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increase margins. The last thing a company wishes to do is incur the wrath of Wall Street or its
investors by not meeting their expectations. History has shown that the Street will penalize share
price, and therefore market capitalization, if a company disappoints. Therefore, in times of stress,
companies look to outsource any function that will produce cost savings.
• Improved company focus. At the turn of the millennium, Procter & Gamble had a separate
services division to provide information technology, real estate, and human resources services to
all of its operating divisions. It had determined in the early 1990s that a centralized service
organization was more efficient than providing those services in each of the divisions. In the
early 2000s, P&G reevaluated whether those services should continue to be provided in-house or
should be outsourced to external entities.
After analyzing the alternatives, P&G awarded a $3 billion 10-year contract to Hewlett-Packard to
manage P&G‟s IT infrastructure. It awarded IBM a long-term contract to manage the company‟s
payroll, benefits, travel services, and relocation services, among other tasks. An estimated 700 Procter
& Gamble employees would shift to being employed by IBM as part of the contract. In 2004, P&G
increased its relationship with Hewlett-Packard to include processing its accounts payable systems.
Jones Lang LaSalle oversees 14 million square feet of real estate for P&G at 165 sites in 60
countries, 50 of which, including the corporate headquarters in Cincinnati, are located in North
America. Sales offices and research facilities are located throughout the world.
• Access to state-of-the-art talent or capabilities. Many smaller companies can neither afford
nor compete for world-class talent. Sometimes skills are in short supply in a specific
geographical area or the issues of geographic relocation or immigration laws make it difficult to
attract talent. Frequently, cultural differences prevent a company from taking advantage of
resources. Labor shortages in the United States led to India‟s outsourcing market. How do you
bring 50 top-notch people on board for a short-term project and then abandon them? Outsourcing
provides an answer.
• Ability to react quickly to rapidly changing business needs. In the 1940 and 1950s, the life
cycle of a business process lasted 15 to 20 years, and information systems lasted 10 to 20 years.
At the turn of the millennium, the average life cycle of a business process decreased
exponentially to a rate of near continuous change, and the life cycle for information technology
was barely one or two years. How does a company support change that is occurring so rapidly?
The Internet and electronic business have changed the operational landscape forever. Companies
that cannot change overnight are left behind as industry laggards, constantly on the defensive.
Outsourcing allows a company to corral the external resources necessary to overcome constant
change.
• Availability of internal resources. When companies have limited resources to attack a
problem or an opportunity, where should they apply those resources? All too often company
resources are dedicated to fighting fires and not to exploiting opportunities. Companies are not
like an accordion, able to expand and contract easily to meet the short-term demands of the
marketplace. How does a company staff up to meet those demands? The cost of finding, training,
and then disposing of that talent, along with the bad reputation that accompanies fickle hiring, is
more expensive than outsourcing those functions.
Exhibit 18.1 Outsourcing and offshoring industry overview.