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In Hewlett-Packard Co.’s bid to be an enterprise partner on a par with such heavy hitters as IBM Global Services, no deal is more important than its outsourcing contract with consumer goods company The Procter & Gamble Co.

One year after HP, of Palo, Alto, Calif., took over P&G’s worldwide IT operations, executives at both companies point with satisfaction to a smooth transition in which some 2,000 P&G IT staffers joined HP with scarcely a blip in the provision of IT services. The $3 billion, 10-year agreement covers data center operations, desktop and end-user support, network management, and application development and maintenance.

“Given the size and complexity and the speed at which we did this, the quality just continues to be overwhelming in terms of how well it has gone from the beginning,” said Linda Clement-Holmes, general manager for IT infrastructure and governance at Cincinnati-based P&G.

While switching IT operations from P&G, a $43 billion consumer products manufacturer, to HP, the companies had to adjust to each another. “It’s like in a marriage, understanding who’s squeezing toothpaste from the middle versus from the bottom,” said Clement-Holmes. Dan Talbott, client manager for HP on the P&G account, put it this way: “We’ve needed P&G to transition from telling us how to do something.”

P&G and HP have project management offices for each to gain control of its own side and to streamline communications between the companies. Clement-Holmes said that so far the biggest lesson that P&G has learned is discipline. “It’s our responsibility at P&G to define the ‘what’ [that] we want—and it’s HP’s responsibility to come back with how they’re going to deliver against [it]. We define the what; they define the how.”

P&G’s project management office is responsible for the company’s outsourcing relationships. Clement-Holmes relies on a quarterly Balanced Scorecard report, which covers HP’s performance versus its service-level agreements and the satisfaction of P&G users of HP services. “It reflects how we feel things are moving along. … We continue to improve. We review that score card [with HP executives] up through [Executive Vice President] Ann Livermore on a quarterly basis,” she said.

With the transition in the books, the partners are now moving to capitalize on strategic technology initiatives. Looking ahead is key, for while a stable, long-term relationship is valued by both parties, both understand they cannot allow stability to lead to stagnation.

“What we didn’t buy was 10 years of 2003 technology. We bought the evolution of technology over a 10-year period,” said Clement-Holmes.

P&G maintains data centers in Singapore; Brussels, Belgium; and Cincinnati, equipped primarily with HP servers running HP-UX and Windows. HP is proposing to migrate to Itanium-based HP servers, although that plan has not yet been acted on. P&G’s desktop environment—called SEWP (standard enterprise workstation platform)—includes mostly Dell Inc. and HP Compaq machines, supplemented by other HP and IBM systems. Migration of those systems to HP machines is a likely part of HP’s ongoing technology refresh program, a P&G spokesperson said.

Looming is implementation of RFID (radio-frequency identification) technology to comply with a December deadline set by Wal-Mart Stores Inc. P&G officials declined to say exactly how far along they are in meeting that goal. P&G is experimenting with handheld computers for its sales staff to fill orders from retailers.

P&G’s aggressive strategy of acquisitions and divestitures will test HP’s flexibility. HP is examining IT synergies with Wella AG, which P&G acquired for $7 billion in June. At the same time, P&G is ending IT support for another part of its business, having sold drink maker SunnyD to J.W. Childs Associates LP in April.

“Our business continues to change, so that our environment and infrastructure needs to change to support that,” said Clement-Holmes.

Procter & Gamble’s outsourcing deals

  • HP Global IT operations; 10 years; $3 billion; signed, 2003
  • IBM Human resources processing; 10 years; $400 million; signed, 2003
  • Jones Lang Lasalle Inc. Facilities management; 5 years; $700 million; signed, 2003
  • HP Accounts payable; 9 years; less than $500 million; signed, 2004

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