Procter & Gamble's clout with HP reaches to the CEO's office

$3B, 10-year outsourcing pact brings top HP executives to P&G offices often

When Proctor & Gamble Co., wants something from its outsourcer, Hewlett Packard Co., it doesn't deal with help desks, trouble tickets or support tiers. It gets attention from the top levels of the vendor's executive ranks.

P&G's clout with HP might make some the latter's other customers a bit jealous, but the two major firms operate in a rarefied world of mega-outsourcing deals that carry high stakes for both their bottom lines.

In 2003, P&G signed a $3 billion, 10-year outsourcing contract that called for HP to take over the consumer product maker's IT infrastructure. Once the deal was consummated, nearly 2,000 P&G employees were shifted to the vendor's payroll.

In a presentation at Computerworld Premier 100 conference here today, Jim Fortner, vice president of IT development and operations at P&G's business services division, offered insights about how the company's relationship with HP works.

Fortner said that in deals as large as this one, there's a strong need for top executive-to-top executive connections, an approach that HP and P&G have put into practice.

Ann Livermore, executive vice president of HP's enterprise business, travels to P&G headquarters in Cincinnati about once every two months for a review of the vendor's performance. HP CEO Mark Hurd attends those meetings about twice a year.

Both HP executives "are wired into our business," said Fortner. "When you have the CEO of a company sitting across the table and saying 'we're going to deliver this,' you know they are going to deliver."

P&G works to get the most out of its vendors through activities like an annual "innovation day" to find ways to "innovate together," said Fortner.

Keeping a close relationship with all of its IT vendors has proved fruitful to P&G, particularly when it bought Gillette Co. in 2005 for $57 billion. Within two weeks, P&G's partners had assembled a large team to begin the effort to integrate IT systems.

Fortner's goal with this acquisition was to reduce Gillette's IT budget of $300 million by about two-thirds.

Aside from managing outsourcing contracts, one of the P&G IT operation's most important focuses is developing technology, especially systems that can create Second Life-like creations of in-store environments. Simulating data "is really big for us," said Fortner.

What simulation enables is this: A retailer, Wal-Mart for instance, and P&G can see on a visual display exactly what store shelves may look like with certain product configurations. The displays are so precise that the users can take virtual products off the shelves, read their labels, and move them virtually. The visualizations are coupled with back-end analytics to assess the impact changes to displays.

P&G isn't alone in intensive use of analytical models on the consumer products market.

Deep analytics in product development and marketing is major focus of P&G competitor Alberto Culver Co., a maker of skin and hair care products.

Tony Bender, the CIO at Alberto Culver, noted that anayzing the company's use of "trade promotions," the tactics used in stores to optimize product displays, could provide both a significant boost to sales and cut costs.

Consumer product companies may spend anywhere from 10% to 30% on trade promotion, he said. A $1 billion company may spend $100 million on trade promotions. If anlaytics could find ways to cut just 10% of those costs, the benefit is clear. "There is a lot of money at stake here," said Bender.

Trade promotion can involve things like in-store displays, advertising circulars, discounts and buy one, get one free promotions.

It's a complex transaction and involves a "post event" analysis because the company is spending money to drive incremental value and needs to know how well it did that, said Bender.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld . Follow Patrick on Twitter at @DCgov , send e-mail to pthibodeau@computerworld.com or subscribe to Patrick's RSS feed .

Read more about management in Computerworld's Management Knowledge Center.

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Patrick Thibodeau

Computerworld (US)
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