New P&G deal gives HP its first BPO contract

Hewlett-Packard Co. has entered the business process outsourcing (BPO) market with a bang, expecting to finalize a deal in April to manage The Procter & Gamble Co.’s (P&G’s) accounts payable activities worldwide, an HP executive said Tuesday.

Although the companies aren’t disclosing any financial details of the deal, the engagement is massive in scope, if one considers that P&G is one of the world’s largest companies, with almost 100,000 employees worldwide and US$43.4 billion in revenue in 2003.

“This is our first major BPO win. Up to this deal, HP hasn’t had any designated BPO revenue. This is the beginning of our BPO revenue stream,” said Juergen Rottler, vice-president of sales and marketing at HP Services.

This deal strengthens the relationship between HP and P&G, which last year signed a 10-year, US$3 billion outsourcing contract for HP to manage P&G’s IT infrastructure worldwide, including data centre operations, desktops, networks, help desk, product lifecycle and procurement, and some applications development and maintenance.

However, the BPO contract is separate from last year’s IT infrastructure deal, Rottler said. “This is an expansion of our relationship with Procter & Gamble but not an expansion of the IT outsourcing deal. This is a different engagement which went through a full competitive process,” Rottler said, declining to say which IT services providers HP beat for the BPO contract.

The BPO deal will involve the transfer of P&G employees to HP, although Rottler declined to say how many, because details haven’t been finalized.

BPO differs from traditional IT outsourcing in that BPO projects involve the handling not only of IT tasks but also of business tasks. Thus, in a traditional IT outsourcing deal, the services provider might manage the client’s network, while in a BPO deal, the services provider manages one or more of the client’s business processes, such as billing, along with the underlying IT work that supports those business activities. In the broad outsourcing market, BPO has become popular recently and is experiencing elevated growth levels.

In HP’s case, the company has decided to enter the BPO market by commercializing to clients the services its internal finance and administration unit has been providing to HP for over 10 years. “This is the first real commercial customer beyond HP (for this finance and administration unit),” he said.

This HP unit provides to HP globally a broad array of finance and administration services, such as accounts payable, fixed assets accounting, general ledger, internal accounting, financial reporting, sales administration transaction processing and procurement transacion processing, Rottler said.

The scope of BPO services provided to P&G will be more limited in scope, focusing primarily on accounts payable, but HP’s intention is to market its full array of finance and administration capabilities to potential clients, as it makes a push into the BPO space, Rottler said. To this effect, HP has tapped Marc Schwarz, former director of global outsourcing at Deloitte Consulting, to lead HP’s new BPO finance and administration unit.

“The ingoing assumption is to make this a priority, but the plans will be determined by Marc,” Rottler said. “There are lots of opportunities in this market. There are no clearly established leaders yet.”

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Jim Love, Chief Content Officer, IT World Canada

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