Carlson Cos. Close To Seven-Year Outsourcing Deal With IBM

Carlson Cos., an operator of several well-known travel and hospitality brands, plans to outsource a number of business and technology functions to IBM, company officials confirmed Friday.

Carlson, whose brands include Radisson Hotels, T.G.I. Fridays restaurants, and Carlson Wagonlit Travel, is negotiating with IBM to hand off a portion of its IT and finance operations to the vendor. "This makes sense for both strategic and cost reasons," says Dave Zitur, Carlson's program executive for enterprise resource planning.

Carlson expects to have a final seven-year agreement with IBM in place within 45 days, Zitur says. He declined to estimate the value of the contract. Accenture was a close second in bidding for the work, Zitur says.

Carlson executives believe IBM, which maintains technology and business-services centers in India and other low-cost countries, can operate those functions more efficiently and economically than in-house workers. The savings that Carlson will achieve through IBM are double what the company would have been able to obtain through an internal reorganization, Zitur says. He adds that the deal will bolster the company's plans to expand into China, where IBM maintains a large presence.

Carlson said it expects to cut about 525 jobs as a result of the move, but officials note that 100 to 125 of those workers will be picked up by IBM. The remainder of the work will be distributed to IBM facilities in the United States, Canada, and India. "Over the long term, our goal is to create jobs not just here but around the world. This has been a very considered and difficult decision," Carlson CEO Marilyn Carlson Nelson said in a statement.

Carlson said it's not outsourcing customer-facing activities, such as hotel and travel reservations, because for the most part it considers those operations too important to turn over to a third party. An IBM subsidiary, Daksh eServices, presently handles a limited number of call-center operations for Carlson's leisure travel business from a facility in India.

Analysts say Carlson's plans show how more companies are outsourcing in an effort to align their costs structures with those of competitors that have already taken such steps. Says Stan Lepeak, an analyst with advisory firm EquaTerra, "As a competitive consideration, virtually every large company needs to at least consider outsourcing."