Outsourcing /

ACS poised to get Procter & Gamble deal

By Tim Wilson
Network World Outsourcing Newsletter, 07/22/02

Last month, Procter & Gamble revealed that it was preparing to turn over much of its IT operations - including most of its Global Business Services Unit - to an as-yet-unnamed outsourcing provider. This week, it appears that the winner of that huge outsourcing contract is about to be named - and it isn't the winner that many observers might have expected.

According to a Procter & Gamble statement, Electronic Data Systems has pulled out of the bidding for the outsourcing contract, which is expected to be valued at $7 billion to $8 billion over 10 years. EDS's withdrawal leaves Affiliated Computer Services, a $3 billion IT outsourcing firm, as the only bidder and apparent winner of the mammoth deal, which is expected to be awarded by year-end.

ACS might appear to be too small to handle a contract such as P&G's, but those who have been watching the deal say that it was ACS, not EDS, that had emerged as the favorite in the bidding battle. The reason, they say, is workflow software.

In its outsourcing project, Procter & Gamble is not just seeking a company to take over its IT management, but also a company that can help it rebuild its business processes. In an effort to cut costs and increase efficiency, P&G is looking to speed the flow of information across its departments and eliminate processes that slow its productivity.

ACS responded to that call with workflow technology that it acquired when it purchased Unibase five years ago. The proprietary software, which helps streamline the flow of data among back-office applications, is the platform for ACS's " business process outsourcing " offering. The software is one of ACS's strongest features, according to P&G.

The idea of unifying back-office applications and processes through workflow software seems to be working for ACS. Business process outsourcing now accounts for about two-thirds of ACS's revenue, and the P&G deal would obviously put that figure much higher. The technology also could be beneficial for P&G, which needs to find more efficient and reusable processes for exchanging information among its diverse group of consumer products business units.

However, companies thinking about adopting an outsourcing model similar to the P&G-ACS deal should think carefully before they leap. Purchasing proprietary software from an outsourcing vendor can be risky, because such software embeds the vendor into the client's IT systems. Once such software becomes part of the business process, it will be very difficult to extract, even if the relationship between the client and the outsourcing provider goes sour.

A company of P&G's size doesn't have to worry about this sort of " lock-in, " because it will account for such a large percentage of ACS's relatively small business. If P&G has a problem with the ACS software, it can simply ask for modifications, and the ACS development staff will respond quickly.

But for smaller companies that contract with large outsourcing firms, that responsiveness is by no means guaranteed. In these cases, the smaller company may be forced to make changes in its business processes to fit the software, rather than the other way around. Such smaller companies might be better off choosing off-the-shelf workflow software to streamline their back-office processes, making it easier to switch outsourcing providers if the need should arise.

The P&G deal is a huge leap forward for ACS as a company, and perhaps for its concept of business process outsourcing. But before they consider following in P&G's footsteps, other companies should give careful thought to using proprietary outsourcing vendor software - and whether they have enough influence on the vendor to make it fly.