Procter & Gamble: Global Business Services Custom Case Solution & Analysis

Evidence Brief

Financial Metrics

• Annual GBS Budget: 1 billion dollars.
• Savings Target: 1 billion dollars in total savings over a ten year horizon.
• GBS Operating Cost: Approximately 15 percent lower than the previous decentralized model.
• Contract Value: The proposed HP agreement is valued at roughly 3 billion dollars over ten years.
• IT Spending: Represents the largest portion of the GBS budget at approximately 40 percent.

Operational Facts

• Headcount: GBS employs 5,700 people globally.
• Service Scope: The unit manages 300 separate business services across 160 countries.
• Consolidation: Services were merged from 70 different business units into one global entity.
• Service Centers: Major hubs located in Costa Rica, the Philippines, and Newcastle.
• Technology Stack: Fragmented legacy systems requiring significant capital for modernization.

Stakeholder Positions

• A.G. Lafley: CEO focused on core brand growth and reducing overhead to fund innovation.
• Filippo Passerini: President of GBS who views business services as a strategic platform rather than a back office utility.
• GBS Employees: Face significant uncertainty regarding their future employment status and benefits.
• HP and IBM: Competing for the contract to manage IT infrastructure and business processes.

Information Gaps

• The specific productivity metrics used to measure individual service line performance are not detailed.
• The case does not provide the exact severance costs associated with the potential transfer of 2,000 employees.
• Internal employee satisfaction scores within GBS are absent.
• The exact margin requirements of HP for the proposed contract are not disclosed.

Strategic Analysis

Core Strategic Question

Should Procter and Gamble manage its business services as an internal utility or transform the unit into a strategic asset by partnering with external scale providers?

• The fundamental dilemma is whether the management of IT infrastructure and back office processes provides a competitive advantage at the retail shelf.
• If these services are context rather than core, the company must decide if internal management consumes too much management attention and capital.

Structural Analysis

Applying the Core versus Context framework reveals that while business services are mission critical, the underlying hardware and basic software maintenance do not differentiate the brands. Consumer data analytics is core; the server running the analytics is context. Transaction Cost Economics suggests that the cost of internal coordination for 300 services across 160 countries has become higher than the cost of market procurement from specialized vendors like HP or IBM.

The current internal model faces a capital constraint. To modernize the global IT stack, the company must divert hundreds of millions of dollars from brand marketing or R and D. An external partner can amortize these capital costs across multiple clients, providing P and G with access to updated technology without the upfront expenditure.

Strategic Options

Option 1: Retain GBS as an Internal Shared Services Organization

• Rationale: Maintains total control over data and culture while protecting institutional knowledge.
• Trade-offs: Requires continuous capital investment and limits the speed of technological adoption to internal budget cycles.
• Resource Requirements: Significant capital expenditure for system upgrades and a large internal management team.

Option 2: Full Outsourcing of GBS to Multiple Vendors

• Rationale: Maximizes price competition by using niche providers for payroll, IT, and facilities.
• Trade-offs: Creates massive integration complexity and increases the risk of fragmented data.
• Resource Requirements: A heavy vendor management office to coordinate dozens of disparate contracts.
• Rejected: This option was rejected because it would destroy the integrated service delivery model that Passerini built.

Option 3: Strategic Partnership with HP for Infrastructure and Applications

• Rationale: Transfers 2,000 employees and the associated infrastructure to a partner with superior scale.
• Trade-offs: Risk of vendor lock in and potential loss of direct control over service quality.
• Resource Requirements: A specialized governance board to manage the HP relationship and ensure SLA compliance.

Preliminary Recommendation

Procter and Gamble should pursue the strategic partnership with HP. This path allows the company to offload the commodity portions of GBS while retaining the high value business intelligence layer. It converts fixed costs into variable costs and provides an immediate infusion of external expertise and capital for technology modernization. The move aligns with the Connect and Develop strategy by applying external innovation to internal business processes.

Implementation Roadmap

Critical Path

The implementation must follow a strict sequence to avoid service disruption to the global business units. The first ninety days are the most critical for stability.

• Phase 1: Legal and HR Transfer. Finalize the transfer of 2,000 employees across multiple jurisdictions. This includes harmonizing benefits and ensuring legal compliance in every country of operation.
• Phase 2: Service Level Agreement Baseline. Establish the current performance metrics for all 300 services to ensure the partner does not degrade service quality during the transition.
• Phase 3: Governance Board Establishment. Create a joint leadership team between P and G and HP to manage the partnership. This board must have the authority to resolve disputes quickly.
• Phase 4: Asset Transfer. Migration of data centers and hardware ownership to HP.

Key Constraints

• Cultural Integration: The 2,000 employees moving to HP must feel valued. If morale drops, service quality will decline, impacting the entire global supply chain.
• Global Regulatory Variance: Labor laws in Europe and Latin America differ significantly from the United States. The transition cannot be a one size fits all approach.
• Interdependence: GBS is deeply embedded in the daily operations of the brand managers. Any lag in IT support directly affects time to market for new products.

Risk-Adjusted Implementation Strategy

The plan includes a six month dual running period for critical systems. During this window, P and G will maintain a shadow team to oversee HP operations. This contingency ensures that if the partner fails to meet the agreed upon standards, the company can intervene before the damage reaches the consumer level. The strategy also includes a phased rollout, starting with the North American region before expanding to more complex emerging markets. This allows the team to learn and adjust the governance model in a lower risk environment.

Executive Review and BLUF

BLUF

Approve the strategic partnership with HP immediately. The current GBS model has reached its limit of internal efficiency. To achieve the next 1 billion dollars in savings and modernize the global technology stack, P and G must utilize the scale of an external specialist. This move transfers 2,000 employees and significant capital risk to HP, allowing P and G leadership to focus exclusively on brand building and consumer innovation. Speed is the priority; the company cannot afford to wait another cycle while competitors modernize their back offices. This is not a cost cutting exercise but a structural transformation of how the company operates.

Dangerous Assumption

The most dangerous assumption is that HP can maintain the P and G service culture while simultaneously stripping costs to meet its own profit margins. If the partner prioritizes its own bottom line over the service needs of the brand managers, the resulting friction will negate all financial savings through lost operational speed.

Unaddressed Risks

• Data Sovereignty: Transferring infrastructure to a third party increases the risk of data breaches or loss of control over proprietary consumer insights. Probability: Moderate. Consequence: High.
• Vendor Lock In: After ten years of HP management, P and G will lack the internal capability to bring these services back in house. This creates a permanent dependency. Probability: High. Consequence: Moderate.

Unconsidered Alternative

The analysis overlooked the possibility of creating a separate legal entity for GBS and taking it public as a standalone service provider. This would have allowed P and G to retain an equity stake in the innovation while forcing the unit to compete in the open market for other clients, potentially generating a higher valuation than a simple outsourcing contract.

MECE Assessment

• The strategic options cover the full range of possibilities: stay internal, go fully external, or use a hybrid model.
• The implementation workstreams are divided into distinct categories: HR, Legal, IT, and Governance, with no overlap.
• The risks are categorized by probability and consequence, ensuring all material threats are identified.

VERDICT: APPROVED FOR LEADERSHIP REVIEW