Assignment 1: First Fidelity Bancorporation (A) Aim This paper analyzes1 the situation First Fidelity Bancorporation (FFB) currently faces and recommends a course of action for consideration. Summary of Current Situation Key issues FFB’s operating efficiency is low2 due to our decentralized holding company structure and cumbersome decision-making process. FFB is currently unable to meet the increasingly stringent government regulations for asset quality and capital requirements, and is also being pressured to develop standardized products and global banking capability. The operational structure has to be rationalized and consolidated to increase productivity, reduce expenses, and improve management control information. The consolidation will have to be accomplished within 18 months, after which the government is likely to vigorously enforce the new requirements. In addition to the tight timeframe for consolidation, other complexities include (a) the possibility of FFB being acquired3, and (b) capital crunch due to the worsening economy. Priorities FFB’s immediate priorities are to cut costs and integrate Information Systems (IS) processes, while long-term priorities include the ability to support acquisitions and the ability to standardize product and service offerings. As such, the consolidation solution has to be both cost-effective and timely, while being able to digest acquired institutions more efficiently. Rationalization Options The rationalization can be done in-house, by consultants, or through an outsourcing agreement, as long as the implementers have sufficient manpower and expertise to complete the job in 18 months, and FFB’s existing employees are welltreated. The common application platform that is eventually established should be taken from the existing software packages currently used by our banks. If an outside vendor is to become involved via consultancy or an outsourcing agreement, the vendor should be committed to FFB and agree to a fixed-price contract for 10 years.
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American spelling is used throughout the document due to FFB’s American origins: Don Parcells’ staff would undoubtedly have used American spelling in his memo. 2 th FFB’s operating efficiency was ranked 44 of the top 50 U.S. banks. 3 Due to recent lackluster, stock price has dropped to below book value.

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The advantages and disadvantages of each option are summarized below:
Advantages Internal Disadvantages

 No need to involve a third party  Annual savings of $65m

 Broad perspective of information technology (IT) options provide configuration alternatives and creative solutions  Specialized skills provide efficiency and technical sophistication  Sufficient manpower with relevant experience and expertise  Guaranteed savings based on 10year fixed price contract  May be able to complete project in 18 months

Outsourcing

 Fundamental change in thinking  Insufficient and inexperienced staff  Up to 100 temporary people to be hired and trained (3-5 months)  Shortest estimate for project completion: 3 years  Complexity of involving a third party  Expensive  Advisory role: not a partnership  Internal staff will need to implement eventual systems solution  Unlikely to be able to meet timeline  Complexity of involving a third party  Difficult to maintain control of IT resources

Consultants

Table 1: Advantages and Disadvantages of Rationalization Options

Recommendations Based on FFB’s priorities (both immediate and long-term), outsourcing is the most suitable solution. FFB needs to quickly reduce operating costs, establish a common application platform and improve systems integration skills to support our acquisition strategy. Continued acquisition and growth is necessary to prevent FFB from becoming a takeover victim in this sluggish economy. We do not have the time or capital to hire and train enough people to accomplish the task with internal resources. Consultants, while able to provide valuable advice, mean that the proposed solution will still have to be implemented internally. Outsourcing is the only option that will allow the consolidation exercise to be completed within 18 months due to the availability of additional experienced manpower, while a 10-year fixed price contract will help to realize cost savings. The following paragraphs discuss the factors to be considered for the outsourcing option. Nature of relationship As this is likely to be a long-term contract critical to the success of our core business, a strategic partnership approach should be taken instead of a fee-forservice approach. The selected vendor not only has to be competent and costeffective, he also has to be able to work seamlessly with FFB. This will enable a high level of trust to be built up quickly, and improve co-ordination such that the consolidation solution can be implemented within an aggressive timeframe.

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Services available in the market / Type of vendor Private label vendors are more suitable as FFB needs to be able to continue to launch banking products under our own name. A strong track record, especially in serving financial institutions, is essential to ensure that the consolidation can be completed on time. A non-proprietary vendor will allow FFB to switch to a common application chosen from among the eight currently used by our banks4. As FFB is the first bank with over $20 billion in assets to carry out such a massive outsourcing exercise, the conduct of our potential partner is as important as his track record. Vendors in the non-proprietary private label space, i.e. EDS, Perot Syscorp and IBM (ISSC5), can be invited to attend talks and interviews to gauge their attitudes towards the potential partnership. In a preliminary assessment, EDS appears to have an advantage as it is the industry leader in the sector. Activities to be outsourced / Control of IT resources Commodity-type functions such as network management (including the consolidation and management of the data center), and data processing (including transaction processing) should be taken over by the vendor. System integration of corporate-wide banking applications and future application development should be undertaken together by FFB and the vendor. However, FFB should maintain control of systems development, as that forms a core portion of our organizational technology capability. Altogether, 70-80% of IS should be outsourced. Manpower To ensure a smooth transition, some of the existing IS staff can be reassigned to EDS, with comparable pay and benefits. For example, some of the employees from existing data centers can be reassigned to EDS as fewer employees will be needed to run the data center(s) once the consolidation is complete. Conclusion I hope that you will consider my analysis and recommendations favorably as drastic action is required to consolidate FFB in a cost-effective and timely manner. References
Dhillon, G. (2004), Outsourcing of IT service provision: Issues, concerns and some case examples, Virginia Commonwealth University. Hirschheim, R., Heinzl, A., & Dibbern, J. (Eds.) (2007), Information systems outsourcing: Enduring themes, new perspectives and global changes, Springer. Wakeam, J. (2003), The five factors of a strategic alliance, Ivey Business Journal, May/June 2003
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These packages are already the best commercial products available. Integrated Systems Solutions Corporation, a wholly owned subsidiary of IBM.

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