The outsourcing contract IBM and Nissan

IntroductionIn the year before the turn of the millennium, Nissan was a company in a serious financial crisis. The debt had approached $ 22 billion by 1999. The company had been too complacent, and had success before, assume [2].The decision by Nissan to outsource their IT infrastructure to IBM in 1999 right direction Really? Nissan was a very troubled self-builder in the late 190. Senior company executives were known for their conservative outlook on business, and the "old boy network, their mentality. Profits were down dramatically, eventually forcing the company in the $ 22 billion debt that she then faces. There was no sign of a change in the market that encourage the growth of profits. Sales of vehicles needed invigoration.Mergers have the flavor of the day in the automotive industry during the late 190s Nissan executives approached Daimler Chrysler and Ford to discuss a possible merger, but there was no interest of any of the companies [2]. There was only left alternative, which was to reinvent itself and to reduce unnecessary overheads. This was the turning point that led to the decision to outsource business processes.This article aims to answer the question "Is the cost of the implementation of an internal solution outweigh the benefits or makes Business Process Outsourcing (BPO) more meaning? "We looked at the example of the car manufacturer, Nissan, when they decided to outsource their entire iT department to IBM in late 1999 to answer our questionNissan. - a brief history and events that led to the decision BPOI. years BoomNissan was established in Japan in 1933 as heavy industry manufacturer. After the Second War World, they turned their attention to automobiles. in 1950, they finally had an impact on the world market with the introduction of sedans and small vehicles Datsun brand. the company finally opened the full-time operations the United States in September 1960 [6].The company has grown dramatically with the introduction of the series "Z" sports sedans in the early 1970s, with the 240Z becoming the fastest selling sports car of all time. This success led Nissan to the top of the US market by 1975. vehicle importers Vehicle sales in the US exceeded more than 250,000 units per year in 1970, [6]. The company was young, dynamic leaders and the future is very promising. They were competing for the US market with the likes of Ford, Chrysler and General Motors, showing improved yields and production quality over their competitors.The company has been growing at a phenomenal pace, opening new manufacturing plants around the world on a regular basis, such as Australia (1976), Spain (1980) and the United -um (1984) [6]. There was no respite in the pace of growth and new business generation from the business.In 1983, the company began marketing worldwide vehicles under the Nissan that was felt to have a higher image quality and began the transition from six years Datsun to Nissan vehicles, dealers, facilities and marketing materials. Sales continued to grow, eventually reaching 830,767 in 1985 [6]. The decade ended with success for Nissan with their domination of the North American market.In 1993, the Stanza via line sedan was replaced by a brand new Altima and noncompetitive Japanese minivan designed was replaced by an American news has created Quest, which was the first minivan with a handling car-like. Sales were roaring in 1994 to levels of 774 405 [6] near peak.In 1996, sales began to slide again, fueled by changing tastes of American vehicles. Trucks and SUVs gained market share at the expense of sedans and sports cars [2]. Nissan's position as driven manufacturing company, which has helped them in the 80s and early 0s, then had further problems with balance dollar / yen started to affect their competitiveness with oriented companies on the market.Unlike their competitors, Toyota and Honda, which have focused on key volume segments, Nissan did not dominate any individual segment and competed in identical segments against Toyota and Honda.Unfortunately for Nissan in the 190s, the "bubble economy" burst Japanese, a slowdown in Europe coincided, so there was more pressure the United States to perform. Unfortunately, US customers did not have a real reason to brand the Nissan shop except for the "best price" deal.The former president of Nissan, Mr. Nakamura, announced a plan "Back-to-Basics". Key elements of the plan were to reduce inventory, eliminate unrealistic sales targets, and increase the profitability of the dealers. Unfortunately for Nakamura and Nissan, the plan did not work [2].II. Problem looming for self-builder 190In early 190, trouble began to brew in the organization. Executives once revered at Nissan were now seen as arrogant members of the old-boys club and were ignorant to the changing needs of their customers and the global automotive market in general.As society grew more deeply in debt, he met more challenges. partners and commercial suppliers of Nissan were paying a premium for their products and services. Nissan was forced to meet its financial commitments and in doing so, itself placed further into debt. Finally, the company was indebted to the tune of $ 22 billion. Even the company's lenders have been tightening the noose around them. Nissan said that the situation was desperate.III. The measures taken to solve the problemsNissan executives sought a way out, a way to save the company entering bankruptcy. The first approach is to find a partner. The two newly created DaimlerChrysler and Ford Motor Company were approached, but the two organizations have rejected the idea of a merger [2]. Finally, Renault, the French car company is recovering from a similar situation, decided to start negotiations with the Japanese company stirring. A senior executive of Renault, Carlos Ghosn, has been a big supporter of the idea of merger.After lengthy negotiations, the Japanese Ministry of Economy, Trade and Industry has agreed to allow Renault to buy a substantial stake in Nissan. The Renault-Nissan alliance was born and Ghosn was named Chief Operating Officer.Nissan executive decisions and major eventsI. Creating a global vision of the alliance:The following is an excerpt from the vision of the Nissan / Renault alliance ."the Renault-Nissan Alliance is a unique group of two global companies linked by cross-shareholdings They are united for performance though a coherent strategy, common goals and principles, results-oriented synergies, sharing of best practices. They respect and reinforce their respective identities and brands. " [2]

Alliance itself three objectives with the goal of being among the best three automotive groups in the fields following:1. quality.achieve customer recognition as a quality product and value.2. Technology.lead in the development of key technologies and implementation by focusing on excellence in specific areas of the automotive industry.3. Operating Income.a consistently high profit margin and operating vigorously pursue growth.II. The appointment of a new chiefGhosn, given his enthusiasm for the merger, demonstrated his tenacity and experience in the automotive industry, was a natural choice for a management position at Nissan. His first appointment as Chief Operating Officer (COO) was just a temporary assignment. In 00 he was appointed President and in 01 he was appointed Chief Executive Officer (CEO).As CEO, Carlos Ghosn was very aware that the 'buck' arrested with him. It was the final decision maker. Some important and serious decisions were made to save the ailing company. Ghosn had to use all his valuable experience other rescue organizations such as Michelin and Renault to rescue Nissan.III. The decision to save a self-builder in difficultyWith the arrival of Ghosn to Japan in spring 1999, he immediately began to research the fundamental problems of Nissan. The newly appointed had a management philosophy that COO said "you should always start with a clean sheet of paper because the worst thing you can have is prefabricated solutions ... you have to start with a zero-based thinking, while cleaning of your mind. "[2]for the first month, Ghosn flew around Japan, meeting and greeting employees at all levels, absorb information and formulating a plan . He used this information to draw a picture of Nissan in a global perspective, identifying issues and problems that created the dispersion, non-profitable organization.One of the many questions Ghosn identified was the lack of communication around the organization. senior managers from around the world were aware of some of the problems that caused the crisis of capital in the company. They even had solutions for them, but lacked the necessary authority to implement or communicate return solutions at head office.Finally, the main problems have been reduced to five key questions: [2]• The lack of clear direction in profit. Nissan was not profit-driven to drive, but were rather focused on market share and ended up having to buy market share at the expense of lower profits.• Insufficiently focused on customers and too much focus on competitors. The company was too concerned about the introduction of competition of a new line which would cut into the hand of Nissan's market. For example, when Volkswagen introduced the new Jetta sedan Nissan saw a significant drop in their sales Maxima.• Lacked cross, transborder and intra-hierarchical working in the company. Nissan seemed to work as separate islands scattered throughout the world. There was no centralized purchasing function or indeed any of the other important activities. The organization was not made maximum use of its global presence and purchasing power.• The lack of sense of urgency. Nissan executives were complacent in their activities. Things had been so well for the company over the previous 60 years that they felt there was no reason to accept the change.• No shared vision or common long-term plan. Senior management of Nissan has not had a common plan for the various brands within the company. Each division has their own thing with little or no thought for the good of society. An example is the Z series who got a phenomenal success in the 1970s and 80s, but was suddenly dropped from production when sales dropped. The obvious thing to have done was to test the market with a modernized design. Instead Nissan has chosen to ignore the market and drop the mark.To solve the problems, Ghosn announced the Nissan Revival Plan, 18 October 1999. The seven-point plan aimed at reducing costs and debt as well as the creation and launch of new car brands increase sales and market awareness. The targets of the plan were ambitious and included: [2]• The reduction of operating costs, net debt, total account of the head, and vehicle assembly plants and the flower manufacturing forms (the latter in Japan).• Generation of investment of new products through the launch of twenty-two new models.The cost reduction plan called for centralized purchasing, procurement, human resources and information technology. By centralizing these core functions, the plan to help the company achieve its aggressive cost reductions.expenditures, especially in the function of information technology, has been perceived as being out of control. Ghosn's message to executives was clear, "to reduce costs in all possible areas." If it meant outsourcing non-core activities because someone else could do it cheaper, so that should be examined thoroughly and determined. Management was ruthless in their execution of the plan [2].Nissan looks Business Process Outsourcing as a wayI. Will outsourcing non-core businesses to save money?There are well documented in the company's money saving files and other outsourcing horror stories. success really depended on the situation and the supplier.Most experts agreed, however, that you need to use BPO in strategic decisions, such refocused its efforts on core competencies and not just for cost reduction activities [1]. Stephen Withers ZDNet said in his online article that you should "use BPO for strategic purposes, not to take advantage of (possibly temporary) cost reduction." Withers then asked readers, "Is outsourcing under IT Infrastructure make?" To answer this question the company would need to Chief Information Officer (CIO) to have completed extensive research and made a thorough analysis of their business processes.this is exactly what CIO of Nissan did, or rather what Ghosn told him to do. The company has invested more than 80 billion yen ( on $ US760million) in 1998 on IT services, but their processes are not always provide the infrastructure management that help strengthen their competitive advantage [5]. the final decision was taken to address the different service providers outsourcing for the necessary assistance.II. Is outsourcing in the sense of making iT infrastructure?If the information technology (iT) was really a commodity like gas or electricity, as companies compete on price, with very low profit margins. In this case, the decision to return to IT outsourcer was as simple as it was a century ago to turn to motor vehicles instead of using the horse and cart. However, while personal computers and networks they run on can be normalized, the services provided by IT outsourcers vary in many ways. Services such as data analysis, application development, and business has allowed for greater competitiveness in the IT decision-making market therefore these IT elements are far from being considered as products basic [8].Regarding the decision to outsource, many factors were taken into account in the case of Nissan. Ann Moynihan in his article in the Albany Business Review says "Outsourcing can help you: .. [3]• Reduce control operating costs• Free staff focus on the heart of business• access to skills and specialized technologies.• Introduce positive change.• gain control over a difficult manage the functions resulting from uneven workloads, inadequate resources or unqualified. "with Nissan in 1999, it was exactly what they wanted. Refocusing efforts of staff, the introduction of change and positive control gained in all critical areas led to the decision of outsourcing.the choice of IBM as the partner Nissan was strategic outsourcing. in the late 190s, there were not many outsourcing companies that have the scale and global reach that IBM had. Competitors such as EDS and CSC are not considered because they were only outsourcers and could not provide the hardware and software technology that Nissan needed to update their infrastructure [5]. If any of these competitors were selected IBM as partner Nissan have always had to face the same infrastructure problems. IBM was the only logical partner.made the working relationship between Nissan and IBM?I. A different view of the relationship between IBM and NissanIn a joint IBM and Nissan press release issued in Tokyo June 19, 00, the two companies announced that they were "Extending their global partnership for information system (IS) operations Nissan Motor Co., Ltd. and IBM agreed in October 1999, Nissan and IBM jointly announced today that Nissan will outsource its IS operations in Japan, IBM Japan.the service includes regular maintenance of Nissan and operational activities, as part of its application development, but excludes the planning and design of new systems. the two companies will start operations from October 1. [7]In North America, Nissan has outsourced these operations to IBM Corp. since October 1999. This agreement in Japan should accelerate the standardization, integration and centralization of IS Nissan globally. "Ghosn also noted," The Nissan Revival Plan can not be achieved without effective information systems. Following the recent agreement with Japan Telecom, the latter with IBM sets up the global infrastructure that is essential to sustain profitable long-term growth of Nissan. "[4]II. See Hypothetical return on -Investment model usedBefore they can calculate their return on investment (ROI), Nissan had first to examine the total cost of ownership model proposed by IBM. total cost of ownership (TCO) is a type of calculation designed to help consumers and business leaders assess the costs and direct and indirect benefits associated with the purchase of any computer component . the intention was to arrive at a final figure that reflects the true cost of the purchase, the set [8].TCO model used, had to calculate the costs that were necessary beyond outsourcing costs. the organization had to evaluate the criteria for individuals who would have added costs for the outsourcing project. They also had to calculate the running costs for the duration of the contract [8].Then, after the calculation of the recovery period, Nissan was able to calculate their return on investment. Once the numbers were crunched, financial analysis and in-depth risk was conducted. ROI measured earnings or cost savings. It has been calculated by estimating, for a period of 3 years, investment has been made and the resulting benefit created by this investment.The results were conclusive. Nissan and IBM have entered into their agreement and operations should start on 1 October 1999.ConclusionI. Are BPO Nissan achieve its goal?stated objective of Nissan to outsource IT infrastructure was to control costs, improve efficiency, and maintain the infrastructure. Outsourced to IBM, Nissan has achieved all its objectives.In controlling spending, outsourcing has given companies the opportunity to have a predictable monthly budget for expenses. This amount may or may not have been lower than current spending, but the component that was crucial for a large organization like Nissan was the amount is predictable. There was no variable component to pricing. The only time the price may have fluctuated was when additional services which were outside the scope of the contract were required.For Nissan, this was never a requirement. The company was the first stage of a major project, global restructuring and there were no new initiatives.The second goal in the BPO was to improve efficiency. IBM is the largest information technology company in the world with revenues of nearly $ 100 billion [9]. When companies outsource their operations to IBM, they are winning best-of-breed technologies, excellent consultants and some of the best architects of the money systems can buy.The way that any global payer makes its money is by achieving economies of scale. The only way to achieve these economies of scale is to ensure they are making the best hardware, software and infrastructure as possible and make the work of the equipment for maximum efficiency. Taking full advantage of this best-of-breed technology, Nissan has reached its second and third stated objectives.II. What if the IT infrastructure had been retained in-house?If Nissan has decided to keep its IT infrastructure in-house and tried to implement a system updated and modernized, it would have led to a significant increase in spending. The first objective of Ghosn, when he took over the company in 1999, was to reduce spending 700 billion yen [2]. He did not want to spend extra money to upgrade existing equipment.To support the anticipated improvement in competitiveness, Nissan had to ensure that their infrastructure has supported the additional workload. There was no way they could be expected improvement of unaided efficiencies. Nissan does not have the expertise and the additional work force to handle the necessary updates and reengineering of business processes.

III. The final evaluation and summation of the relationshipRobert Greenberg, CIO of Nissan North America was officially declared in 06 that, "We were pleased with IBM services, but the world changed "This review summarizes the relationship as it exists today, nearly eight years later [5] When Nissan announced its stimulus package in 1999, the company had very clear objectives.. reduce costs and return to profitability.Nissan was looking for help IBM in 1999 and filled that role for their iT infrastructure. Greenberg also said in his Q & a that "a things that also occurred with the original outsourcing to IBM was that we probably outsourced too. " [5]Greenberg was not working for Nissan when the decision to subcontract was made in 1999; he joined the company in 05. He is on record but saying he thought they would be preserved part of the internal infrastructure or may have multi-source, ensuring they had the and best possible price.In 06, when the contract expired, the IOC decided to put everything on the submission and compare what other providers offered with what IBM had provided for so many years. The decision to consider new suppliers was actually excellent timing for the company that Nissan decided to relocate its North American headquarters in Los Angeles, CA to Nashville, TN and any transition could be timed to coincide with the move .The proposal to end, that Greenberg chose to do was IBM agrees to "manage desktop systems, network services, help desks, dealer systems and other key infrastructure elements for Nissan North America. "He then outsourced the application and maintenance of an Indian company, Satyam and brought the rest of the services in-house [5].Asked about the decision to bring in-house, Greenberg said. "by inner you increase alignment It is a question of construction of knowledge in internal [that] can be used to help lead the company's business, which is much more difficult when a business analyst function is sitting in third. "[5]IV. is the cost of implementation of a solution in-house outweigh the benefits or BPO make sense?as Stephen Withers said in his article, BPO decisions should not be made for reduction exercises costs but rather to the strategic directions [1]. In other words, businesses should not view BPO as a cost reduction tool. Outsourcing of IT operations is logical when an organization seeks to improve efficiency and business processes or when they can not attract or retain the human capital that have the expertise and capacity to modernize or improve infrastructure.CIO Robert Greenberg Nissan thought it would actually save money by doing some of the work in-house because it was "not to pay margin on the individual [headcount]. "[5]some of Greenberg Nissan individual lessons learned from the outsourcing agreement with IBM was that some services developed by the IT organization can indeed be outsourced or externally developed. However he felt strongly about keeping internal iT skills in these areas of value generation as business analysts who have a good understanding of the business, sometimes even better than the company's customer did. the internalizing these skills could lead to ideas and dialogue with the company, with the end result being a service or product development that can then be outsourced.

Tweet