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IBM pins down Procter & Gamble deal

As expected, Big Blue signs a contract to manage employee services for the consumer products giant. The 10-year deal is worth $400 million.

IBM has inked a 10-year deal worth $400 million with Procter & Gamble to manage employee services for the consumer products titan.

The pact calls for IBM to support nearly 98,000 P&G employees in about 80 countries, providing services such as payroll processing, benefits administration, compensation planning, expatriate and relocation services, and human resources data management.

IBM and P&G announced the contract Tuesday. In late August, P&G disclosed that it was in exclusive negotiations with IBM for the services agreement.

IBM will also provide application development and management of P&G's HR systems with P&G's existing SAP software. About 800 P&G employees will be offered employment with IBM, the companies said.

In outsourcing deals, it's not uncommon for the services provider to take on employees from the customer. Those employees could be assigned to do their previous work or be directed to work for another client altogether.

The agreement is a sign that information technology service providers are keen to snag so-called business process outsourcing deals, which involve taking over responsibility for tasks such as employee services, call center operations and finance operations.

IBM calls the contract an example of "business transformation outsourcing," or BTO. Big Blue says the pact will allow P&G to improve services and reduce human resources costs through process change, technology integration and the use of "best practices."

"For IBM, this agreement significantly expands our global HR BTO capabilities and solidifies our leadership position, at a time when many companies are examining the benefits of comprehensive HR outsourcing," said Ginni Rometty, managing partner of IBM Business Consulting Services.

P&G already has a deal with IBM rival Hewlett-Packard to outsource IT operations. The 10-year, $3 billion deal was signed earlier this year. HP didn't submit a bid for the employee services contract, according to a P&G representative.

The IBM-P&G agreement is expected to become effective Jan. 1, 2004.