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8/4/2008
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Deutsche Post Talks About Decision To Drop HP Outsourcing Deal

An IT manager at Deutsche Post, which runs delivery company DHL, explains why the company decided to not go through with a multi-billion dollar IT outsourcing contract.

Deutsche Post spent six months evaluating what it could gain from outsourcing the bulk of its IT department to a services provider. The conclusion, said a company IT manager, is that its own IT department proved a level of efficiency that made it unnecessary to outsource.

DHL parent company Deutsche Post, as InformationWeek reported last Friday, has decided not to go forth with a planned multi-billion dollar contract to outsource IT, including 2,500 jobs, to Hewlett-Packard.

In a July 21 email to employees, IT manager Stephen McGuckin said the "benefits, particularly in the early years, do not outweigh the risks," and that the IT department's improving cost position "made HP's job that much harder and their cost reduction target that much more difficult to achieve."

One IT manager involved with the negotiations, James Harvey, head of global support services for Deutsche Post/DHL, was reached at his office in the Czech Republic (the location of one of Deutsche Post's main data centers) on Monday. Harvey confirmed that the main reasons the deal didn't go through is because Deutsche Post's IT department was "more efficient than we had anticipated," he said.

The package delivery and logistics company was able to reach that conclusion, he said, because it made a decision to restructure its IT services business several years ago to operate more like a commercial IT services business. That included a formal ordering process for IT services and a services catalog with pricing included. As a result, IT has become "much more sensitive to its cost and that much more in-tune to what it's providing," he said. "I would recommend that step for any organization trying to understand the outsourcing proposition."

Because of the commercial-like structure of IT, Deutsche Post was able to better benchmark the actual cost of its IT department to what HP could offer. It wasn't that HP's costs were out of line, he said; any service provider would have had trouble making a case for outsourcing once Deutsche Post reevaluated its internal IT department.

The decision could have been based on more than improved efficiencies in IT, however. According to unnamed sources within Deutsche Post IT, HP was having some difficulty negotiating with IBM -- a staunch IT services competitor -- for acceptable prices on existing IBM server and mainframe software and support in the data centers, they claim. Also, some employees raised concerns about HP's compensation packages. Harvey did not comment on those claims.

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