Dan Talbott got the call on Christmas Eve. He was at his home in Plano, Texas, and was just sitting down to dinner with his wife and four kids when his cell phone rang. It was his boss, Mark Townsell, who heads business development in North and South America for Hewlett-Packard’s computer-services division. Townsell got straight to the point: Procter & Gamble had decided to choose a blue-chip tech company to run its worldwide computer systems and data centers.
The first hurdle would come in just three weeks, when a team of P&G executives would travel to HP’s Palo Alto headquarters for a make-or-break series of meetings. They would decide whether HP had enough talent and experience even to bid on the contract, let alone win it.
For Hewlett-Packard, the stakes couldn’t have been higher. A big part of the rationale for the company’s controversial acquisition of Compaq Computer was that it would catapult HP into the comparatively fast-growing computer-services business, one segment of the IT industry in which HP was decidedly a tier-two player. A brawnier Hewlett-Packard could compete for long-lasting, highly profitable contracts with giant customers like Procter & Gamble — which in turn would help drive sales in HP’s struggling personal-computer and server divisions. HP’s dynamic chief executive, Carly Fiorina, had staked her career — and the company’s future — on the takeover, and the deal’s many critics were already declaring it a failure. Now — six months after the Compaq acquisition was booked — it was time to start showing results.
Procter & Gamble, the world’s largest consumer-products company, would make for a rich prize. The $40 billion juggernaut markets 300 brands — Bounty, Charmin, Clairol, Crest, Pampers, and Tide among them — to some 5 billion consumers in more than 160 countries. Winning the contract to run P&G’s IT infrastructure — its central nervous system — would give HP a critical beachhead in its battle against the industry’s top guns, Electronic Data Systems and IBM. None of that was lost on Talbott. But even as he was taking in Townsell’s pitch, Talbott was thinking about other, more immediate concerns.
A few inches over 6 feet and more than a few pounds over 200, Talbott is a Texas dynamo who seems to live on hot dogs and 18-hour workdays. He bears the pasty complexion of a man who has spent most of his working life in airports and conference rooms, and indeed, he has — he’s racked up 3 million miles on American Airlines alone. But while he’s an IT-services-industry veteran who put in 23 years at EDS and 4 years at IBM, he’s a rookie at HP. At the time of Townsell’s call, he’d been with the Silicon Valley company for all of one month. He thrilled to the thought of battling for the P&G contract; accepting Townsell’s challenge was a no-brainer. But he was still finding his way around the 141,000- person company, which boasts operations in 160 countries. He would have to bring all of HP’s assets to the bargaining table. Could he accurately reflect HP’s true capabilities?
Talbott bet that his alma maters EDS and IBM would join the fight for P&G and that both would bring on their A+ teams. Just a few months earlier, EDS was on the verge of signing an enormous, $8 billion contract to take over all of Procter’s back-office operations, when P&G scuttled the deal at the eleventh hour. There was little doubt that a bruised and hungry EDS would be back in the hunt for this new, revised deal. IBM would be there too — eager to grab another big chunk of market share. In going head-to-head with the industry’s two giants, HP would compete for its very legitimacy. Talbott didn’t need to be told: This was a must win.
After thanking Townsell for his confidence, Talbott hung up and announced to his family that P&G was in play. “You won’t be seeing me for a while,” he told his wife. And then, using the dealmaker’s lingo for joining battle, he broke the news: “I’m going to engage.” She didn’t need a translation. She’d heard it before.
The $8 Billion Deal That Got Away
Procter & Gamble’s headquarters is topped by a pair of nearly conical, 16-story towers — dubbed the “Dolly Parton” for obvious anatomical reasons — that protrude over downtown Cincinnati. While P&G’s lifetime spans three centuries, it’s a relentlessly forward-looking organization — a 166-year-old former soap and candle maker that is now extraordinarily technocentric. It’s not unusual to lift the lid on a multinational company and find a farrago of incompatible software applications and systems. As recently as the late 1990s, EDS — to take one not-so-random example — was tangled up in 16 different email systems. P&G is an exception. Thanks to heavy investment in information technology, its activities are standardized, seamless, and deeply twined, in all 86 countries in which it operates. It uses its IT systems to gain competitive advantage and to focus on its core challenge: to make, pack, and ship billions of items a year. From 1999 to 2002, P&G estimates that it slashed $500 million by standardizing and globalizing its back-office operations. But by the company’s own reckoning, that wasn’t good enough.
In mid-2001, P&G embarked on a radical plan to outsource all of its back office — not just IT, but finance and accounting, facilities management, HR, and purchasing. The stated goal was to streamline its structure and focus on developing and marketing products. But it’s clear that the far more urgent aim was to cut costs. The plan was massively ambitious; it would make for the largest outsourcing contract ever. And it was massively disruptive; as part of the deal, more than 5,700 employees would be folded into the winning bidder. Many complained bitterly about the uncertainty of being forced to work for another company.
The bidding process, which pitted EDS against Dallas-based Affiliated Computer Services, lasted for 18 long months. Finally, on September 18, 2002, P&G told its employees to expect an announcement. It would award Plano, Texasffibased EDS a long-term contract valued at a staggering $8 billion. Randy Reedy, a viceffipresident of P&G’s IT team, was dispatched on a company jet to Manila to break the news in Asia. An hour outside of Osaka, Japan, the copilot tapped Reedy on the shoulder. He’d just received a message: They’d been ordered to head back to the states. Reedy was stunned. “What in the world is going on?” he blurted.
Back in Plano, all hell was breaking loose. EDS had just reported a disastrous third-quarter earnings miss. As part of the deal, P&G was due to take a big stake in EDS. Now, its executives watched in horror as investors sliced away $9.2 billion, or about 53%, of the company’s market value. The P&G team huddled late into the night. At least one person broached the thought that they were about to ship 5,700 of their people to the “next Enron.” At 1 AM, P&G chief A.G. Lafley called his EDS counterpart, then-CEO Dick Brown: P&G was putting the deal on hold. But for all intents, the contract was dead. Two months later, P&G ended talks with EDS. Even now, nearly a year later, Bobby Grisham, the EDS executive who headed the company’s pursuit of P&G, can offer only this terse understatement on the $8 billion deal that got away: “It was tough.”
The day after the deal imploded, executives at IBM and HP began strategizing about how to get a piece of P&G’s action. HP, in particular, had closely monitored the race. It was already supplying a big chunk of P&G’s computer systems — an estimated 90% of its servers and 40% of its workstations — and was desperate to protect that business. Eight days after P&G made its decision, Steve Huhn, a VP of sales for HP managed services, arranged for Carly Fiorina to call P&G’s Lafley. Her message: HP services now had the critical mass to handle P&G. “One of the things we struggled with, after the Compaq merger, was that there was a lot of ignorance in the marketplace about what we could actually do,” says Fiorina. “It was important to convey to A.G. that we had capabilities in this space that he might not be aware of — and in fact, he wasn’t aware of our capabilities. I wanted him to know that we were going to engage in the competition for his business.”
In the harsh light of day, HP seemed clearly out of its league in a competition against EDS and IBM.
Both HP and IBM hoped to convince the company to move away from a one-size-fits-all outsourcing strategy. Which is exactly what P&G did. It broke the contract into pieces — employee services, facilities management, and so forth — and bid out each chunk separately. It would start with the biggest, most critical slice of all: its worldwide computer-systems network.
On January 2, Dan Talbott gathered his core pursuit team into a cavernous conference room at HP’s Atlanta office building. Seated around a table were senior marketer Tom Simmons, client manager Mary Roth, and John Junker and Jim Alverdi, client reps who interact daily with P&G. As he looked at each of their faces, Talbott knew they were thinking, “There’s no way we can win this deal.”
In the harsh light of day, HP was clearly out of its league. Just consider the likely competition: IBM is a $81 billion behemoth in the services industry, with dozens of billion-dollar deals in its portfolio. EDS, which invented IT outsourcing when Ross Perot founded it in 1962, boasts $21 billion in annual sales. Despite its merger with Compaq, HP had yet to make its first multibillion-dollar score. At best, HP was the dark horse, and everyone in that Atlanta conference room knew it.
And HP wasn’t in the race yet. Everything depended on the Palo Alto site visit, when P&G would determine whether HP had the right stuff even to compete for the deal. HP had to find a way to counter its greatest weakness: It had never taken on a customer of this size. P&G runs on 100,000 email-boxes, 78,000 workstations, 3,500 servers, and a farm of mainframes; the company’s IT shop consists of 2,000 people in 53 countries.
On January 15, P&G’s selection group arrived at HP’s headquarters. Talbott and his team worked to convince P&G that HP could handle the “speeds and feeds” — P&G’s near-bottomless technical needs. The day culminated with a dinner at Chantilly, a Menlo Park restaurant, where they were to be joined by Ann Livermore, HP’s head of global services. As Livermore drove into the restaurant’s parking lot, she got a call on her cell phone. It was Talbott. “He said the meetings were going very well,” she recalls. “What he really meant was, ‘Don’t blow it.’ “
Livermore walked into a private dining room, and before she could grab a glass of wine, the P&G team strafed her with questions: Why should HP get this contract? Do you understand the significance of this undertaking? Can we rely on you when problems crop up? “They were looking for consistency,” she says. “Were we consistent in our values, our beliefs, and our practices, from the front lines right on up to the executive level?” After a half-hour, someone from HP suggested that they sit down for dinner, where the questions could continue.
Then came the kicker. The door opened, and in walked Fiorina, who had slipped away from a Cisco board dinner in another part of the restaurant. Her appearance was completely unexpected — even on the HP side — and she spent about 20 minutes speaking with the P&G team. “I wanted them to understand, from the top, how important this opportunity was to us,” she recalls. “At HP, we spend a lot of time thinking about who we do business with. P&G needed to know that we wouldn’t be pursuing this if we didn’t think we could add value — and if we didn’t think we could win.”
It was an extraordinary session, with extraordinary stakes. If HP didn’t make the cut, the market, in effect, would be sending the message that despite the Compaq acquisition, HP services still wasn’t ready for prime time. “We were competing for our future,” says Mary Rolf, who manages HP’s relationship with P&G. “It would have been a tremendous setback if we hadn’t gotten a slot in that final bidding process.”
She needn’t have worried. Two weeks later, P&G made it official when it chose IBM, EDS, and HP as the three companies that made the finals. Overjoyed, Talbott christened the HP pursuit team with a new name: Project Chantilly.
Making the Pig Fly
On January 31, Talbott received a FedEx containing two 750 MB CDs: Procter & Gamble’s RFP (request for proposals), which laid out the bidding process. He slipped the first disc into his PC and clicked on the timeline. His jaw dropped: Bids were due at P&G headquarters on March 28. A billion-dollar IT-outsourcing contract typically takes at least 9 to 12 months to bid out. P&G’s do-or-die deadline allowed for just 56 days. Then he hit the print button, and got his second shock. Over the next hour, the two CDs chewed up two cases of paper. The RFP totaled more than 10,000 pages. “I was awestruck,” he recalls. “The thing was massive, and there just wasn’t the time to take it all in.”
Two days later, on a Sunday afternoon, Talbott punched in John Crowther’s cell-phone number, and found him with his wife and two daughters at a mall near their home in the Detroit suburbs. Crowther, a native of the UK, had put in 19 years at HP managed services and knew the division intimately. “Get on tomorrow’s first flight to Cincinnati,” Talbott told him. “You’re going to be my bid manager.”
Crowther set up a make-shift campaign headquarters in a scruffy HP facility in Blue Ash, Ohio, not far from P&G’s U.S.-based global-data center. He spent the next two weeks recruiting help from all over the globe, a team that quickly grew to 80 people. At their first full-scale meeting, Jim Fischer, the lead technical architect, walked in with a stuffed toy — a pink flying pig — and tied it to the conference room ceiling. His message: “We might be the underdog, but we’re going to make pigs fly on this deal.”
Then Talbott stood up to speak. “We wouldn’t have been selected if P&G wasn’t comfortable with the notion that we could win, and the same holds true for EDS and IBM — we’re all starting at the same place,” he told the team leaders. “The ultimate decision comes down to how we interact with the customer. In each of our meetings with P&G, there will be one of two possible outcomes: We move closer to the win column or we move closer to the lose column. Our job is to ensure that every conversation is a win.”
Over at P&G’s headquarters, the selection team and its advisers, the Houston-based IT-outsourcing consultancy TPI, began handicapping the three contenders. IBM was ultrafocused and played up its deep technical and outsourcing experience. Its learning curve was very short — from day one, it understood 80% of P&G’s systems and processes. On the downside, IBM proved to be less flexible than EDS and HP. “IBM treated us like a big, important customer, but they were somewhat paternalistic,” says Reedy. “Their attitude was, ‘Trust us, we know what we’re doing.’ ” (Executives at IBM declined to comment on the record for this story.)
EDS garnered high marks for its operational excellence, and it proved to be an excellent listener. “EDS worked extraordinarily hard at trying to understand what was important to us,” says Linda Clement-Holmes, the head of P&G’s outsourcing initiative. “We’d make a suggestion, and it would show up in the next meeting’s presentation.” But EDS was hobbled by the bad corporate news that continued to break throughout the bidding.
As for HP, the biggest concern was the unknown: Could it really handle a deal of this magnitude? In the plus column, P&G already used HP hardware. And the P&G team was pleased by HP’s frankness. “With HP, what you see is what you get,” says Reedy. “They had less global experience than the other two and less experience in application development and maintenance, but they addressed those issues head-on. They didn’t try to hide their weaknesses.”
Whatever he told his team, Talbott privately believed that EDS was the front-runner. For starters, EDS had almost snared that mega-outsourcing deal. “EDS put a winning solution on the table,” he says. “They lost only because of their external issues.” What’s more, over the previous 18 months, the EDS team had built up a deep relationship with the P&G side.
Talbott was somewhat comforted by his belief that EDS’s greatest weakness played to HP’s greatest strength. P&G’s IT staffers were still alarmed at the thought of being farmed out to the troubled EDS (see Report From The Past, page 27). At every opportunity, HP’s team leaders hammered away at the same message to P&G: “We value your people. We need their skills. They will have great careers at Hewlett-Packard.” Talbott was convinced that the soft-and-fuzzy factor — HP’s culture — just might help him do the hard work of winning this deal.
Working out of its Blue Ash headquarters, HP’s pursuit team lived on a brutal, nearly round-the-clock schedule, with no time off on weekends. Their family lives were tested; at least one team leader reports that his marriage is in trouble. The stress took an enormous physical and mental toll. At a 7 AM breakfast meeting with his HR-team leader, Talbott watched in alarm as the man got up from the table, took a step, and keeled over from exhaustion.
HP got off to a shaky start. At the opening session, where the bidders had their first opportunity to clarify P&G’s terms, a rattled HP submitted some 500 questions (compared with 50 from EDS and 150 from IBM). “HP is never going to get out of the weeds on this one,” P&G’s Clement-Holmes thought to herself. “They’re just not going to survive.”
But over the next few days, the HP side began to rally. As they prepared for the “Yellow Pad 2” session, when the bidders would present their first round of solutions, Talbott directed his team leaders to print out every PowerPoint slide — more than 200 in all — and tack each one up on the conference room’s walls. Then the group critiqued them. “Dan Talbott is a fine leader, but he’s a real pain in the ass when it comes to preparing presentations,” says Crowther, who got his ears burned when he posted a generic slide that failed to convey a succinct message.
All through February and March, the corporate jets from EDS and IBM made frequent trips to Cincinnati. Talbott joked that the two IT-service-industry giants were like “a pair of Sumo wrestlers duking it out — they weren’t even aware of HP.” (Grisham, EDS’s president of operations solutions, denies that, but concedes, “We thought HP’s lack of experience would really work against them.”)
P&G’s intention was to pick two finalists, who would then fight it out for the contract. But doing so would add months to the process. Forty-eight hours before HP submitted its bid, Fiorina and Livermore flew to Cincinnati on the company’s Gulfstream jet. Talbott met them at the airport, and in the limo to P&G’s headquarters, they settled on a plan to propose a fast-track offer to the selection team: Bypass the semifinals, select HP, and the company would commit to negotiating the final contract in record time.
The two HP executives met with Filippo Passerini, P&G’s intense global business-services officer, and his team in a 16th-floor conference room. The session lasted for two hours. As it drew to a close, Fiorina made them a promise: “If you select HP, we will be your Wal-Mart.” Her message struck a powerful chord. Wal-Mart is P&G’s largest customer. P&G is Wal-Mart’s biggest vendor. Neither can succeed without the other. “I was trying to convey, in pretty tangible terms, that I get it. We were competing for a bet-your-business relationship,” says Fiorina. “And I wanted them to know: We intend to deliver.”
The End Game
On March 28, EDS, HP, and IBM turned in their bids in a series of three-ring binders that took up 6 feet of shelf space in Passerini’s office — and weighed in at 145 pounds. The selection team divided the responses into sections and sent them to 125 Procter experts around the world, who spent a weekend of all-nighters evaluating the documents. After several days of discussions, the six senior members of the selection team gathered to make the final call.
The meeting lasted most of a day. As each team member spoke, a consensus began to emerge. After a show of hands, the decision was unanimous. P&G would skip the intermediate step; HP was the winner. The reasons were many, but the one that closed the deal was this: HP wanted it the most. “HP was new to the market, they were very focused, and they were very, very hungry,” says Andrew Hewat, TPI’s lead consultant to P&G. On April 11, P&G broke the news: The company was awarding a $3 billion, 10-year IT services contract to HP. “IBM was absolutely stunned when they heard that we had won,” Fiorina says.
Livermore trumpeted the P&G win with the somewhat disingenuous comment that HP is now a “legitimate alternative” to IBM. True, HP services became a $12 billion organization as a result of the Compaq merger, which allowed it to claim the industry’s number three spot for total IT services. But that ranking is misleading, since it includes low-margin “break-fix” deals — maintaining systems and running help desks. The real money is in the far more lucrative computer-services consulting and outsourcing arena, where HP ranks a distant seventh. Still, HP is now very much on EDS’s and IBM’s radar screens. “We reset the clock when we did the Compaq merger,” says Livermore. “And all the momentum is on our side.”
There’s just one last item to settle in regard to the bidding for P&G: Did HP lowball the price to win the contract? HP won’t disclose any numbers, but its executives insist that the P&G deal will be profitable in its first year. “The people who are saying we lowballed are the people who lost,” says Fiorina. “They’re using lowballing as an excuse to justify their own failure to show.”
Perhaps. But here’s what’s certain: HP’s next big challenge is to manage P&G’s expectations over the long haul. HP won the P&G deal, but now comes the tougher part: proving that it truly deserved to win. Every hour of the day, every day of the year, from now until August 2013, HP must deliver on its promises. All of the IT industry will be watching.
Sidebar: The Underdog’s Guide to Competition
Neither IBM nor EDS thought HP could beat them head-to-head. Wrong. Here are five rules for competing the HP way.
1. Don’t hide your weakness.
HP played up its strengths, but it didn’t play down its obvious weaknesses. The company tackled them head on, which kept the competition from doing it instead.
2. Rehearse, rehearse, rehearse.
Each interaction with the customer moves you closer to a win or closer to a loss. Rigorous self-criticism at HP put nearly every presentation to P&G in the win column.
3. Bring out the big guns.
But conserve your ammo. At decisive moments, HP chief Carly Fiorina stepped into the fray. Her meetings with P&G were infrequent, but she made each one count.
4. Think like your customer.
When Fiorina told P&G, “We will be your Wal-Mart,” she gave a mental model of what a relationship with HP would be like — P&G’s rich, successful relationship with its biggest partner.
5. Show that you want the deal.
“HP was new to the market . . . and they were very, very hungry,” says a consultant to P&G. HP won because it wanted the most to win.
Bill Breen (email@example.com) is a Fast Company senior writer.