P&G - Outsourcing Options at GBS

Procter & Gamble: Global Business Service Overview:

Procter & Gamble’s Global Business Service (GBS) was one of the three organizations that supported the company’s five Global Business Units (GBU) identified as its “core competencies”– fabric and home care, beauty care, baby, feminine and family care, health care, snacks and beverages. Planned to be operating off regional centers spread across the world, GBS acted as the company’s backbone by providing back office functions/services like finance, accounting, order and credit management, Information Services (IS) and Technology services.  Any decision to make changes to the composition/structure of GBS – which which had standardized work processes, capitalized on new technology and reduced costs and improved services – had its share of pros and cons that needed thorough analysis before finalizing on the next steps of  the organization. The pros and cons associated with the options presented were as follows: Option# 1: Spin off GBS as separate entity Pros: 1.

Excelled in providing back-office services to business units in P&G worldwide – on a level similar to what other successful BPO companies were doing..a growing field/trend at that time

2.

Preferred option of top management at GBS – top leaders working in the organization wanted to take it to the next level and be spun off as a new business

3. Only way way to increase increase revenue revenue and decreas decrease e costs and not impact impact employ employees ees Cons: 1.

Business Process Outsourcing (BPO) was not identified as P&G’s core competency

2.

Spinning off GBS had Unproven benefits and high risks associated with it

3.

Post-spinoff, services to P&G could be potentially impacted given the need for the new entity to lookout for and service new clients

Option# 2: Outsource GBS Services to single company Pros: 1.

Relatively easy vendor management and contract negotiations involving just one vendor 

2. Lucrative Lucrative deal size size ($ 7-$10 Billion) Billion) and opportun opportunity ity will will ensure best best in-class in-class vendors vendors apply and compete for the deal 3.

Provides a potential solution to re-employ the GBS workforce to a ‘grand fathered’ into a new parent company in one move.

Cons: 1.

Outsourcing to a single company may still not make P&G ‘flexible and swift’ as the management wants it to be.

2.

In the developing and upcoming BPO market at that time, it is hard to find a suitable vendor spread across the world and providing all the different services

3. P&G can potentially face high “Operational and Structural” risks. 4.

Hard to see a company already big in size adding 5700 employees to its work bench unless elaborate arrangements are made with P&G

Option# 3: Outsource GBS Services to multiple companies Pros:

1. Provides some level of flexibility and agility to react to acquisition, expansion and changes in corporate strategy 2. Possible phased outsourcing can help test the market and employee reaction to the change. Lessons learnt from one outsourcing solution can be applied on others. 3. Each (possibly multiple departments) will be serviced by a company specializing in that field /area 4.

Provides growth opportunities to GBS employees by allowing them to excel and grow in their chosen fields

5. Company mitigates “Operational and Structural Risks” by contracting multiple vendors and following a phased approach to outsource. Cons: 1.

Vendor selection and contract negotiations will be complex and have high costs associated with it

2. Monitoring the outsourcing relationship and enforcing contract could be challenging 3. Current GBS Employees may not want to work for a small supplier/consulting company. 4. Deals size and associated re-employment may not be lucrative enough for niche companies/suppliers to interest them in the offer 

Option# 4: Retain GBS In-house Pros:

1. The company need not undergo the changes and focus on further refining and fine tuning GBS’s operations and procedures 2. Employee morale will not be affected and they will start focusing on innovation and improving productivity again 3.

In line with Company’s core value – “P&G is its people and the values by which live”

Cons: 1.

Employees will continue to suspect management’s intention to outsource the organization at some point in the future if not right away

2. GBS’s management, interested in a spin-off, may not be as focused anymore and may start looking for other opportunities that provides them more control and flexibility. 3.

Since the announcement, many employees had already left the organization to join other  business units leading to uncertainty and confusion

Selected Option :

 All four options affect GBS’s employees and its future structure and operations in one way or  another and neither selection guarantees success and increased innovation and flexibility. After  reviewing and analyzing all the options I would advise Walker to take Option# 3 of Outsourcing GBS to multiple “best of breed” companies. The key drivers for this recommendation are: 1.

Outsourcing ‘non-competitive activities’ : GBS’s activities to be outsourced are not

critical for competitive advantage and can be taken over by ‘specialist’ companies. These processes can be classified as “Qualifiers” that can be handled by an external supplier. 2.

Benefit of having multiple provider : Having multiple suppliers working on business

allows easy transfer of work from an underperforming supplier and fosters competition 3.

Allows IS improvement : Allows GBS to improve service quality and build new technical

skills and management competencies by exploiting economies of scale. It also positions to make use of the booming IT services and technologies that were flooding the market at that time and acting as a ‘differentiator’. 4.

Defining flexible pricing models and contract : Outsourcing to multiple vendors allows

GBS to define different pricing models – “fixed priced” or “fee for service” based on the nature of work outsourced

5.

Management Intent: It was apparent that the P&G management had decided to make

changes to GBS structure –even though it cut costs and improved services - by outsourcing the business services. Picking multiple suppliers over a single supplier  seemed a more practical and less risky approach.