Shell inks $4bn IT outsourcing deals

Shell is to press ahead with its plans to outsource the majority of its IT division, after signing three outsourcing deals worth more than $4bn over five years.

From the 1 July 2008, AT&T will look after Shell’s network and telecommunications, while T-Systems takes care of its hosting and storage, and EDS will maintain Shell’s end-user computing services.

Rumours of the move first emerged online in January, although the reports of large scale redundancies look to be wide of the mark. Instead Shell has announced it will transfer its 3,600 IT staff directly to the service providers.

In UK, 86 IT staff will move to EDS, 30 to T-Systems and 17 to AT&T, said a UK spokeswoman. No staff will be moved outside of the UK though, she added.

"Shell’s approach combines all the advantages of decentralised service provision with the benefits and efficiency of a centralised governance structure," said Elesh Khakhar of outsourcing services firm TPI, which advised on the deals.

The company said the moves were part of its major restructuring programme. Shell aims to shave around $500m of its annual operating costs.

But cost-cutting was likely to be of secondary importance in outsourcing its IT, said IT industry pundit Mark Kobayashi Hillary. “To be honest, the decision is not to create immediate cost reductions but to bring future certainty. Now the risks lie with suppliers and Shell knows the costs of its IT upfront,” he said.

“It just means Shell will have to manage a large scale change management programme,” he said. “All the staff will be doing the same job but there will just be more checks and balances put in place.”

Shell is following the growing trend of using a multi-sourcing approach for large IT outsourcing deal. "This allows businesses to target best-of-breed partners," said Brian Stones, executive vice president of Indian outsourcing provider Patni.

"Multi-sourcing deals provide clients with the opportunity to select the best in breed for different business areas, keep suppliers on their toes by benchmarking performance against each other regularly and avoid the risk of being tied to one underperforming supplier over a long period," he added.