Citigroup's 52,000 layoffs will impact IT

Expect Citigroup to reach head count reductions by selling off and outsourcing IT operations where it can, one analyst said

"Simplification and standardization of Citi's information technology platform will be critical to increase efficiency and drive lower costs as well as decrease time to market," the company said in April 2007 when it reduced headcount by 17,000 employees.

That IT cost-reduction focus appears to have sharpened under Pandit. In an investor and analyst briefing in May of this year, senior Citigroup executives told analysts the company hoped to trim at least US$3.0 billion in operations and IT expenses over the next three years. About US$1.5 billion of that was expected to come directly from IT costs reductions via measures such as centralization of IT operations elimination of duplicative and redundant technologies -- such as the 16 separate database technologies it uses -- and datacenter consolidation.

Marty Lippert, a former technology executive at the Royal Bank of Canada who in July was appointed CIO at Citicorp, is leading the transformational efforts at Citigroup's new centralized Global Technology and Operations division.

TowerGroup's Kopp said to also expect to see Citigroup seek headcount reductions by selling off and outsourcing IT operations where it can. He pointed to Citigroup's sale in October of its Citigroup Global Services arm in India to Tata Consultancy Services for US$505 million as an example. As part of the deal, Tata will provide process outsourcing services to Citigroup under a nine-year contract valued at US$2.5 billion.

For Citigroup, the latest cuts are about improving operational efficiencies by "returning the company to its core competencies," Kopp said. In the process though, Citigroup appears to be taking a sharply different approach than its main rival JP Morgan Chase, he said. Whereas JP Morgan has been making trying to use technology to gain a competitive edge, Citigroup's immediate focus appears to be more just retrenching to cut costs, he said.

"It's a bit paradoxical. For many years Citigroup was seen as a leader in technology," Kopp said.

"The overarching goal should be efficiency," Kopp said. "That can only happen when you do a deeper transformation of the business and by modernization of the technology platform."

What appears to be happening at Citi is the exact opposite, Kopp said. "It is about using the axe and cutting any development or investments" in technology out of necessity and not because it will help improve efficiency, he said.

"It may look like reducing expenses but that doesn't necessarily mean that productivity and the efficiency in the company will see any quantum improvements," Kopp said.

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