Shell farms out IT, telecommunications to EDS, AT&T, T-Systems for $4.2 billion

Royal Dutch Shell said Monday that it will farm out its technology and telecommunications infrastructure in three deals valued at about $4.2 billion.

Royal Dutch Shell said Monday that it will farm out its technology and telecommunications infrastructure in three deals valued at about $4.2 billion.

The outsourcing arrangement is notable given that big deals are rare. Shell said in a statement that it will outsource its telecommunications and networking to AT&T in a $1.6 billion deal, hosting and storage to T-Systems, a unit of Deutsche Telekom, for $1.6 billion (1 billion euro) and computing support and systems integration to EDS for $1 billion.

Shell added that its master service agreements will kick in on July 1. Most of Shell's IT staff will be transferred to the service providers. In a statement, Alan Matula, Shell's CIO, said the outsourcing arrangement is a "major strategic choice" that allows Shell to focus on information technology that "drives competitive position in the oil and gas market."

On the IT management front, EDS will have a few months of planning before playing outsourcing point guard. These large outsourcing deals can work well as long as Shell has a business process model and procedures to manage multiple vendors. Procter & Gamble has the modern-day blueprint for these arrangements via its deal with HP (case studies).

The primary IT management takeaways are:

  • Maintain service quality and don't rush new features out of the gate;
  • Monitor the pacts via metrics and management time;
  • Create a governance model to manage multiple vendors and resolve conflict in case providers have a spat.

Here's how the deals break down.

AT&T: Under AT&T's five-year deal with Shell, the telecom giant will manage the oil company's communications infrastructure and mobile services. The deal is the largest international deal landed by AT&T. AT&T also manages the networks of Starbucks, GM and IBM. According to a statement, AT&T will be responsible for Shell's wide area and local area networks, voice services, mobile service and managed security. AT&T will also deliver connectivity to Shell's 1,500 corporate and operating units. AT&T will also manage 600 separate third party contracts with 300 vendors globally. As part of the arrangement, 560 Shell networking employees will become AT&T employees.

EDS: Shell inked a five year, $1 billion deal with EDS to provide desktop, help desk and on-site support as well as back-up and disaster recovery services. EDS will also provide mobile information protection and managed messaging services. EDS also becomes the integrator for Shell's IT and outsourcing deals. As part of the deal, Shell will transfer 1,500 IT workers (contract and full-time) to EDS. EDS also added in a statement that it will migrate Shell to Windows Vista and work with its partners--Microsoft, SAP, Xerox, Sun and EMC--to deliver services to Shell.

T-Systems: Deutsche Telekom's enterprise unit inked a five-year, 1 billion euro ($1.6 billion) deal with Shell. Under the arrangement, T-Systems will run Shell's data centers including three in the Netherlands, one in Malaysia and one in the U.S. T-Systems will host most of Shell's SAP instances. Shell has more than 7,400 application servers. Shell will transfer 900 employees to T-Systems.