Sugar plums weren’t dancing, but Motorola had visions of improving its IT costs after announcing on Thursday a 10-year, US$1.6 billion outsourcing contract with El Segundo, Calif.-based Computer Sciences Corp. (CSC).
The highly infrastructure-based agreement will see CSC taking over global IT operation of voice and data networking services, midrange and central data operations, IT help desk services and desktop support.
Before the agreement, Motorola handled all these services in-house, said Margot Brown, a Motorola spokesperson based in Schaumburg, Ill.
Brown said Motorola’s current IT strategy would have required a significant investment by the company, but by outsourcing a portion of the IT operations, it is in a better position to “deliver a low cost, greater skilled and higher quality of service to our people.”
“We will experience greater efficiencies for our IT service overall,” she said.
Motorola will continue to handle some IT operations related to enterprise application such as IT security, IT architecture design, project management and application software.
Motorola said CSC utilizes a variable cost model, which allows the cost structure to be fluid when its needs go up or down.
“It allows cost structure to fluctuate based on usage and enables us to keep cost-consistent with current business conditions,” Brown said. “As a company with IT in-house, we could not do that. CSC has a wide variety of customers around world. They can spread their costs across their entire customer base.”
The agreement, which goes into effect May 1, includes the transfer of 1,300 Motorola employees to CSC. Brown wouldn’t give specific numbers on how many Canadian employees would be included in that move, but she did say that over half of the employees are based in the United States. The rest are located in Europe, the Middle East, Africa and Asia-Pacific regions. All employees will be offered compensation packages comparable to what they were earning at Motorola, she said.
Motorola would not disclose how many people they have overall in IT function, but Brown did say that 1,300 employees are a little less than two per cent of the workforce.
While Dan McLean, director of outsourcing and IT utility research with IDC Canada Ltd. in Toronto, said that the deal is somewhat standard, he added that the term of the agreement was somewhat surprising.
“One of the trends that we are seeing in outsourcing is shorter term contracts and we had a sense that the days of 10-year contracts were by us,” McLean said.
Motorola will have 10 years of predictable costs and CSC will have a regular annual revenue stream, which are certain advantages for both companies, McLean said. But at the same time, he added, shorter-term contracts allow more flexibility between the two companies if the deal needs to be revisited after it is implemented.
Other rival companies in the running for the contract were Electronic Data Systems Corp. and IBM Corp. Brown said the technology solutions, the financial agreement, the plan and the fact that employees would be part of the deal were the reasons Motorola went with CSC.