Nissan Corrects Steering on IT Under New CIO

Turns to in-house and multisourcing

Seven years ago, during the heyday of mega outsourcing deals, Nissan North America Inc. 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 Nissan North America’s CIO about 18 months ago, is taking back some of the IT work that the company outsourced to IBM in 1999 as part of a contract that at the time was valued at $1 billion over nine years. In addition, Greenberg is redirecting application maintenance, support and enhancement work that previously was handled by IBM to offshore services firm Satyam Computer Services Ltd.

“We were happy with the services [we were getting] from IBM, but the world had changed,” Greenberg said in an interview this week (see "Q&A: Nissan CIO reshapes automaker’s IT"). 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 said.

And bringing IT functions such as business analysis, program management and application and infrastructure architecture planning back in-house should help the company better align its technology with business needs, according to Greenberg.

Nissan North America, which plans to relocate its headquarters from Los Angeles to Nashville this summer, announced a five-year application services deal with India-based Satyam earlier this 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 standardized operating environment.

The value of the two deals wasn’t disclosed, nor did Nissan detail its plans to restart some internal IT work as part of the two announcements.

The automaker, which has about 25,000 end users in North America, “probably outsourced too much” to IBM in the first place, Greenberg said. “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 people who have decided not to relocate to Nashville. He declined to disclose the number of employees he expects to add in IT, saying only that it likely will be “significant.”

Multisourcing is becoming more prevalent as companies adopt a best-of-breed approach to outsourcing. In the biggest example thus far, General Motors Corp. in February announced outsourcing contracts with six vendors that shifted some of its IT work away from Electronic Data Systems Corp. and specified standard IT processes for all of the companies to follow.

On the other hand, bringing outsourced IT work back in-house remains relatively rare, some analysts said.

In late 2004, J.P. Morgan Chase & Co. canceled a seven-year, $5 billion outsourcing contract that it had signed two years earlier with IBM. And last year, Sears, Roebuck and Co. ended a 10-year, $1.6 billion agreement with Computer Sciences Corp. after just 11 months. But both J.P. 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,” said Stan Lepeak, managing director of Equation Inc., an outsourcing research and benchmarking operation that’s owned by New York-based consulting firm EquaTerra Inc.

Lepeak and other analysts said that 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 multisource was just less viable,” Lepeak said. “And organizations were less experienced with outsourcing.”

But as large companies increasingly turn to multisourcing, internal IT management capabilities will become vital, said Peter Allen, managing director of Technology Partners International Inc. in The Woodlands, Texas. Businesses with multiple outsourcing vendors need to ensure that they have “sufficient architectural leadership to mend the seams between the various providers,” Allen said.

William Martorelli, an analyst at Forrester Research Inc., said that by retaining or reviving strategic IT management capabilities, companies are able to approach outsourcing “from a position of strength.”

But re-creating a more complete IT department within Nissan, and doing it quickly, won’t be easy, Greenberg acknowledged. “The challenge here is [building] a solid management team and all the appropriate skill sets underneath,” he said. “That’s the hardest problem.”

Copyright © 2006 IDG Communications, Inc.

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