RealTime IT News

For IBM, CVS Spells Relief

IBM  gave investors something to smile about despite the fact that Goldman Sachs downgraded the company from "buy" to "neutral."

The Armonk, N.Y.-based company announced a 10-year business transformation outsourcing (BTO) agreement with CVS/pharmacy designed to transform and manage the drugstore chain's key human resources (HR) transactional services.

The signing reflects what Mark Loughridge, IBM's senior vice president and chief financial officer, told analysts during this week's earnings call.

Revenue from services may be relatively weaker in the short term ($9.6 billion in the second quarter of 2006 versus $11.6 billion for Q1), but the long term outlook is strong.

The decline in service revenue "was driven primarily by our short-term businesses, while strategic outsourcing and BTO increased year-to-year," said Loughridge.

IBM's agreement calls for it to help CVS improve service and to deliver enhanced human resources services in a more real-time, flexible manner. To achieve these goals, IBM said it will leverage enhanced tools and technologies and best practices for process transformation.

As part of the arrangement, IBM will also provide support for the administration of compensation, performance management, payroll, benefits, workforce analytics, recruiting and staffing. IBM will also provide HR call center support.

IBM will begin taking over HR duties for CVS in the second half of 2006, and expects the transition to continue in 2007.

Marc Lautenbach, general manager for IBM Americas, noted that outsourcing HR is becoming more commonplace, as companies seek to focus management on more revenue-driven strategies.

"Leading companies...are increasingly using business transformation outsourcing as a tool to drive strategic value, allowing them to become more flexible and adaptive while focusing employees on the company's core competencies," he said in a statement.

Lautenbach noted that IBM has extensive experience in both human resources services and the retail industry.

This agreement takes on added importance because rival HP   has begun to climb back into the game. But with services revenue of $3.9 billion reported last quarter, it still lags far behind Big Blue.