EDS Renews P&G Outsourcing Talks

Rival drops out; deal could be close

Two months after ending talks with Procter & Gamble Co. (P&G) on a big IT and business operations outsourcing contract, Electronic Data Systems Corp. is pursuing the deal again. And now its chief rival has given up the chase.

Dallas-based Affiliated Computer Services Inc. (ACS) took itself out of the running for the contract last week, saying that "the financial, operational and cultural risks were too high." ACS appeared to be the only contender left when EDS withdrew in July .

But in an unusual flip-flop, Plano, Texas-based EDS renewed its discussions with P&G earlier this month, according to a spokesman for the Cincinnati-based maker of consumer products.

The P&G spokesman said the new round of talks with EDS began before ACS announced its decision to pass on the deal. "There were just a number of differences in operations and other things where we could not reach agreement," the spokesman said of P&G's negotiations with ACS.

EDS spokesman John Clendening confirmed that the outsourcing vendor and P&G are again trying to work out an agreement. Both Clendening and the P&G spokesman said the companies could be just days away from signing a deal.

P&G is looking to outsource its back-office operations and the IT systems that support them in a deal that could affect up to 5,700 workers. The deal would involve a sale of the back-office operations to the outsourcing vendor, and EDS initially balked at the purchase price P&G was seeking.

Lesley Pool, chief marketing officer at ACS, said it's "unlikely" that the company will change its mind about giving up on the contract. ACS planned to turn P&G's Global Business Services operation into a business unit that would also seek back-office outsourcing deals with other clients, Pool said. But ACS decided that the unit's growth potential was lower than it had originally estimated, she added.

According to Pool, ACS examined P&G's financial practices, analyzed its IT systems and even looked at how P&G's IT workers would view an outsourcing arrangement with the services company. "The synergies were not there," she said.

Analysts have estimated the potential value of the P&G contract at anywhere from $4 billion to $10 billion over 10 years. But the disclosure that EDS is back in the picture at P&G came at a delicate time for the outsourcing company, which warned last week that its third-quarter financial results will be well below expectations (see story, below left).

Stephen David, CIO and chief business-to-business officer at P&G, said this month that the outsourcing deal is expected to include management of the company's enterprise resource planning system, which is based on SAP AG's R/3 applications. P&G is now rolling out SAP's supply chain planning software and will outsource that as well, he said.

Perez writes for the IDG News Service. Computerworld's Marc L. Songini contributed to this report.

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Outsourcing Developments

JUNE:

P&G confirms that it's looking to outsource its back-office operations and systems.

JULY:

EDS says it's dropping out of the running.

SEPTEMBER:

EDS resumes talks with P&G; ACS withdraws from negotiations.

Copyright © 2002 IDG Communications, Inc.

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