INFORMATION TECHNOLOGY From internal service provider to strategic partner: An interview with the head of Global Business Services at P&G Filippo Passerini is bringing the back office into the boardroom. Michael Bloch and Elizabeth C. Lempres Article Filippo Passerini, the head of P&G’s Global Business Services (GBS), describes how his at a organization evolved to become a strategic partner with the company’s operating units. glanceHe explains that the consolidation of dispersed local support units, the outsourcing of nonstrategic service functions, and the blending of IT with other services helped the company to cut costs substantially and gave GBS a new role as a provider of innovative solutions in customer interactions and product development. The new challenge, he says, is to adopt a project-oriented work style as GBS takes productivity and IT-driven innovation to the next level.
P&G’s support services have made a ten-year journey that many globalcorporations are studying with interest and, perhaps, envy. P&G has saved around$600 million to date by consolidating all back-office functions, such as finance andaccounting, HR, facilities management, and IT, into one unit—Global BusinessServices (GBS)—and by outsourcing many of the nonstrategic activities involved inproviding these services. What’s more, GBS played a key role in the speedyintegration of Gillette, which P&G acquired in 2005, and it has emerged as astrategic partner with the operating units of the global consumer products group byproviding innovative solutions in consumer and customer interactions and inproduct development.“It’s all about innovation—at the operating level in the way GBS is structured and inthe design of our work processes, as well as upstream, in the IT-driven solutions thatwe can offer to support P&G’s brands.” So says Filippo Passerini, president of GBSand P&G’s CIO, when describing the transformation of support services into animportant contributor to the company’s &G has built its current business services platform in phases. In 1999, thecompany reorganized its small, mostly independent businesses into strategicallyconnected global business units and regional marketing organizations. At the sametime, it pulled together local support services (with the exception of IT) into a singleglobal unit— 2003, P&G embarked on a second phase when it entered into $ billion worthof outsourcing partnerships in IT infrastructure, finance and accounting, HR, andfacilities management. At that point, HP took over the development of ITapplications and the operation of data centers and IT support, as well as keyelements of accounts payable. IBM won a contract to provide employee servicessuch as payroll, travel support, and expatriate services. Jones Lang LaSalle took overthe management of offices and technical centers, including their maintenance andsecurity, in over 60 countries. But even in these areas, P&G retained the activities thatit considered strategic—for instance, IT architecture. Moreover, it chose not tooutsource services in business-critical areas such as procurement, logistics, andIT-driven innovation. In 2004, Passerini expanded GBS to incorporate P&G’s , Passerini talked with Michael Bloch, a principal in McKinsey’s Paris office,and Elizabeth Lempres, a director in the Boston office, about how the currentplatform has enabled the shared-services unit to emerge as a strategic partner withP&G’s business units and about the challenges and opportunities that lie ahead as itenters its third phase of development. 1
Vital StatisticsBorn July 30, 1957, in Rome, ItalyMarried, with 3 childrenEducationEarned . in statistics and operating research in 1981 from University of RomeCareer highlightsP&G (1981–present)President of Global Business Services and CIO(2008–present)Filippo PasseriniChief information and global services officer (2004–08)Global Business Services officer (2003–04)Vice president of business process sourcing study (2002–03)Fast FactsIQPC’s (International Quality and Productivity Center)Shared Service Leader of the Year (2006 and 2008)Named in Information Week’s “Innovators and InfluencersWho Will Make a Difference in 2008”Competition-level chess player and keen mountain climber The Quarterly: What was the thinking behind creating GBS, in 1999?Filippo Passerini: It was to eliminate duplication—most operating units at the timewere supported by their own local service organizations—and, in doing so, reducecosts and leverage our economies of scale. What we did in the next three years wasconsolidate and standardize more than 70 services. To provide around-the-clockbusiness support worldwide we built three shared-services centers: in San José, inCosta Rica; in Manila, in the Philippines; and in Newcastle, in the UK. We alsointegrated numerous IT systems into a much smaller set of global platforms, whichenable us to access data faster, make smarter decisions, and track operationsanywhere around the globe. 2
The Quarterly: P&G made a design choice when it set up GBS as one entity rather than letting the various support functions improve performance on their own. Many companies fear that bundling functions might create overhead that would bring more complexity rather than more Passerini: Our opinion is that if you optimize by function, you will inevitably end up creating silos, which would carry the risk of fragmentation. By integrating all these services into one organization, we can manage them by work process rather than by function and better leverage scale and create synergies. Take purchase-to-payment for suppliers, for example. Some of this work is normally in procurement, some in accounting, and some in finance. We can have one group of people who handle the whole process and so avoid handovers across multiple functions, each with its own management and perhaps different objectives and Quarterly: GBS was doing well at that stage. Why did you outsource many of its services?Filippo Passerini: The time was ripe for making the move. We had maximized our internal ability to cut costs and improve service quality. By consolidating and standardizing our services, we had paved the way for a smooth transition where we could leverage the greater scale and unique expertise of outsourcing partners and also negotiate attractive and mutually beneficial agreements with them. We believe there is a sequence in this process. You outsource only when you are internally optimized. Counting on outsourcing to fix issues or to help improve your work processes is a objective was not only to further cut costs and improve service levels. By outsourcing the more repetitive commodity work and keeping in-house what we considered strategic, we could in effect decommoditize our shared-services business and allow it to focus on innovation and developing new business capabilities for P&G. For example, about 2,000 P&G employees in 48 countries transferred to HP to cover things like infrastructure management and application coding. The remainder of our IT community stayed with us to work on system design and architecture, new technologies, and new IT-related business the time, this was the largest package of outsourcing deals in the we had strong internal skills, we were able to make the proposition tooutsourcers attractive so that our people were all offered jobs by our partners. Ourown people became our providers, delivering the same services. I asked our internalbusiness partners—P&G’s operating units—if they knew what day we transferredmany of our services to our outsourcing partners. They hadn’t even noticed ithappen. That’s perhaps not so strange. Let’s take our service center in Costa Rica as3
an example. Here, the people who transferred continued to work in the San Josécenter, so for them it was mainly a change of commitment to collaboration and strategic connection with our outsourcing partnerships has made a difference too. Earlier we mentioned purchase-to-payment for suppliers. One element, accounts payable, is now outsourced; the other two, procurement and finance, remain in-house. But the people managing this process work as one team. Even when they are not physically colocated, they are building on established relationships and know-how. That can only be an model was also unique because it was not a case of flat-out outsourcing, wherecosts are usually reduced by cutting staff. P&G was offering uniquecapabilities—skills, knowledge, work processes, and technologies—to each of itsoutsourcing partners, which enabled them to create new business was beautiful because our people were wanted and needed. The vendorsfurther offshored some of the work, but the GBS people who were affected by theoffshoring stayed in place to serve the vendors’ other Quarterly: How did the structure of GBS and the outsourcing partnerships help you to speed up the integration of Gillette?Filippo Passerini: Our centralized and standardized business services and integratedIT platform were prerequisites for achieving integration in 15 months. If we hadneeded to blend numerous Gillette systems with multiple, intertwined P&G systems,the transition would have been more complicated and costly and much more timeconsuming. Equally important was that we could flex up our capacity by leveragingour outsourcing partners. Within a few weeks they were able to provide 750 people,who joined an equal number of our own staff on this project. It would probablyhave taken three or four years to integrate Gillette if we hadn’t had the capacity toflex up on the this. We moved all systems operated by Gillette—an organization of nearly30,000 people that sold products in more than 200 markets worldwide—onto theP&G platform. This allowed the integration of the two sales forces; now when yougo to a customer, you take combined orders for all Gillette and P&G them together required the integration of warehouses and distributioncenters. All this brings down costs. The synergies savings, which we publicly declaredat $ billion a year, amount to around $4 million a day, so every day counts, andachieving them in 15 months saves a lot more money than achieving them in three orfour Quarterly: What was the thinking behind the incorporation of information technology in GBS?4
Filippo Passerini: The services that can help P&G gain a competitive advantage areenabled by IT-driven innovations. But making these innovations happen and gettingthe most out of them required a change in mind-set—from IT as a provider oftechnology to IT as a provider of solutions, often in cooperation with other reinvention of IT would not have happened had it remained a functional pulling all IT employees into one unit, renaming it Information and Decision1Solutions, and integrating this unit in GBS, we had the structural foundation for developing our IT people and instilling a new mind-set. The results have not been late in the new IDS structure, we have put resources to deliver against priorities. One ofthese is personalization—supporting P&G’s brands to develop one-to-oneconnections with consumers. So today, we have digital-services managers partneringwith the brands to create best-in-class Web sites that offer a high level of , for instance, parents can customize their membership according tothe age of their children and get appropriate health and nutrition advice by ourexperts. Having these managers in place allows us to drive scale, and because thedigital-services experts work as one global team, we can create synergies amongwork done by brands in different business units. Pampers has reapplied the model in49 markets around the globe, and the global network now reaches 26million consumers a year. In addition, we have reapplied this personalizationapproach for other individual brands, as well as on multibrand Web area concerns modeling and simulation through the use of virtual objective here is to reduce development costs and the time it takes to getinnovative products to market. For example, we used to use physical mock-ups ofproducts on shelves when we engaged consumer focus groups or retailers in thedevelopment of new products. We now do this virtually. One technology centers ona room with all walls covered by high-resolution screens that create a full,three-dimensional world. By using a pointer, you sense that you’re moving throughthe aisles of a real store even though you are standing still. The renderings ofproducts on shelves look more real than the real thing. It’s quite with the customer is much more immediate and profound. Moreimportantly, this technology allows us to quickly implement feedback on aproduct’s packaging or artwork. Instead of taking five or six weeks to redesign aphysical mock-up, we do it in days, as it’s all virtual reality. This allows us to iteratemore times and still cut costs while bringing innovations to market much faster andbetter. Our virtual solutions tools are now used in almost 80 percent of all P& Quarterly: How exactly does the integration of shared services and IT help you in this regard?5
Filippo Passerini: A traditional IT organization would have developed thevirtual-reality technology in-house or bought a package off the shelf and deployed itfor operating units to use. They would have executed in different ways, but theywould not have been able to maximize its value. Consider the point of the wholeexercise, which is speed. You have to build a virtual store within hours or days, andyou only have digital elements to work with, so you need a vast library ofhigh-quality three-dimensional pictures, and you have to always keep the library upto date. These are things that GBS can specialize in doing. So because we haveintegrated IT services, operating units can come to us and say, “A retailer is comingin, and these are the products we want to show.” We take care of the whole processend to end by building the virtual store and running the actual session. We managethe relationships with vendors to make sure that the technologies are working for us,and we collaborate with brand, customer, and R&D teams in order to fully leveragethe Quarterly: This must also require a commercially oriented culture, which is sometimes lacking in cost-focused services organizations. How do you deal with this issue?Filippo Passerini: We want to reduce costs in our commodity infrastructureoperations, on the one hand, but we want to continue to invest in innovation, on theother. Therefore, we have separated our investments in innovation from theobjective of reducing costs in operations, to eliminate the risk that a one-sided focuson costs could undermine the building of business capabilities. Moreover, we runGBS as a full business unit, just like P&G’s global business units that are in charge ofbrands and like the market-development organizations that operate in theindividual markets. They have scorecards that register profit margin, sales volume,and market share. GBS has an equivalent scorecard that measures financialcontributions to the company, service levels, and value creation. This inspires andincentivizes our people to be professional at commercializing and selling Quarterly: From a people perspective, what has changed at GBS since 1999?Filippo Passerini: I will give you a couple of indicators. Every year, P&G’s top 400senior managers rate each business unit on its contributions to the group. GBSstarted off six years ago at an aggregate score of out of 10. Our score is nowabove . It has gone up for six years in a row. But the most important indicatorfrom a people perspective is perhaps the number of internal P&G applicants forevery new job at GBS. That shows how much people want to be part of our servicesorganization. We’ve gone from applicants per job five or six years ago to
The Quarterly: Why are so many people suddenly so interested in working for GBS?Filippo Passerini: It is due to growing skills, high levels of investment in our organization, and the perception that we are doing more important work than before. Success breeds integration of Gillette is a good example. Our people were working around theclock. Every two or three months, we started up large systems. One phase, whichcovered Europe and some of Asia, began two years ago on January 1. Some 35people were in the control room for the last few days of December and the early daysin January. I was there with them on New Year’s Eve. I am sure most people wouldsay they have more interesting things to do on New Year’s, but the paradox was thateven though people had to work so hard, their morale was rising. It’s really verysimple. People want to do well. People want approval. When they feel they are doingsomething extraordinary, their motivation increases. Our people loved the workthey did during those 15 Quarterly: How did you go about changing the culture?Filippo Passerini: It was a big cultural change. However, when we talk of culturalchanges, we must keep in mind that we can’t commandeer culture. It is the product oforganizational design, of building skills and competencies, and of rewarding peoplewhen they do well. My own leadership philosophy is about launching breakthroughideas and setting goals. It’s about starting with the end in mind and forcing a pace todeliver on the goals. It is about creating support systems that enable the organizationto perform, to feel motivated and good about itself. It’s about raising the energy Quarterly: What’s ahead for GBS?Filippo Passerini: We are now moving into the third phase, which is about agility,flexibility, and being able to anticipate what will happen, so that we can respondmore quickly. The background is the way the world is accelerating dramatically notjust in our consumer-packaged-goods industry but in most other industries too. It isvery important to stay flexible in this new world. GBS is setting two overarchinggoals for itself: a dramatic rise in IT-driven innovation and a threefold increase inorganizational capacity and “flow to work.” The idea of flow to work is thatresources will be concentrated on the top few priorities at any time—just as they werein the integration of Gillette. The philosophy behind this model is that theorganization chart should be dynamic and determined by what the project portfoliolooks that context, we are being asked to bundle into GBS a project-management and change-management capability for large change initiatives, to support our 7
businesses across the world. This will involve different sets of skills and capabilities than the ones we currently have, and it will be very exciting work for our Quarterly: So this is a project-oriented, professional-services concept?Filippo Passerini: Yes. This will be transformational for us and will increase our productivity even further. It will also be better for our people because they will continue to develop professionally. The challenge is obviously that there will be a greater element of ambiguity in the system, and some people like ambiguity better than others do. But the new world of dynamic reallocation of priorities implies that you may change your manager or even your job every two years and sometimes every three or six Quarterly: How does the corporate center view GBS’s expansion of its servicecatalog to new project-based and more value-added services?Filippo Passerini: The company is asking us to take on far more work. We areworking on seven large worldwide initiatives—I call them the magnificent seven—forinstance, the phase-two integrations of Wella and Gillette. Each initiative will taketwo to four years to complete. In contrast, changing our core order-shipping andbilling system in North America took six years to complete in the 1990s, although itwas the only large systems initiative at the time. So we are going from delivering onelarge initiative in the world in six years to doing seven in parallel in two to four challenge is not unique. Other divisions within P&G face similar ones. The world is changing, and GBS must be one step ahead of change, so that we can control our destiny. That is really what the third phase for GBS is all about, and that is what inspires our people. About the AuthorsMichael Bloch is a principal in McKinsey s Paris office, and Liz Lempres is a director in the Boston 8
Related Articles on “Tying the knot: IT systems in a merger”“Getting more out of offshoring the finance function”“Understanding the Chinese consumer”“Managing IT to support rapid growth: An interview with the CIO of NetApp”“Building a global IT organization: An interview with DPWN’s managing director for IT”We welcome your comments on this article: quarterly_comments@ will be considered for publication online as well as in the print edition of T h e McKinsey Quarterly . Those chosen for publication may be edited for length and clarity and will be published along with the writers' names . We may also choose to publish the names of the companies or institutions with which the writers are affiliated, as well as any other information © 2008 McKinsey & Company. All rights
