Will IT Suffer from Citigroup Cost Cuts?

Ann All

One of the most sweeping labor reductions to date is Citigroup's planned shrinkage of 52,000 jobs, announced earlier this week. That puts it behind IBM, which cut 60,000 workers in 1993, and just ahead of Sears, which eliminated 50,000 positions that same year, according to an IDG story.

 

The goal is to end up with some 300,000 employees. Citigroup employed 375,000 as recently as 2007. About half of the cuts will come from divestiture of non-strategic businesses. Citi sold its BPO operations in India to Tata Consultancy Services for $505 million in cash in October, an acquisition expected to close this quarter. The BPO business employs 12,000. Citi is also reportedly angling to sell its IT outsourcing division in India.

 

Like Merrill Lynch before it, which was forced to sell to Bank of America last month, Citi will probably cull positions from the IT side of the house. Citi has already targeted IT for cost savings, relates the IDG article, announcing in 2007 that it would consolidate data centers, optimize global voice and data networks, standardize its application development processes, and reduce the number of IT vendors. When it cut 17,000 jobs that year, the company specifically mentioned "simplification and standardization of Citi's information technology platform."

 

More recently, earlier this year, senior executives mentioned plans to trim at least $3 billion in operations and IT spending over the next three years. Half of that total was to come from IT cost reductions. One example: eliminating duplicative technologies, such as 16 different database technologies.

 

Some experts say Citi grew too big, too fast over the past two decades, during which its primary growth strategy was acquiring other financial services companies. (Citi had plenty of company, of course. Many other banks grew mostly through acquisitions.) An SFGate.com article quotes Robert Howell, a finance professor at Dartmouth's Tuck School of Business:

Why the heck do they need 350,000 people to start with? It's always been way overstaffed. They should've woken up to that fact a year ago when they had way too many people to begin with.

Guillermo Kopp, a TowerGroup analyst, says Citi's IT strategy contrasts sharply with that of competitor JP Morgan Chase, which is attempting to differentiate itself through use of advanced technologies. Citi is seemingly making cost cuts out of necessity rather than a desire to boost efficiency or achieve other performance gains. Says Kopp:

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


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