Tulsa Energy Firm Strikes Outsourcing Deal with IBM

June 2, 2004 (PLANSPONSOR.com) - Tulsa energy firm Williams Cos. has agreed to ship about 460 jobs to IBM Corp. as part of a $320-million outsourcing pact.

The 7 1/2-year deal is expected to begin July 1 when roughly 380 Williams employees in Tulsa, 70 in Houston and 10 in Salt Lake City are offered jobs at IBM – a move Williams expects will save as much as $10 million annually, the Associated Press reported. The jobs are in accounting, finance, human resources and information technology.

Some of the outsourced workers will be employed in IBM’s Tulsa center, while others will be offered jobs elsewhere, said Maureen Power, IBM’s vice president of business transformation and outsourcing. The details have not been worked out, she said. “Our offers, should they accept, will be at comparable pay and comparable benefits,” Power told the Associated Press.

“This is a big, and difficult, step for our company and all of us as individuals,” Steve Malcolm, Williams’ chairman, president and chief executive wrote in a memo to employees. “It’s also a critical step in satisfying our need to quickly align our support costs with our smaller, more focused business operations.”

The move comes as Williams has sold more than $8 billion in assets – including three major pipelines and two refineries – since 2002 to improve its finances after its faltering energy trading business nearly led to bankruptcy. The company has refocused its business on finding, producing, transporting and processing natural gas amid a post-Enron energy sector downturn.

After the outsourcing, Williams will employ about 1,100 workers in Tulsa, down from about 2,400 two years ago. Through asset sales, layoffs and the deal with IBM, Williams will have reduced its workforce to about 4,500 from 12,400.

Recent Outsourcing Pacts

In one recent deal, Hewitt Associates signed an agreement with TXU Corp to provide human resource business process services outsourcing (BPO) for the energy firm (See Hewitt Inks HR BPO Deal With TXU ). Through an agreement with Capgemini Energy LP, Hewitt will provide HR operations, strategy, design and administration to all of the Dallas-based energy firm’s U.S. employees. Capgemini Energy will provide information technology, call center, billing, supply chain and accounts payable, and finance and accounting services to TXU.

The deal appears to be in line with other HR BPO deals inked over the last couple of years, including IBM’s 10-year, $400 million deal with Procter & Gamble; and The City of Copenhagen’s five-and-a-half year, $43 million deal with Accenture and AT&T’s seven-year pact to outsource human resources and payroll services to Aon Corporation (See Cover: Take It Away ). In particular, the Hewitt, TXU relationship resembles Motorola’s 10-year, $650 million deal with ACS in which ACS hired 650 Motorola employees (See The Bottom Line: Outsourcing for Savings and Profit ).

BPO deals appear to be paying off as well, at least on corporate finances. A Towers Perrin survey of companies that have adopted broad-scale HR outsourcing in the last four years found that more than three-quarters – who collectively represent 90% of all current major HR BPO arrangements – said they had met short-term cost-saving goals, with 37% citing “complete success” on this important outcome. Long-term cost cuts are beginning to emerge as well, although 56% of the group said it was too soon to tell how by how much and just 37% overall cited some success on this front.

Yet, while BPO arrangements appear to be saving money, Towers found the deal have not necessarily been the be-all panacea some users might have expected. For example, while six in 10 said the ability to eliminate transactional work helped them refocus on more strategic activities, just 11% cited hitting a home run in terms of results. Only 35% cited improvements in service quality beyond what they felt they could have achieved on their own. Of the 57% who said they were changing manager and employee behavior – and moving toward increased self-service – a scant 15% cited full success (See HR Outsourcing Not an Overall Panacea ).