Diebold Insources Outsourcing, Leaving Deloitte & Touche At Sea

Can't count your chickens before they hatch. In this case, can't even count'em even while hatching. In an unusual turn of recent events, Diebold, Inc., a $2.6 billion manufacturer of ATM machines, security systems and services and 14,000 employees, pulled out of a 7 year outsourcing contract with DC Outsourcing ITO L.P., an affiliate of Deloitte Consulting LLP, a part of Deloitte & Touche. Four years ago, Diebold had contracted with DC Outsourcing to receive various IT-related services over a 7-year period, including deployment and implementation of the Oracle ERP system. Now Diebold has decided to bring the global IT operations in-house. Why? The company claims this provides more control and flexibility over IT ops and ability to accelerate the remaining ERP deployment. This switch will bring back 80 IT employees, who were mainly Diebold employees prior to the original outsourcing arrangement. And there is financial pain too, Diebold will incur a termination fee that will result in a restructuring charge of approximately $7 million or $.07 per share in the second quarter 2006. In February, surely as a precursor to this announcement, Diebold made several leadership appointments and operational changes, including enterprise applications, Oracle implementation, global information management, business intelligence and information security. These changes were intended to provide the structure necessary to achieve maximum value out of the new IT organization. And the CEO says, "I am pleased to announce that we have taken another important step toward returning our company to a more acceptable level of long-term profitability. Regaining direct control of our IT operations and ERP implementation will allow us to expedite the process of realizing the long-term benefits of an enterprise-wide information system," said Thomas W. Swidarski, Diebold president and chief executive officer. "This strategic decision is critical to achieving the operational improvement targets we have set as well as positioning us to be more flexible and responsive in meeting the needs of our customers. We are very excited to bring these experts back to Diebold, and to add the expertise of the DC Outsourcing associates who have worked for Diebold during these past years." We don't really know what exactly happened here, but clearly there was a mismatch between expectations and delivery. And the client decided to take action on what must have been a potentially difficult set of circumstances. Stepping back, this appears to be symptomatic of a potentially larger trend. We take away: Companies are willing to outsource to large offshoring providers if they can see the value proposition Companies are keenly monitoring progress and delivery against promises Companies can abort contracts mid-way even it means financial and organizational pain While there is justifiable euphoria on winning such contracts, usually against strong competition, the Big Four and their affliates need to keep in mind that despite the multi-year length of these contracts and embedded termination fees, that clients can take strong action by pulling out the plug at any time if their expectations are not being met to their satisfaction. Outsourcing, just like any other consulting project, demands keeping the client happy at all times. And we will also see if this trend is being replicated elsewhere. Article provided by www.big4.com