P&G Strikes Balance in Multisourcing

 
 
By Stan Gibson  |  Posted 2006-03-19
 
 
 

Consumer products giant Procter & Gamble is a bellwether in the trend to multisource—that is, to implement an outsourced business model with several key partners. Other leaders in this movement are General Motors and Dutch bank ABN AMRO.

P&G began its outsourcing odyssey a half-decade ago, when it reportedly entered into talks to hand over all its IT and business processes to Electronic Data Systems in a deal worth a reported $8 billion. But when those talks fell through, P&G turned to Hewlett-Packard, with which in 2003 P&G signed a 10-year, $3 billion deal covering its IT infrastructure, ranging from data centers to desktops, in 53 countries.

Later that year, P&G inked a BPO (business process outsourcing) deal with IBM Global Services to handle human resources tasks. In April 2004, P&G went back to HP for a further BPO deal covering financial and accounting work . P&G also has outsourced its facilities management needs to Chicago-based Jones Lang LaSalle.

HP clones P&Gs Cincinnati accounting operations in India. Click here to read more.

The goal of multisourcing is to sever the ties of dependency that can hamstring companies that hand over all their operations to a single provider. Take, for example, General Motors experience: An exclusive relationship with EDS (in which EDS became a subsidiary of the giant automaker) resulted in GM having the highest IT costs of any automaker. In 1996, GM spun out EDS and opened its outsourcing contracts to other bidders. In February, GM announced the winners in its latest round of contracts. EDS, Capgemini, HP, IBM and Wipro got the biggest pieces of the GM pie.

The price of independence from a single provider, however, is greater diligence in management. Companies that multisource must have uncommon skill in managing the outsourcing relationships and making sure the outsourcers work well together.

For P&G, holding regular meetings at which all the outsourcers are present can go a long way toward working out the kinks. "We get the suppliers together with us once a quarter. ... Thats a good place to understand if theres an issue," said Linda Clement-Holmes, P&Gs director of infrastructure services, in an interview last year.

But good management isnt cost-free. Organizations that are new to multisourcing should plan on spending roughly 10 percent of the value of their sourcing deals for effective ongoing management, according to Gartner analysts Linda Cohen and Allie Young. In their book, "Multisourcing, Moving Beyond Outsourcing to Achieve Growth and Agility," Cohen and Young found that competent management pays off, however. They report that enterprises that have taken a disciplined approach to working with several different providers have fared far better than those that have taken an ad hoc approach to sourcing.

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