December 8, 2010 – ABN AMRO's trip through the past couple of years is like the juggler who keeps juggling while more balls get tossed into the mix-a series of mergers, sales, private ownership and government takeovers has resulted in a brand new bank-but one retaining much of its old technology skeleton.

To allow that skeleton to properly accommodate the new bank's tech needs - which now includes a merger with Fortis Bank - the $220-billion institution has tapped IBM to construct IT building blocks in a private cloud to define its new environment.

Using the cloud to drive merger conversions is a new strategy that has both fans and critics. ABN AMRO, which is still partially owned by the Dutch government after a series of divestitures and downsizings that started three years ago, plans to fix capacity issues and de-silo its tech infrastructure. "In the new bank, the [old] infrastructure remains, and the application environment is far too large for the operation," says Raoul Van Engelshoven, managing director of the ABN AMRO account at IBM.

Big Blue, which recently signed an $1.8 billion extension to its initial $2 billion 2005 outsourcing agreement with the bank, will also deliver tech services and implement a standardized end-user computing platform for faster communication internally and with clients. "By standardizing, you get a more predefined application environment," says Van Engelshoven, noting that standardization simplifies deployment of new technology and reduces differences in systems among business lines and units inside the bank.

IBM's starting by merging data from Fortis, which had its own internal network, into ABM AMRO's infrastructure. Tech applications and services in the combined infrastructure will be delivered based on the pre-defined "building blocks" that are part of a private cloud. IBM will build the cloud and blocks' specifications-which manage and standardize how deployment, monitoring and maintenance are executed. "That will clean up and downsize the core infrastructure," Van Engelshoven says. "And it will build a more agile environment based on their business needs."

Van Engelshoven says the project will last about 2.5 years, with success measured by internal ROI for the bank, adherence to SLAs and the optimization of capital resources.

The new ABN AMRO was created by merging the Dutch portion of ABN AMRO (the UK government also owned a now-divested portion) with Fortis Bank Netherlands and other institutions owned by Fortis. The Dutch government is reportedly planning to privatize its portion of the bank-which has merchant and commercial banking operations in 28 countries, including the U.S.-in early 2011.

While deploying a cloud structure to manage a conversion is a largely untested strategy-sources contacted for this story didn't know of other examples-there are vendor options. Most major service providers offer cloud computing or other provisioning technology, including Oracle, which in September introduced the Exalogic Elastic Cloud, which combines hardware and software for a range of cloud uses, including enterprise resource planning and mainframe applications that could play a role in systems assimilation. HP, Microsoft and Cisco also provide integrated hardware and software cloud products that could be used for enterprisewide resource projects.

The use case dictates that by standardizing deployment and end-user environments, it's easier for a bank to achieve a merger's goal of scale. "Instead of having an interest calculation or an accrual routine for each line of business, there's only one in this new construct and that will drive true agility," says Don Free, a research analyst at Gartner.

But the strategy isn't without its drawbacks-one being the standardized environments, while allowing agility for deployment, can reduce flexibility needed for specific lines of business. "As long as you want something that the provider can provision, it can be delivered. If you want something that's slightly different, you can't," says Craig Beattie, an analyst for Celent, who says highly analytical functions or risk management don't fit as well into the new model. "...Functions with a lot of number crunching that's not delivered on virtualized hardware [don't fit]."

And Gwenn Bezard, research director at Aite Group, says it's hard to set up a private cloud environment for merger conversions. "There are a lot of technical challenges in the data center to make it work effectively," he says.

This story originally appeared on Bank Technology News.

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