Seven years ago, during the heyday of mega outsourcing deals, Nissan North America was one of the companies at the forefront of the rush to hand-off IT operations to a single vendor. But times have changed and so has Nissan’s IT management strategy.
Robert Greenberg, who became the company’s CIO 18 months ago, is taking back some of the IT work it outsourced to IBM in 1999 as part of a contract that at the time was valued at US$1 billion (NZ$1.6 billion) over nine years. In addition, Greenberg is redirecting application maintenance, support and enhancement work that was previously handled by IBM to Indian outsourcer Satyam.
“We were happy with the services [we were getting] from IBM, but the world had changed,” Greenberg says. Increased competition among outsourcing vendors and the emergence of offshore firms such as Satyam have made multi-sourcing a more logical approach for Nissan, he says.
Also, bringing IT functions such as business analysis, programme management and infrastructure architecture planning back in-house should help the company better align its technology with business needs, Greenberg says.
Nissan North America, which plans to relocate its headquarters from Los Angeles to Nashville this year, announced a five-year application services deal with Satyam last month.
Nissan also disclosed a new six-year IT infrastructure outsourcing contract with IBM that calls for extensive mainframe, database and server consolidation, plus a shift to a more standardised operating environment.
The value of the two deals wasn’t disclosed and nor did Nissan detail its plans to restart some internal IT work as part of the two announcements.
The carmaker, which has about 25,000 end-users in North America, “probably outsourced too much” to IBM in the first place, Greenberg says. “I think this is something that goes back and forth within the IT world when you’re outsourcing: how much?”
He added that, in his view, the commodity elements of IT should be outsourced but the “value-generation elements ... really need to be very close to your business.”
As a result of the shift in strategy, Nissan’s IT department is hiring. Greenberg also has to bring in new workers to fill the positions of those who have decided not to relocate to Nashville. He won’t disclose the number of employees he expects to add in IT, saying only that it will likely be “significant”.
Multi-sourcing is becoming more prevalent as companies adopt a best-of-breed approach to outsourcing. In the biggest example so far, General Motors announced in February outsourcing contracts with six vendors that shifted some of its IT work away from EDS and specified standard IT processes for all the vendors to follow.
On the other hand, bringing outsourced IT work back inhouse remains relatively rare, some analysts say.
In late 2004, JP Morgan Chase cancelled a seven-year, US$5 billion outsourcing contract that it had signed two years earlier with IBM. Sears Roebuck last year ended a ten year, US$1.6 billion agreement with CSC after just 11 months. However, both JP Morgan and Sears had been involved in large mergers that expanded their internal IT capabilities.
“In general, we don’t see that many firms pulling back in work that they’ve outsourced,” says Stan Lepeak, managing director of Equation, an outsourcing research and benchmarking operation owned by consulting firm EquaTerra.
Lepeak and other analysts say companies such as Nissan initially went with a single outsourcing vendor for practical reasons.
“There weren’t as many providers back then and the opportunity to multi-source was just less viable,” Lepeak says. “And organisations were less experienced with outsourcing.”
But, as large companies increasingly turn to multi-sourcing, internal IT management capabilities will become vital, says Peter Allen, managing director of Technology Partners International. Businesses with multiple outsourcing vendors need to ensure that they have “sufficient architectural leadership to mend the seams between the various providers,” Allen says.
William Martorelli, an analyst at Forrester Research, says that by retaining or reviving strategic IT management capabilities, companies are able to approach outsourcing “from a position of strength”.
However, recreating a more complete IT department within Nissan — and doing it quickly — won’t be easy, Greenberg says. “The challenge here is [building] a solid management team and all the appropriate skill sets underneath.”