Disney Delegates IT to OutsourcersBy John Moore | Posted 2005-06-15 Email Print
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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' 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.
Satyam, CA team on BPM.
The arrangement, unveiled on Monday, focuses on CA's CleverPath Aion products, which are intended to help organizations' optimize business processes. Satyam will provide BPM assessment and implementation services to CleverPath Aion users.
Satyam, based in India, operates offices worldwide, including 10 locations in North America. John Ulery, director of product management for CA, said Satyam provides the vertical market expertise necessary to deliver BPM solutions.
"One of the aspects of BPM that is critical is the vertical domain expertise," Ulery said. Satyam, he added, "offers domain expertise on a global basis" and maintains a BPM practice with more than 150 employees.
The centerpiece of the agreement is a CleverPath Aion center of excellence. Satyam's center, thus far, houses five employees who provide assessment services and 10 employees who provide implementation services in support of CleverPath Aion, according to Vinay Mummigatti, a general manager at Satyam.
The center will provide assessment services to identify processes that are candidates for optimization, Ulery said. The center also will develop process templates, which guide an organization's process redesign tasks.
Mummigatti said the center will help customers create "the road map on how to gain maximum return on investment from BPM initiatives."
As for vertical markets, Ulery said financial services, insurance, health care and manufacturing currently are leading the way in BPM. Business process, in general, "is gaining a great deal of attention," he said. Regulatory compliance is an important driver in that trend, he said.
The BPM pact marks the first formal alliance between Satyam and CA, although Ulery said that the companies have collaborated on projects in the past.
Satyam, for its part, has been cultivating software allies in the BPM space. Last month, the company entered an alliance with Savvion Inc., which develops business process management software. Under that agreement, Satyam will create process templates for services-based verticals such as banking, according to Savvion.