Aviva signed a ten-year £700 million outsourcing deal with EDS for a complete datacentre transformation, earlier this year, at a time when most companies have been wary of long-term contracts.

Speaking at a conference at which Gartner analysts advised CIOs to avoid long-term deals, Alistair Mathie, strategy manager IT services, at Aviva, was unapologetic.

The financial services company was expecting benefits from day one of its ten-year contract, due to the sheer scale of the deal, he said.

Another reason Aviva expects returns so quickly is that it still doesn't use the full capacity of its datacentres, which were built only three years ago. Virtualisation, as well as standardisation, rationalisation, consolidation and automation, will help Aviva maximise its initial technology investment.

Two years ago, a series of mergers and acquisitions left the world's fifth-largest general insurer group with inherited infrastructure, disparate IT, with no centralised control, explained Mathie.

The insurance group, which has recently been rebranded Aviva, but used to be trade as Norwich Union, supported mainframes, mid-range and Windows servers in its two datacentres in Norwich, as well as 2,900 distributed servers across the organisation.

In 2007, Aviva undertook an audit of its IT estate, which found the IT infrastructure in the lower quartile for efficiency, Mathie told delegates at the Gartner Outsourcing summit in London.

"Rising costs and the changing economic climate created the burning platform for a step change in how we source and manage infrastructure services in the UK," said Mathie.

The "step change" also involved a change in culture towards IT, "moving from server to services" said Mathie.

"We no longer wanted to spec on bits of tin, but spec on the outcome you want to achieve," said Mathie, transitioning IT as a provider of business processes rather than IT capacity.

Aviva did not go straight out to market with a RFI (request for information). Instead, said Mathie, Aviva invited select outsourcing players to attend a workshop, and conducted a soft market test of five vendors.

The financial services giant used the workshop to determine key factors, including the appetite, capabilities, financial viability and strategic value of the vendors. From this initial response, Aviva was able to create an RFI for four vendors, as well as an internal bid.

One trend came through: all the outsourcing vendors bidding for the deal advised Aviva to move to a utility-based pricing model, only paying for what is used.

Eventually Aviva chose HP-owned EDS for the ten year deal, through which it aims to save 20 percent a year in IT costs and move to a largely pay-as-you-go IT operation.

Under the deal, EDS will modernise and manage two datacentres in Norwich, with some 300 Aviva employees transferring to become EDS workers. HP and Cisco will provide tools, technologies and resources to EDS to support the contract.

As well as the technology shift, Aviva will also undergo an internal transformation, becoming a service integrator by 2012.

The datacentre transformation is part of a wider cost cutting journey that Aviva has been on - called OneAviva - to remove half a billion pounds by 2010. In May, the firm announced it has switched off over 300 of its 550 legacy systems in its UK life insurance business, reduced the number of core systems from 20 to 4 and slashed headcount to drive through savings.

Outsourcing has played a critical role in helping Aviva to shed costs. In 2005, 98 percent of its UK life operations was run in-house. Now, only 46 percent of its operations are run in-house, with 18 percent of business processes offshored to Indian firm WNS, while 36 percent of policy processing is outsourced to insurers including Swiss Re and Scottish Friendly.

Industry observers are keeping a close eye on the outsourcing contract, which was one of the largest in the first half of 2009.

Gartner research director Rob Addy described the deal as a "glimmer of hope" for UK outsourcing industry, while a forthcoming Ovum report, UK ITO: opportunities in a recession, said the Aviva and EDS deal is a sign that the UK IT outsourcing market has been more resilient to the downturn than previously expected.

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