Nissan has outsourced its entire operations to IBM in 1999, but is now returning its business analysis, architecture and other strategic IT functions in-house and is hiring new workers. Moreover, Nissan is moving to multi-source its outsourcing relationships.
Just last week, India-based Satyam Computer Services Ltd. said it had signed a five-year deal to maintain, support and develop the automaker’s applications. Also announced this month: a six-year IBM deal. Nissan North America supports 25,000 users in a heterogeneous environment, and if shifting vendor and IT strategies isn’t enough, the company is also moving its corporate headquarters from Los Angeles to Nashville this summer. Greenberg, whose career includes a stint as CIO of Exxon Chemical Asia Pacific and IT duties at Dell Computer, talked about Nissan’s plans yesterday. Excerpts from that interview follow:
What is Nissan’s IT environment and what direction have you set for it?
Let me give you a little bit of history. About six years ago, Nissan as part of its survival activities, outsourced IT within North America to IBM. I came on board, approaching a year and half ago, and looked at where we stood with that agreement and analyzed it. The world has changed pretty substantially since the original outsourcing was done, both in terms of the competitiveness of the outsourcing marketplace and the increased use of offshore vendors. We had a lot of discussion internally and with Renault Nissan Purchasing Organisation (RNPO). [Nissan has an alliance with Renault.] The RNPO organisation was set up to leverage the combined purchasing power of both entities.
Regarding the IBM agreement, what did you like and not like about it?
When I looked at the agreement and assessed how we were operating in relation to our strategies that were emerging and where we wanted to be from a purchasing strategy perspective, looking at multi-vendor sourcing really seemed to make sense for us. So the way we went about doing that was to take what was a sole-source agreement for both infrastructure and application maintenance and enhancement services and break it apart and put it to bid. We bid separately — the application maintenance and enhancement activity, as well as the infrastructure activities. We were happy with the services from IBM but the world had changed.
IBM presented a very compelling infrastructure proposal, both from a financial perspective as well as from a risk mitigation perspective, given the amount of change and transformation activity that was needed within the physical infrastructure. On the application and maintenance side, Satyam essentially did the same thing. There were several Indian vendors bidding along with IBM, and Satyam just came in and just won the deal. They did a great job.
What is attractive about multisourcing? Did you have any reservations about taking this approach?
We did. One of the things that also took place with the original outsourcing to IBM was we probably outsourced too much. I think this is something that goes back and forth within the IT world when you’re outsourcing: how much? We had outsourced a lot of the business analysis activity, the program management activity and the application and infrastructure architecture activities in addition to the physical execution. We decided to bring those back internal, so we’re going though a fairly large hiring effort at the moment in order to do that. One of the risks that we looked at was in breaking up the services that we buy -– going from a sole source to a multi-source environment. And should we have been trying to, let’s say within the application maintenance and enhancement space, have two competing vendors. We decided that when you actually looked at the applications portfolio and at the emerging capability of our internal organization, that was a risky approach versus the amount of incremental savings that we might obtain. So we decided to go just with the infrastructure contract and an applications contract.
What’s involved with bringing those IT functions back in house?
First off, it’s a lot of hiring, which in and of itself is a fairly significant effort. Nissan has made a decision as well to move its corporate headquarters from L.A. to the Nashville area, so I have to go through a large hiring process anyway since a significant percentage of the [workforce] is choosing not to move. There is massive hiring and there is significant training and that training has to take place also in the context of moving these applications offshore, so there is fairly significant activities associated with knowledge transfer from the existing IBM staff as the knowledge is transferred both to Nissan personnel as well as Satayam personnel.
In taking this IT work back in house, what do you gain IT wise? In terms of the deal constructs, there are very significant savings. In terms of what we gain from a business linkage standpoint — how the IT organisation creates value for the business — it’s much easier to create because the linkage constructs to the business organisation exist within the business, as opposed to within a third party.
Do you feel that you are improving your business alignment then?
Absolutely. By bringing it in-house you increase the alignment. It’s a matter of building the knowledge internally [that] can be used to help drive the business activity, which is much harder when a business analyst function is sitting within a third party.
And you’re actually saving money by moving those business functions from IBM back in-house?
In terms of the entirety of the deal, yes. But if you look at the individual headcount, there are some savings that go with the individual headcounts because you are not paying margin on the individual.
Is there any advice that you can pass along, lessons learned, from moving some IT functions back internally?
My personal belief deals with looking at what are the commodity elements of IT versus what are the value generation elements. And the commodity elements, certainly in today’s marketplace, I think should be outsourced and the value generation elements should be in-sourced. And I look at value generation as where you really need to be very close to your business and that goes back to having business analysts that know the business as well as, if not better than, the business customer that they are serving. So that can help drive ideas and have a very interactive and challenge-oriented dialog with their business partner. That’s where you help move the business forward, which then drives you into what the IT organization needs to provide in terms of services [that] can be developed externally.
With this capability brought back in-house, what do you hope to accomplish as CIO?
We’re starting an effort to totally examine the existing applications portfolio and have a substantial amount of work to do with the respect to the rationalisation of the portfolio as well as constructing what should be services that we should providing that we’re not doing today.
Does your renewed contract with IBM move you in new IT directions?
The new contract with IBM is very transformational. It deals with extensive mainframe consolidation, extensive database consolidation, extensive server consolidation, consolidation of a variety of storage technologies in order to provide much more standardised environments — and environments that are much more able to scale.
In recreating some internal IT function, what keeps you up at night?
People. Being able to ramp up people fast enough. When I worked for one of the largest petroleum companies in the world I was based in Asia Pacific, Singapore. I had to build an organisation from scratch in order to support a multi-billion dollar business and growth plan. There I had a bit more lead time and some joint venture activity that enabled the building of the team over time, so I’ve done this before. But the challenge here is the construct of a solid management team and all the appropriate skill sets underneath that functions as a whole – that’s the hardest problem.