IBM lands HR outsourcing deal with American Airlines

IBM has signed American Airlines as its latest major HR outsourcing customer, announcing a $217 million (£113m) deal to take over much of the airline's personnel operations.

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IBM has signed American Airlines as its latest major HR outsourcing customer, announcing a $217 million (£113m) deal to take over much of the airline's personnel operations.

The technology services giant reported on Friday that it will support HR functions including training, recruitment, and staffing – along with related IT and call centre support – for all of American's 88,000 employees in the US and Canada.

Big Blue won the deal in tandem with consultants Mercer HR Services, which will cover health and benefits and pension and payroll management aspects of the seven-and-a-half year contract.

The deal with American represents the latest in a string of major outsourcing agreements won by IBM, including an IT services pact with rival Delta Airlines signed in August 2006.

Terms of the Delta agreement were not made public but IBM reported that it would partner with the airline's internal technology group to help oversee IT mainframe services and other infrastructure management operations.

In July 2006, IBM announced another sizable HR services outsourcing deal, signing retailer CVS Pharmacy to a 10-year agreement covering many of the same business processes involved in the American Airlines contract.

CVS cited the need to help patch together the 55,000 new employees it added over a two-year span of acquisitions as the primary motivation behind its outsourcing strategy.

American, a subsidiary of AMR, said it is hoping the outsourcing pact can help it drive down costs and improve services for employees as well as find new ways to offer access to HR tools to workers.

Representatives with AMR said that the company expects to save a total of $60m (£31.2m) over the course of the outsourcing arrangement with hopes to cut an additional $2m (£1.04m) per year in related administrative expenses.

American will transfer the work currently being handled by roughly 200 of its employees via the agreement, said AMR spokeswoman Susan Gordon. A small number of those workers will be transferred over to IBM and the remaining people moved into other HR roles at the airline.

A major element of the decision making process – carried out by American over the last year-and-a-half – was the consideration of IBM's ability to further modernise and streamline American's HR-related IT operations, she said.

"The ability to work with IBM and take advantage of the technologies and processes they have in place was a key factor in this decision," said Gordon. "American will retain responsibility for strategy through the partnership with the transition of functions taking place over a period of two years."

Researchers at Gartner estimated that the market for HR-related business process outsourcing reached $24.6 billion (£12.8bn) in 2006, a roughly 5 per cent gain over 2005. However, the research firm has also predicted that some services providers might struggle with profitability during 2007, impeding growth of the US sector of the market specifically.

HR remains the largest segment of the worldwide business outsourcing market at 18.7 per cent, Gartner reported, with payroll and benefits administration ranking as the most popular tasks that are being farmed out to service providers.

According to a report published by Ovum, IBM topped rivals, including CA, HP and BMC Software, in several categories of a recent customer poll, winning praise as the industry's "most strategic IT management software vendor."

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