HP bags £1.9bn P&G outsourcing deal

Procter & Gamble has agreed "in principle" to award a giant IT outsourcing contract to Hewlett-Packard valued at £1.9bn over 10...

Procter & Gamble has agreed "in principle" to award a giant IT outsourcing contract to Hewlett-Packard valued at £1.9bn over 10 years.

The two companies expect to sign a definitive agreement by mid-May.

Both Electronic Data Systems (EDS) and Affiliated Computer Services last year went into final negotiations with the household goods giant that eventually fizzled out.

The contract calls for HP to manage P&G's IT infrastructure, data centre operations, desktop environment, networks and some applications development and maintenance. The scope of the services is global, applying to P&G's operations in 160 countries.

About 1,850 P&G employees will go to work for HP, most of them from P&G's Global Business Services unit.

P&G said it chose HP for its cost, quality of service and technical expertise. If the contract is finalised, it would be a very significant win for HP as it continues to strive to improve its position within the IT services space.

The contract calls for HP to manage P&G's IT infrastructure, including data centre operations, desktops, networks, help desk, product lifecycle and procurement, and some applications development and maintenance.

HP beat out IBM and Electronic Data Systems for this contract, according to P&G.

"This is a huge win for HP," said Andrew Efstathiou, an analyst at Yankee Group.

P&G's decision to choose HP is consistent with recent Yankee Group research that shows chief information officers having a very high regard for the quality and scope of HP's outsourcing services, Efstathiou said.

The research found CIOs praising HP's skills in networking, desktop and end user support and data centre management and operation.

HP will take on many P&G IT tasks, but P&G will also continue to manage in-house "a significant portion" of its IT work, the company said.

The HP deal follows the collapse last year of plans for a more comprehensive outsourcing arrangement. When negotiations with Affiliated Computer Services (ACS) and EDS both fizzled out P&G decided to break last year's bigger contract into smaller pieces.

  • An IT services deal.
  • A facilities management contract to manage and maintain P&G's buildings and real estate.
  • An employee services contract to manage human resources tasks, such as payroll, benefits and corporate travel.
  • An accounts payable contract.

P&G expects to award the facilities management contract within the next three to four months, while the other two will not be awarded for at least another 12 months.

None of the three remaining contracts are primarily about IT services, but both the employee services and accounts contracts have a significant IT component.

In related news, Ericsson has signed a memorandum of understanding to outsource its IT infrastructure worldwide to HP.

The companies expect to sign a final agreement before the end of 2003's second quarter. Financial terms have not been disclosed.

The agreement will involve the transfer of a yet undisclosed number of Ericsson IT employees to HP.

HP's Compaq acquisition has broadened HP's services skills and increased its recognition among customers, said Juergen Rottler, vice president of marketing, strategy and alliances at HP Services.

"The merger has clearly positioned us at a different level in the marketplace," he said.

HP's chances of winning these two contracts would have been significantly lower before the Compaq acquisition, Rottler said.

Both P&G and Ericsson have heterogeneous, multi-supplier IT infrastructures, which will call for HP to manage equipment from a wide variety of providers.

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