In early July 2002, IBM and Fidelity Investments announced an outsourcing agreement that will have IBM outsourcing the administration of its pension, employee health plans, and other human resource services to Fidelity. Also, the two companies will enter a partnership on selling human resources payroll and benefits outsourcing services to other clients. Of the numerous benefits that IBM will enjoy from this deal with Fidelity to handle a large portion of their human resources, there are three that seem to be significant. They are the joint venture between IBM and Fidelity, the reduction in the number of employees while saving money and improving employee services, and the more focussed vision IBM will have on their core business.
IBM and Fidelity both believe that the market for the outsourcing of human resource functions will be growing fast in the future. If this is true, the results could be very lucrative. Estimates show that the outsourcing market could be worth $43 billion by 2005 and could continue to grow at more than 20 percent per year there after.
The other reason for this agreement is to demonstrate their outsourcing experience to prospective clients.
"Before the Fidelity announcement, we had an ongoing national practice for HR," points out Towney Kennard, vice president of alliances for IBM Global Services. "We now have an alliance with Fidelity in the marketplace. We can use the IBM experience as a major proof point that these are the benefits we delivered to our employees and company. We can talk to our customers from an experiential point of view. We believe that a number of large enterprise customers will be very interested in what IBM did and why we did it. If we believe they should do what IBM did, we will engage Fidelity after an initial consulting period.