June 14, 2002 3:05 PM PDT

P&G weighs outsourcing deal

Consumer products giant Procter & Gamble informed employees Thursday that it intends to outsource a major portion of its back-office operations--including information technology--next year, the company said.

The maker of household brands like Crest, Tide and Pringles hopes to cut costs and increase efficiency by farming out 5,700 employees responsible for maintaining half-a-dozen data centers and carrying out operational functions, such as payroll and benefits administration, said company spokesman Damon Jones.

The company declined to name who it is negotiating with, but a report in The Wall Street Journal Friday said the company is considering competing bids from Electronic Data Systems and Affiliated Computer Services, citing inside sources.

Neither EDS nor ACS would confirm or comment on the deal. Procter & Gamble expects to cement a deal by the end of the year.

Whoever wins the contract will absorb 80 percent of Procter & Gamble's Global Business Services unit, which the company created in 1999 to streamline its back-office functions across far-flung international offices. The unit employs 7,000 people, including a staff dedicated to running one of the largest installations of SAP business-management software in the world.

"We do see partnerships like this as one way to keep up and stay ahead of changes in the marketplace," Jones said. "We know competitors are on our heals and we need to respond by increasing the efficiency of our organization and lowering our costs."

Jones declined to comment on what the deal would cost or how much it would save the company, but stressed that savings would come from the scale and expertise of its outsourcing partner, rather than from job cuts. The company anticipates layoffs as a result of the deal, but Jones said job losses would be minimal.

The company conducted an outsourcing study last year and is basing its decisions on the findings of that study, Jones said. The company looked to other corporate giants engaged in business process outsourcing--such as General Motors and General Electric--as models, he said.

The company held a series of conference calls with all 106,000 of its employees Thursday to discuss the pending deal. The calls were lead by Procter & Gamble Chief Executive A.G. Lafley and Vice President of the Global Business Services unit Mike Power. Some employees were hit hard by the news, Jones said.

"Employees have a lot of loyalty to P&G, and this was difficult news," he said.

 

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