Procter and Gamble a Model of Innovative Outsourcing
Founded in 1837 by William Procter and James Gamble, the Procterand Gamble Company, or P&G as it is often called today,introduced many of the staples of American consumer culture,including Ivory soap, Gillette razors, Tide laundry detergent,Crest toothpaste, Tampax feminine hygiene products, and Pampersdiapers—products that have changed people’s lives. Today, P&Gsells its products in over 180 countries to five billionpeople—more than 70 percent of the world’s population.
During the 1990s, P&G experienced rapid global growth.Responding to the need to service internal corporate clients aroundthe world, the company’s Global Business Service (GBS) estab-lished three Shared Service Centers in Costa Rica, the Philippines,and England. The centers stan- dardized the way certain serviceswere delivered to P&G business units. The transformationenabled P&G to eliminate redundant activities, streamlineinternal services, better support multiple business units, andimprove the quality and speed of service.
Standardization of services also allowed P&G to develop a majoroutsourcing program. After A.G. Lafley became CEO in 2000, he andother company executives decided that P&G needed to abandon theconventional in-house services model and partner with outsourcedservice providers who could drive down costs and help the companypromote innovation.
In 2003, P&G’s GBS took what seemed to be a major leap offaith, awarding $4.2 billion worth of outsourcing contracts tosupport its IT infrastructure, finance and accounting, humanresources, and facilities management operations. P&G turned toIBM for employee services; Jones Lang LaSalle for facilitiesmanagement; and HP for IT applications, infrastructure, and someaccounts payable functions. These companies each took on a portionof P&G employees and responsibility for some of the SharedService Centers.For example, Jones Lang LaSalle took over facilitymanagement services such as building operations, mail delivery,security, car fleet operations, and dining. It also handledstrategic occu- pancy services, tracking occupancy costs, andproject management. Jones Lang LaSalle oversaw a $70 million annualcapital budget and bore the responsibility for the delivery of 1000projects at 165 sites in 60 different countries—including theconstruction of an office building in China and a new headquartersfor P&G’s Russian operations in Moscow.
Over time, the number of P&G’s strategic outsourcing partnersgrew and each relationship was handled a little differently. In2010, GBS decided to launch a smart outsourcing strategy calledstrategic alliance management to maximize the benefits gained byits outsourcing contracts. Gleaned from best practices refined overthe previous years, this program (1) adopted a joint businessplanning process with outsourcing partners, (2) establishedappropriate measures to assess progress, and (3) developed anAlliance Management platform that brought together all the data,people, reports, and communications for each outsourcingpartnership.
The joint business planning process involves employees from bothGBS and the outsourcing service provider who come together to settargets. Specifically, the team identifies base measures (e.g.,performance or revenue) with targets and then creates a list ofprojects and initiatives to help meet those targets. The teambrainstorms innovative goals and “wicked problems”—problems thatare likely to impact business performance.
To assess projects, GBS also adopted standard service-levelagreement (SLA) measures that track performance both at thegranular and aggregate levels. Aggregate level measures, for exam-ple, might include rating customer satisfaction.
Finally, GBS designed and developed an Alliance Managementplatform, a shared online space where team members could accessdata, people, performance reports, service-level mea- sures,training news, the joint business plan, an integrated alliancecalendar, and any document specific to the relationship with apartner. GBS ensures accountability by assigning key roles foroverseeing the management of each outsourcing relationship,including an executive sponsor, a relationship manager, a dealmanager, a transition manager, and an alliance architect (to over-see the governance of the outsource agreement). This strategicalliance management process allows P&G to recognize and rewardgood performance through renewal decisions at the end of therelationship agreement and by offering contracts for newinitiatives to the outsourcing partner.
For example, Accenture helped P&G develop the Decision Cockpit,an online portal through which global teams could share and analyzedata in real time. Accenture had the knowledge and experience toscale the system, giving P&G greater agility. Furthermore,through the joint planning team, the two companies reduced thenumber of daily and monthly reports that some managers wererequired to review from 370 to 30. The innovation reducedmanagement costs by 50 percent for some business units and savedover 400 miles of paper annually.
As a result of the success of this and other joint projects,P&G looked to Accenture to help consolidate and enhance thecompany’s virtual solutions. P&G’s virtual reality centers areused to create and test shelving, packaging, and in-store design.“In the past,” explains GBS’s Director of Business IntelligencePatrick Kern, “a test group of consumers would go into a physicalspace we configured like a grocery store to go on a shoppingexperience. Watching their behavior in store and conducting a focusgroup after, we’d learn why they chose what they chose and howpackaging and shelf position impacted their buying decision. Youcan imagine how expensive it is to put up these stores, fromsetting up shelves for different configurations to getting all theproduct there.”
The virtual solutions substantially reduced cost; however, P&Gnoticed that service delivery was highly fragmented as differentoutsource partners implemented the virtual solutions. So, P&Gawarded Accenture a multiyear contract to manage all of P&G’svirtual solutions content delivery, freeing up P&G to focus onother areas of innovation. As a result of this long-term successfulcol- laboration, the Outsourcing Center—an online repository ofwhite papers, articles, Webinars, market intelligence, and news onoutsourcing—awarded P&G and Accenture the OutstandingExcellence Award in the Most Innovative category in 2013.
That said, P&G’s decision to outsource GBS initiatives costthousands of Americans their jobs, white collar jobs that until theturn of the twentieth century had remained in the United States.P&G, along with IBM and Microsoft, led the pack in outsourcingU.S. jobs to India and other countries that were home to aworkforce with sufficient technological expertise andEnglish-language skills. However, in 2013, reports were leakedindicating that P&G was planning to “backsource”—or bring backin-house—some of the IT work it had been outsourcing. Some analystsargued that P&G was succumbing to pressure, like GeneralMotors, to repatriate jobs and boost employment in the UnitedStates. Others argued that P&G was seeking to gain control overcrucial IT functions that impacted its competitive positioning inthe market.
Yet, even if P&G backsources some of its IT functions, it stillremains deeply committed to out- sourcing. By deeply involving itsoutsourcing partners in every stage of its projects, P&Gpromotes what they call a “win-win” strategy. Today, many analystsview Procter and Gamble as a model of successful outsourcingstrategy.

1. How does P&G’s strategic alliance management system helpit avoid the pitfalls of outsour- cing? What risks does the systemnot address