although the use of a general contractor and subcontractors is not uncommon in large outsourcing deals, what gives this one a different twist is Thomson’s role. "I’d say it’s unusual in a deal of that size for the supplier of a proprietary system to be general contractor for the rollout," says Michael Murphy, a partner in the technology group at the legal firm Shaw Pittman who specializes in IT outsourcing deals. (Shaw Pittman worked on the Merrill-Thomson deal and could not comment on the contract’s specifics.) "More common would be using more of a generalist outsourcer, such as IBM, EDS or CSC, that focuses on managing implementation projects from an infrastructure perspective," Murphy says.