The Case for Outsourcing at Kimberly-Clark

By David F. Carr

To explain the value of his relationship with outsourcing and offshoring firm Cognizant, Kimberly-Clark chief information officer Ramon Baez recalls a conversation he had with one of its on-site consultants who rattled off such an impressive string of business metrics that he had to stop her to ask how she knew his business so well.

"I remember asking the young lady presenting to me how much she knew about what goes on inside Kimberly-Clark," Baez says. "Because I was thinking, 'Wow, she's really knowledgeable.' And she told me, 'Oh, I've been on the project from the beginning. Yeah, that's how we do things.'" Baez had joined Kimberly-Clark in early 2007, shortly after the engagement with Cognizant started, so he hadn't initially realized the extent to which members of the project team were the same people who had come in to study Kimberly-Clark's operations and put together the vendor's initial proposal. That struck him as remarkable partly because of his experience with other outsourcers at prior jobs.

"I've seen these vendors have a fantastic proposal team, and the reason the company wins the proposal is because of the people on that team. But then as soon as they've got it, those people move off to another contract, and you get someone you have no relationship with to run the actual project," he says.

Because Cognizant has proven willing to make a serious investment in understanding Kimberly-Clark's business as well as its information technology needs, the $18.3 billion consumer products company, best known as the maker of Kleenex tissues and Huggies diapers, has broadened the scope of its relationship with the vendor in turn. It's an example of how outsourcing can turn from tactical to strategic, once a vendor wins sufficient respect. In the beginning, when Kimberly-Clark signed a five-year, multi-million deal to have Cognizant assist with development and maintenance of its SAP systems, cost-cutting was the major impetus. Cognizant supports them with a workforce located primarily in India and other offshore locations. Headquartered in Teaneck, N.J., Cognizant started as an I.T. development and maintenance arm of Dun & Bradstreet and offered the mix of offshore talent in India and elsewhere, combined with strong project management in the U.S. and other places Kimberly-Clark operates.

But as the relationship has evolved, Cognizant has also grown into a strategic partner. Rather than simply doing the grunt work of supporting legacy applications, Cognizant has been helping Kimberly-Clark figure out how to rationalize its application portfolio—for example, by getting operations in Europe and the U.S. to use the same version of a software application so that they can more easily be supported by the same team. Cognizant even followed Kimberly-Clark to Buenos Aires, Argentina. When the manufacturer set up a "captive" offshore IT operation (one operated by the company itself, rather than an outsourcing firm) there, Cognizant set up one of its own nearby to support Kimberly-Clark and also tap the local talent pool on behalf of other customers.

This was Kimberly-Clark's first large-scale outsourcing relationship, Baez says, although certainly the company had previously hired consulting firms for specific projects and employed plenty of contractors. At around the same time, Kimberly-Clark also hired TATA Consultancy Services to manage IT infrastructure and outsourced human resources management.

"The cost benefit had to happen - that absolutely needed to occur," Baez says. The outsourcing initiative came about as part of a series of competitive improvement initiatives the company started in 2005, aimed at shaving $350 million from the company's overhead costs by 2009. The goal for this year is to produce savings of $75 million to $100 million. The emphasis on cost savings is proving particularly important to Kimberly-Clark now, at a time of economic stress and commodity and transportation cost increases.

Kimberly-Clark won't say how much of the savings is related to IT (the total number includes many other factors, including factory closings). But the company has been reasonably happy with the cost savings within IT, Baez says. For example, Kimberly-Clark has saved about 90% of what it originally projected it could by outsourcing application development and maintenance. "We didn't get to 100% because there were a few things we didn't account for, but we hit about 90% of our target number." And that was considered pretty good, he says.

Next: Outsourcing: More Than Just Cost Savings at Kimberly-Clark

{mospagebreak title=Outsourcing: More Than Cost Savings}

Outsourcing: More Than Just Cost Savings at Kimberly-Clark

Cost savings weren't the only reason for entering into the relationship with Cognizant, which was also aimed at helping Kimberly-Clark establish a more unified global operations and gaining access to talent the company didn't have on staff.

"This decision is really about a lot more than cost savings," agrees Kimberly-Clark Chief Financial Officer Mark Buthman. "As demand for IT increases, it gives us access to some flexibility and capacity we would not have had otherwise." Despite wanting to cut costs, Kimberly-Clark didn't want to cut back on its ability to use IT to maximum advantage, he says. "As an element of infrastructure investment, we want to drive standardization and efficiency, particularly in how we interact with our customers and suppliers. In all those things, IT is an enabler."

Raj Mamodia, Director of Cognizant's Consumer Good Practice and Latin America Operations, says the company strives to be "more business focused than the competition" and "understand what it takes to drive business value." The smooth transition from proposal team to project team that impressed Baez was also very deliberate, he says. Cognizant tried to pull together the real project team in advance, betting that it would win the contract, and since then has avoided shuffling team members off to other projects. "Instead, we've looked for ways of growing our people within this contract."

Cognizant started as an offshore operation of an American company, Dunn & Bradstreet, so the company says it has traditionally used a slightly different mix of onsite to offshore resources—about 70-30, offshore to onsite, where competitors weight the mix more heavily toward offshore labor.

Cognizant also makes sure to employ MBAs, rather than just technology people, and to establish a base of expertise in the industries it serves. Baez says there are many opportunities for combining applications and eliminating duplication, particularly among legacy systems. Some of the systems diversity is a hangover from Kimberly-Clark's biggest acquisition, its 1995 purchase of Scott Paper.

Even before signing up with Cognizant, Kimberly-Clark had begun the process of establishing its own offshore IT operation in Buenos Aires, Argentina, largely dedicated to supporting the company's SAP systems. Cognizant not only helped get it off the ground but took advantage of the opportunity to establish its own facility there, further diversifying its labor pool and giving it a base to support other customers as well, particularly those with Latin American operations. Both organizations found the location offered a good IT labor pool and a location relatively in synch with North American time zones.

Mamodia says the effort Cognizant has put into the relationship has paid off in that Kimberly-Clark has engaged the vendor in the process of IT innovation, rather than simply providing commodity services, in a way few other customers have. "An example would be if we see that the company is running an application in the U.S., and another version in Europe as well, we might say why can't we combine these two applications?" he says. For example, Cognizant established a Center of Innovation that came up with 35 proposed projects for systems improvements, out of which Kimberly-Clark picked 11 projects for them to get started on. In effect, Cognizant came up with its own next batch of assignments. That's a level of trust Cognizant hopes to win from more customers going forward, Mamodia says.

"We've even gotten an opportunity to work on one of the most important initiatives for K-C as a corporation, which is its order-to-cash system—one of those things that if it does not go well, it's a Wall Street event," Mamodia says - in other words, it's such a critical element of the company's financial systems that the project must succeed.

"We've gotten Cognizant into some of the more sophisticated work we're doing as an organization," CFO Buthman agrees.

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