IBM, Drug Store Chain Pen $1.1 Billion Outsourcing Deal

The Boots Co. to standardize on IBM PCs, servers, software.

IBM Global Services and U.K. retailer The Boots Company plc. recently signed a unique outsourcing contract valued at about $1.1 billion that encompasses IBM hardware, software, consulting and services.

The 10-year contract will draw on multiple resources within IBM to help the drug store chain leverage new technologies to better serve customers. Savings from the outsourcing portion of the contract, expected to be about $200 million, will be funneled into an innovation center in Nottingham, U.K., where IBM consultants and Boots employees will collaborate on innovating new tools and programs to reach customers with personalized offers.

"We want to be able to deliver targeted communications to our customers based on who they are as individuals through our kiosks and handheld PDAs that in-store service assistants will have to offer our customers information about products and related services," said David Lister, CIO at Boots.

As part of the deal, IBM Global Services will update existing technology used within the Boots stores. "Theyll replace over time our tills--13,000 point-of-sale terminals--they will refresh 10,000 PCs [and] kiosks [and] 6,000 handheld terminals we use in-store," Lister said.

Rather than taking a best-of-breed approach and selecting hardware from one vendor, software from another and services from a separate services provider, Boots opted for a more integrated approach with IBM.

"This deal is about bringing a range of things into one package and leveraging each element as part of a whole. IBM is the only player who can bring that broad range of capabilities to bear," Lister said.

The outsourcing portion of the deal calls for IBM to take over day-to-day management of Boots data center, in-store systems, data networks and telecommunications. IGS will manage over 3,000 servers, 10,000 desktops and mainframes in Boots data center. Some 400 Boots employees will transition to IGS.

Lister believes that by standardizing on IBM PCs, servers, software and other equipment, Boots will cut its costs further and "gain further commercial leverage with a smaller spend."

Boots and IBM have worked together for over 25 years, and in its partnership with IBM, Boots created the worlds largest smart card loyalty program, with over 14 million members. IBM will provide database management and applications maintenance to support the Boots Advantage Card program.

In a separate announcement, IBM said that it closed its $3.5 billion acquisition of PwC Consulting. IGS will create a new global business unit, dubbed Business Consulting Services, which will combine 30,000 IBM employees with 30,000 PwC Consulting employees.

At the same time, IGS named three new geographic leaders for the unit who will report to General Manager Ginni Rometty. They are Mike Collins, general manager, Business Consulting Services-Americas; David Dockray, general manager, Business Consulting Services-Europe, Middle-East and Africa; and Hideki Kurashige, general manager, Business Consulting Services-Asia Pacific. All three are former PwC executives.