IBM in final talks with P&G for BPO deal

Procter & Gamble Co. is in final, exclusive negotiations to award IBM Corp. a business process outsourcing (BPO) contract to provide human resources services to its employees.

"Over the next several weeks, Procter & Gamble hopes to complete negotiations with IBM and sign a formal, long-term strategic services agreement," said James Sciales, an IBM spokesman. As part of the contract, IBM would handle services such as compensation, payroll, employee relocation and travel. Sciales declined to provide details about the duration or value of the contract.

Procter & Gamble has decided to outsource these business functions to lower costs, improve their delivery and redirect resources to its core business, said Damon Jones, a Procter & Gamble spokesman.

Procter & Gamble also talked to Accenture Ltd. and Convergys Corp., but IBM stood out, he said. "IBM came forward with the best total package in terms of financial value, ability to deliver high-quality services on a global scale and ability to continually innovate to bring future efficiencies to our business," he said.

Financial details of the deal haven't been finalized, but the BPO contract will run between five and 10 years and have a multi-million dollar value, Jones said. An analyst quoted by the Associated Press estimates the contract's value at around US$500 million.

Procter & Gamble estimates that around 700 of its employees will be transferred over to IBM, although that figure needs to be finalized, Jones said. He expects the contract to be signed "in weeks, not months," he said.

Jones talked about this contract to IDG News Service in April. Back then, Procter & Gamble had just announced its decision to outsource the management of its IT infrastructure via a 10-year US$3 billion contract to Hewlett-Packard Co. The spokesman said at the time that Procter & Gamble had three other big outsourcing contracts to award in the next 12 months, including an employee services contract.

In a typical BPO engagement, complete business functions, such as payroll and billing, are outsourced along with the IT tasks that support them. Thus, BPO projects are broader in scope than the typical IT outsourcing engagement, which concerns itself with IT tasks but not with business functions.

Human resource functions are by far the most outsourced business process currently, according to Gartner Inc., which in June predicted that companies will increase their spending on human-resources BPO this year to US$46 billion, which would be an increase of 18 percent from 2002. HR BPO spending will continue growing in 2004, reaching US$51 billion, according to Gartner.

Procter & Gamble, based in Cincinnati, is a giant maker of household products, such as Pampers diapers and Crest toothpaste.

Another company farming out tasks to IBM is The Boeing Co., which awarded IBM a three-year contract estimated at US$160 million to manage its corporate-wide voice communications network, which is used by almost 150,000 Boeing employees, IBM announced Friday.

The contract gives Boeing variable pricing options to pay according to its service usage, as a consumer would pay for utility services such as water and electricity, instead of paying fixed prices, IBM said. IBM will provide, among other things, support for telephony systems and applications, voice mail, audio conferencing and operator services. IBM will also work with Verizon Communications Inc. to implement a voice management system for Boeing users in the U.S.

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