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6/17/2005
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Outsourcing Deals Signal Tech Changes At Disney

Former General Motors Corp. chief technology officer Tony Scott came from one of the most outsourced IT operations around, so it's no great surprise to hear of Walt Disney Co.'s decision last week to outsource a number of IT operations to IBM and Affiliated Computer Services Inc. and transfer about 1,000 computer jobs to those vendors. "He comes from a culture of outsourcing," Moors & Cabot analyst Cindy Shaw says of Scott, who became Disney's first company-wide CIO in February.

GM outsources nearly all its IT operations and development, most of it to EDS, which GM used to own. So it makes sense that at Disney, Scott will look to outsourcing as a means of capping the company's increasing IT expenses. In a regulatory filing, the company said that higher IT costs at Walt Disney World contributed to a $422 million increase in overall second-quarter expenses. Scott also will be under pressure to help Disney deliver on outgoing CEO Michael Eisner's promise to show double-digit earnings growth this year. "He'll be looking to take cost out," Shaw says.

Disney executives declined to be interviewed. In a statement, the company said the outsourcing initiative, to be executed over the next two months, is designed "to provide enhanced value, improve organizational flexibility and effectiveness of existing operations, and adapt resources more nimbly in response to changing business conditions." When Scott was hired, he said his role would be to leverage synergies wherever they existed.

The company says workers affected by the outsourcing will be offered employment at ACS or IBM. Some work will be done at Disney while some will shift to an IBM development center in Tulsa, Okla. An IBM spokesman declined to say whether any of the jobs would eventually be moved to the company's lower-cost offshore facilities.

Under a seven-year, $730 million deal, IBM will help Disney manage and maintain its SAP software, as well as other business applications. It also will run Disney's mainframe systems, 3,700 Intel- and Unix-based midrange computers, and storage systems containing about 1.4 petabytes--or roughly 20 million filing cabinets' worth--of data. For its part, ACS won a seven-year, $610 million deal to manage Disney's data networks and provide desktop and IT help-desk support.

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