On October 20, IBM announced a $180 million contract to provide a range of technology services to business information tools provider Dun & Bradstreet. In the ordinary scope of business, this might not even register a blip on the radar. What seems to put the deal outside of the ordinary are the services that D&B chose to outsource. The term IBM uses to describe the arrangement is "business transformation outsourcing" (BTO).
You may remember that a few years ago D&B made waves in the technology industry by choosing to outsource its IT operations. That move was part of an initiative that D&B labels "Financial Flexibility." What it amounts to is how D&B is streamlining its operations.
Recently, D&B took that streamlining activity to a new level, choosing to outsource what looked like core functions to IBM. In this global deal, D&B will hand off customer care functions, some transaction processing functions, and data acquisitions to IBM. "When you think about who they are as a company," says Maureen Power, vice-president of BTO for IBM's Communications Sector, "information is obviously what they're selling. We are literally running their lifeline."
Take a closer look, and maybe it's not a lifeline, but it's certainly a significant line of operations. Yvette Rudich, a spokeswoman for IBM, explains the outsourcing deal a little differently, likening it to the manufacture of an automobile. "[Automotive companies] don't make every piece of the car, but they own the end product," she says. "People associate outsourcing with cost savings, but D&B approached it with the idea of improving services," she adds. Still, cost savings were a huge factor, as is evidenced by the fact that D&B will be cutting 750 positions as a result of this deal. Of those positions eliminated, 220 people will be moving to IBM to perform the same jobs they did at D&B, using the same information.
This isn't your typical outsourcing. The company is moving very cost-intensive functions to IBM. In return, IBM will leverage its expertise to increase efficiencies. But even the IBM folks are describing it as more of a partnership. "We're taking over part of their operations, but we will be inside of their overall organization," says Power. In other words, it's not an arms-length outsourcing model. It's more of a partnership outsourcing model. And so it should be, according to Power. "It doesn't work effectively the other way," she says.
Analyst Weighs In
So, the question is, is this deal an outsourcing of core functions or not? Robert McNeill, a senior analyst at Forrester Research, says probably not. "Most outsourcing taking place is outsourcing of noncore processes," he says. "And there is a lot of interest in outsourcing of noncore processes, typically infrastructure functions." He adds that about 90 percent of the contracts that come out of IBM can be loosely termed as outsourcing of infrastructure functions.
Still, even though the authorities can't seem to agree on the terms that best describe the deal, one thing is certain. D&B is an example of a shift that seems to be happening in the outsourcing market. Rather than simply outsourcing processes, companies are beginning to look at ways to bundle that outsourcing with the process reengineering that usually takes place at the infrastructure level. And McNeill says, "As organizations become more confident with outsourcing and managing outsourcing, this will absolutely become a trend."
Jerri L. Ledford is a freelance business and technology writer.