Disney Delegates IT to OutsourcersBy John Moore | Posted 2005-06-15 Email Print
In a move analysts say is evidence that large outsourcing deals haven't gone completely out of vogue, Disney has signed global outsourcing deals worth more than $1.3 billion over seven years.Walt Disney Co. has divided the IT fiefdom of its Magic Kingdom out to two outsourcing vendors.
Affiliated Computer Services and IBM Global Services have captured seven-year outsourcing contracts valued at $610 million and $730 million, respectively. Both companies confirmed the Disney business this week.
Published reports have been suggesting for about a month that Disney was poised to award contracts to the two vendors.
ACS signed its Disney deal on June 10. "Under the contract, the company will provide IT infrastructure services for Disney's global data network and domestic client services," according to ACS' Monday filing with the Securities and Exchange Commission. "Services will include desktop and help desk support, anti-virus, intrusion detection, messaging and procurement," according to the filing.
An ACS spokeswoman said the company had no comment beyond its SEC disclosure.
ACS' Disney deal ranks among the largest ever for the company. The company's other megadeals include a human resources outsourcing pact at Motorola Inc. whose value was estimated $650 million when it was awarded in 2002.
By midday Tuesday, ACS' stock climbed 2.5 percent to $51.27.
IBM Global Services, meanwhile, will support Disney's SAP software and about 90 legacy applications, according to an IBM spokesman.
The SAP portion of the deal expands upon work IBM already handles for Disney.
IBM Global Services has been managing the SAP deployment since purchasing PriceWaterhouseCoopers' consulting arm in 2002. PriceWaterhouseCoopers embarked on a project in 2001 to consolidate Disney's financial, payroll and human resources onto a single SAP platform. PriceWaterhouseCoopers has since been absorbed into IBM Global Services' Business Consulting Services unit.
The IBM spokesman said Global Services will manage applications development and support both on-site at Disney and through its Tulsa Center of Excellence, which focuses on financial management outsourcing. In addition to the software work, IBM will manage Disney's mainframes, midrange servers and storage systems that house 1.4 petabytes of data.
Disney's decision to shift "certain back of house IT work" to the two vendors will "provide enhanced value, improve organizational flexibility and effectiveness of operations, and adapt resources more nimbly in response to changing business conditions," according to a Disney statement.
The transition of IT work to ACS and IBM will take place over the next two months. Disney did not say how many employees will be dislocated, but published reports indicate that 1,000 IT staffers will be affected. A statement from Disney added that "impacted employees will be afforded the opportunity to be transferred to these suppliers."
Disney's $1.34 billion outsourcing project "does demonstrate that despite the well-publicized mega outsourcing deals that have been terminated over the past 60 to 90 days, there is still a keen interest in doing large-scale outsourcing among Fortune 500-type companies," said Jeffrey Kaplan, managing partner of ThinkStrategies, a Wellesley, Mass.-based strategic consulting firm.
Last month, for example, Sears, Roebuck and Co. terminated a $1 billion-plus outsourcing pact with Computer Sciences Corp.
However, "people continue to do large deals," according to Robert Zahler, a partner in Pillsbury Winthrop Shaw Pittman's global sourcing group. The Disney example provides confirmation that big contracts haven't gone out of vogue, he said.
Organizations seeking to outsource execute various strategies to mitigate risk. One approach is to break up tasks and assign them to two or more outsourcing vendors.
Kaplan said Disney's dual-sourcing approach has advantages and disadvantages. On the plus side, Disney can take tap into each firm's specializations. In addition, Disney may be able to gain price and performance advantages in playing one vendor off the other.
"On the other hand, the challenge that they face is ensuring that the two parties can coordinate their activities in such a way that they do not create problems and finger pointing when issues and events do occur," Kaplan added.
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