A partnership culture
6 April 2006 Filippo Passerini
Filippo Passerini knew outsourcing was working when you couldn't tell P&G employees from the partner organisation. These unprecedented partnerships, combined with P&G's shared services integration, saved $875m and prepared the company for the future.
To us, the moment was a breakthrough, and exactly where we'd hoped to be one day. At the end of a high-stakes meeting with outsourcing partner HP, a new Procter & Gamble employee whispered to another, 'Who's from HP?' He couldn't tell.
When P&G began evaluating the option of outsourcing in the late 1990s, we looked at varied approaches – one 'big bang' company vs multiple deals; do it all now vs easing into it over the years; consolidating first vs outsourcing first, consolidating later. But with every option, one thing remained consistently crystal clear to us: this needed to be more than a contractual agreement based on goals and payments, penalties and commitments. For us, 'outsourcing' required a partnership business model, in which our two companies worked as one.
Most certainly, we were looking for a long-term arrangement that would help reduce costs, streamline work, maximise scale and provide quality service so that our employees could focus on what they do best: develop and market superior brands.
But even more, we wanted a relationship that would deliver innovation, bring new approaches to the table and help us grow stronger. We also wanted a partner that would embrace our employees and enable them to succeed. And we keenly recognised that we had something to offer as well, and could potentially help our partner grow its business, too.
In short, we believed that we would never realise the true potential of what outsourcing might mean for P&G unless, from the very beginning, we looked at outsourcing as a win-win relationship. High aspirations? And an even taller order? Without question. But P&G was built on partnerships.
A HISTORY OF PARTNERSHIP
P&G was formed when a candle-maker and a soap-maker joined forces on the banks of the Ohio River in Cincinnati in the hope of helping each other expand and flourish. From that humble beginning, our company has, over the last 168 years, developed into the world's largest manufacturer of packaged consumer goods.
We didn't see any reason to approach this latest era of business any differently. While we remain in the early stages of our relationships – and much work remains – we are already seeing tangible benefits from adopting this approach. And even more, we can see on the horizon the outline of things to come.
So, which of the many outsourcing options did we select? While for a brief period we considered the 'big-bang' approach, with one company handling multiple areas of our business services, we ultimately decided that the best-of-breed model, with a limited number of partners, would best allow us to tap into key areas of technical specialisation.
We first brought HP on board to take over much of our IT infrastructure work, including network management, desktop support and applications development. Meanwhile, we retained the areas we consider critical intellectual property, including data management and enterprise architecture. In a highly detailed, 10,000-page contract – so thick we had to sign it standing up – we entered into a ten-year, $3bn partnership.
Over the next four months we signed three more deals. We joined with Jones Lang LaSalle for five years for facilities management services, including maintenance, remodelling, security and mail services. That relationship now includes 274 properties and 19.7 million square feet in 78 countries.
Shortly afterwards, we signed a ten-year partnership with IBM to provide employee services, including payroll, benefits, relocation and travel support. And then we signed a fourth deal, this one expanding our relationship with HP by also having them provide transactional accounts payable services.
12 months, four contracts, nearly $4.2bn – on both sides of the table we knew that the stakes were high. For P&G, these four outsourcing contracts would come to support 140,000 employees in 86 countries and work that is core to our company's daily operations and long-term success. For each partner, P&G quickly became either their largest, or one of their largest, services customers. Success of our partnership model was a mandate.
TIMING IS KEY
Without question, this was a gutsy move. At the time, the size, scope and aggressive timeline for bringing in not one but three global partners, was nearly unprecedented. But for us, the timing was right. We had just completed a corporate-wide restructuring that adopted a truly global business approach, allowing us to more smoothly transition to and maximise an outsourcing partnership.
Just four years earlier, P&G operated as most multinational companies do. We had global headquarters, with dozens of small, largely independent brands and business units scattered around the world, most supported by their own local HR, IT, accounting and payroll services.
While this had worked well for us over the years, looking towards the future, we realised that for P&G to maintain its competitive edge, we would need to be more focused, streamlined and connected.
So, we reorganised the entire company into strategically connected global and regional business units – all supported by a single business support unit, Global Business Services (GBS).
In the next three years, GBS consolidated, standardised and linked all key global business operations – more than 70 services, including accounting, employee services, IT, technical support, payroll, data collection and facility management. We then built three follow-the-sun shared service centres in San Jose (Costa Rica), Manila (Philippines) and Newcastle (UK) to provide 24/7 business support to employees worldwide.
ECONOMIES OF SCALE
While the task was daunting, the benefits have proved to be substantial. We eliminated redundancies, reduced costs and began more effectively leveraging our economies of scale. GBS saved the company more than $500m through shared services in our first four years alone.
We also integrated data from numerous systems into just one main system (SAP), enabling us to access data faster, make smarter decisions and track operations anywhere around the globe. This, coupled with our centralized business services, allowed us to drastically accelerate the integration of new businesses and companies into P&G.
Thus, our autumn 2005 acquisition of The Gillette Company was not just highly desirable, but much more cost-efficient and manageable. If we had to blend numerous Gillette systems with multiple, intertwined P&G systems, the transition may have proved too costly, and certainly far more complicated.
Instead, we have what many who have managed such larger mergers would readily call the 'luxury' of taking time to evaluate and select the best from each company, making us stronger than either on their own.
Plus, we could now provide a standard level of service quality for all employees, regardless of their location. And, with our services standardised and consolidated, we had paved the way for a more organised transition to our outsourcing partners.
PARTNERS FROM THE OUTSET
So the timing was right, the structure optimal, and commitment to build true partnerships solid. But how did we go from contractual commitment to real commitment? We started before we even knew which companies we would hire.
An internal team was already establishing a governance / management structure and starting to build a system of checks and balances – service level agreements (SLAs) – that would ensure quality service delivery, while also allowing flexibility for independent decision-making. We also began looking for the right people with the right skills to oversee the partnerships.
MAKING THE TRANSITION
When we began looking for an organisation to partner with, we focused not only on the ability to deliver quality global services, but also on company character, values and culture. While we understood that no two companies operate the same, common values were critical in our decision-making.
Knowing that we'd be asking our new partners to retain as many impacted P&G employees as possible, we wanted a company that would value and foster the growth and success of those employees. For us, this was unequivocally the right thing to do. But it also helped the business, as it ensured that experienced people would remain in place to carry on company-critical work. (In the end, 99.5% of all impacted employees were successfully placed.)
This also proved to be a true asset for our partners; they received in our former employees a wealth of P&G experience and process know-how that could be applied across their own businesses and to what they are doing with other clients.
Once our three partners were on board, we went back to our SLAs, and together worked to sharpen and refine what was expected of each other. Granted, we were using a contract to shape our relationship, but we were doing it collaboratively, and with the understanding that the SLAs would be our guideposts, not the definition of our relationship. Through them, we outlined mutually beneficial goals with cooperative tactics on how to reach them.
In the days that followed the signing of the contracts – and every single day since then – we have worked to understand each other's cultures, respect new approaches, and share ideas, frustrations, concerns and rewards. On a regular basis, we assess the health of the partnerships, measuring nine different dimensions – with leadership teams from both sides working together to ensure it gets better and better.
Also, we are all mindful of the fact that the largest single reason partnerships fail is because the relationship itself is not solid. Supporting our own experience is a recent Vantage Partners survey showing that 64% of failed business partnerships blame a poor or damaged relationship, while only 30% fault poor strategy or planning and only 6% cite bad legal and financial terms.
There is no mistaking that this is hard work that requires a highly focused effort on all sides. Each of us continues to ensure that this aspect of our relationship is given as much priority within each company as the specific projects and tasks at hand. Every single day, we work to preserve our win-win spirit. For it is within that that the idea of a partnership becomes a reality.
Today, when high-stakes meetings focus solely on the best ways to deliver the best results, we know that this spirit has taken hold, and that our partnership is on solid ground.