Outsourcing: Slow and Steady
Outsourcing: Slow and Steady
Procter & Gamble chose a simple strategy for the first year of its $3 billion technology services outsourcing pact with Hewlett-Packard: Dont screw it up.
No major restructuring of services or staff out of the gate. No high-cost implementations of new services or software. And, in particular, no interruption or degradation of the technology for supporting call centers and for managing its networks.
The go-slow strategy came after a whirlwind courtship that ended when Hewlett-Packard-not Affiliated Computer Services or Electronic Data Systems-became P&Gs key computer services contractor on August 1, 2003.
Linda Clement-Holmes, manager for global business services infrastructure and information-technology governance at P&G, says the strategy was born out of necessity.
It took just 94 days for the HP outsourcing pact to go from request for proposal to signed contract. Then, within 90 more days, HP had to absorb P&Gs three data centers in Cincinnati, Singapore and Brussels, 2,000 employees, its network infrastructure and its technical contracts.
With a 10,000-page contract and about 3,700 tasks to hand over-involving everything from network administration to payroll to mainframe management-P&G and HP determined it was too risky to change so much so soon. The companies adopted a "where is, as is" strategy in which HP initially just put P&Gs technology operations and workers on its books.
"Granted, we were pushing off savings a bit, but our main goal was to cut over and maintain a stable environment," Clement-Holmes says.
P&G is currently in a multiyear "transformation" that calls for HP to absorb P&Gs technology infrastructure and make it more efficient, according to Clement-Holmes. The key tasks are revamping business processes and helping P&G effectively deploy wireless computing technology and radio frequency identification tagging. P&G evaluates HPs performance quarterly using criteria such as network uptime, data center availability and response time on complaints. Qualitative measures on customer satisfaction are developed by polling business-unit heads who deal with HP on an ongoing basis.
"We want to take it beyond the service level agreements," Clement-Holmes says. "You can have great SLAs and unhappy users and clients."
These measurements are reviewed at the highest level of both companies. Ann Livermore, executive vice president of HP Services, and Filippo Passerini, P&Gs chief information and Global Business Services officer, each gets a copy.
Clement-Holmes wouldnt say how much P&G expects to save or how much savings HP already has produced, but says shes satisfied with the setup. HP has integrated much of P&Gs operations such as its data and call centers around the world, mainframe management and network monitoring systems. Meanwhile, HP has absorbed 98% of P&Gs 2,000 technology workers. HP isnt finished taking on P&Gs infrastructure, but the company is "well along on that path," says Dan Talbott, HPs client manager for P&G.
During the first year, HP also met or exceeded P&Gs "critical measures" such as service level availability and problem resolution time in 95.78% of cases, according to the two companies. During the last six months, the average was 97.41%.
"Weve been very careful not to disrupt service levels," Talbott says. "Our approach was not to move operations right away. Its not uncommon that after you move operations, service levels decline."
Just as important: not disrupting people.
"The big goal for us was making sure that employees who came to work August 2 last year didnt notice anything different from August 1," says Damon Jones, communications manager for P&G Global Business Services.
For HP, the P&G deal is critical in its quest to be taken seriously as an alternative to services giants such as IBM and EDS. The August 2003 deal was the first big splash for the companys services business following its merger with Compaq Computer, which gave HP a total of 65,000 consultants, a large number but roughly half of IBMs or EDS army.
Recognizing that HP was a cultural match but new to large outsourcing pacts, P&G deployed a "two-in-a-box" system. The setup paired an HP manager with a P&G counterpart to manage the transition on fronts such as human resources, technology infrastructure, applications and contracts. HPs role was to figure out how to make the transition, with P&G taking a support role. In areas where HP had little expertise, such as the contents of P&Gs 5,000 technology contracts globally and their various regulations and tax rules, the consumer-goods giant took the lead role, Clement-Holmes explains.
HP has thrown more resources at P&G than expected, Talbott says, but he wouldnt describe the number of additional people or the amount of extra money devoted to its tasks. For the second quarter ending April 30, HP Services revenue grew 15% year-over-year to $3.5 billion, with an operating profit of $329 million.
For P&G and HP, much of the first year was spent putting more rigor behind project management processes. The biggest move was to create a project management office that will oversee tasks such as upgrades to SAP software, revisions to the data warehouse architecture, and the integration of the operations of beauty products company Wella, which P&G recently acquired, into its systems.
Today, projects have clear requirements and are tracked to completion. P&G also spends more time defining requirements for, say, a new release of SAP. "P&G can spend more time on defining needs since HP has the how part," Clement-Holmes says.
HPs other big contribution was to create metrics to monitor all of P&Gs systems. For instance, P&Gs global technology services unit had less-than-stringent internal service level agreements with the various divisions of the company. As HP took over P&G operations, it began formalizing measures of service for everything from how enterprise systems performed in China versus Singapore to network availability to data center management.
Prior to working with HP, P&G had 73 measurements for service levels, focusing on items such as network availability and storage capacity. Now that HP has formalized the process, there are 181 service level measures, targeting enterprise planning application performance by business unit, technology services consumption and costs per resource.
According to Tom Hachiya, an HP client manager on the P&G account, many of P&Gs old systems werent designed to be measured. If a network worked, thats all you knew. "The hardest part was creating consistent metrics for legacy applications," Hachiya says. "There was no common way to measure performance in an ERP system globally."
HP used its OpenView software and other applications to build a cockpit that shows all of P&Gs technology infrastructure with performance metrics, such as the performance of SAP in the companys German subsidiary. The whole project took about six months to complete.
HPs biggest challenge, according to Talbot, was meshing with P&Gs homegrown culture where "everyone was hired out of school and had 20 years experience working together." P&Gs technology staff knew how to get projects done by using an informal network. That network moved quickly and was successful, but HP needed formalized practices such as escalation procedures and statements of work at the start of a project, he adds: "Our challenge was becoming part of that network."
Putting structure into P&Gs processes will be critical for the next phase of the project as well. In year two, HP is expected to deliver a report on how to refine P&Gs business processes and bring in innovations such as chip-based tagging of its products.
P&G says it will ultimately grade HP on how technology initiatives help the retailer break into new markets and extend its brand. This will also require new metrics, such as the time needed to fill service requests and the time frame for implementing a new discipline or technology, Talbott says.
HP is also urging P&G to pay for services when asked for, known as "on demand." To do that, though, HP has to complete installation on a host of monitoring systems. Exact figures werent disclosed, but more than 50% of HPs services to P&G are billed on consumption, Talbott says.
In the beginning of the deal, HP was charging per mainframe, worker, server and bandwidth. For the remainder of services that arent delivered on demand, HP is billing per person or resource, as in a traditional outsourcing pact. Talbott wouldnt put a timeline on completing the switchover to the demand-driven approach, but he contends that "were making significant progress."
How P&G Says You Should ROLL OUT OUTSOURCED SERVICES
- Go Slow
Make sure the services youre providing to customers, partners and employees stay high-quality.
- Manage Daily
Dont underestimate the time needed to manage and monitor the outsourcer.
- Centralize Operationsbr> Its easier to manage when technology services emanate from one place.
Create a governance council to oversee outsourced work, particularly if you have multiple providers.