FRAMINGHAM (04/28/2000) - Ford Motor Co. and outsourcing services provider Compuware Corp. last week announced plans to ramp up two application management centers opened earlier this year in the U.K. and Germany. It's a move that will turn over management of the automaker's massive application portfolio entirely to the outsourcer.
The deal enables Ford to accomplish its goal of outsourcing the management of its 1,500 systems applications in several areas, including manufacturing, finance and sales.
Ford originally signed Farmington Hills, Michigan-based Compuware to a five-year outsourcing deal in 1998. That deal was estimated to be worth $100 million.
Ford officials wouldn't disclose financial terms of the contract extension but said Compuware is nearing the goal of cutting Ford's costs by 30% and improving application performance.
Officials said the partnership will help shift in-house information technology staff away from application maintenance.
"We can better leverage the talent and knowledge of Ford's IT professionals if they are less involved in support and maintenance and [are] working more closely on development projects for the core business," said Lynn Phillips, manager of applications for Ford's application management centers.
Albert Nekimken, an analyst at Input, a market research firm in Vienna, Virginia, said freeing up skilled workers for more challenging IT projects is often a key driver behind outsourcing deals.
"There is a tremendous skill shortage worldwide, [including] in Europe, and practically everyone is scrambling to meet all their technical needs," Nekimken said. "Ford has deep pockets and has decided that it makes more sense to use in-house IT for special, high-margin, high-return projects rather than [for] pedestrian tasks like managing applications."
According to Input, the manufacturing sector leads all other business sectors in arranging outsourcing contracts.
Of the $5.4 billion in contracts awarded to IT outsourcing firms in the first quarter of this year, 16% stemmed from discrete manufacturers such as automotive companies, 13% from process manufacturers such as pharmaceutical firms and 13% from state and local governments.
Ford first opened an application management center near its headquarters in Dearborn, Michigan, two years ago. Ford and Compuware jointly staff the centers, with approximately 1,000 IT professionals in Dearborn and 350 in Europe.
Nekimken noted that large firms are increasingly demanding a local presence from outsourcers.
"Despite the talk of e-business killing geography, firms want their data centers close by," Nekimken said. "There is significant turnover in IT, so they don't want to take the risk of losing sight of who is really involved on a day-to-day basis in managing their applications."
Ford also has a five-year, multimillion-dollar deal in place with IBM for project management and new application development. As with the Compuware arrangement, IBM staffs and manages three Accelerated Solution Centers for Ford in the U.K., Germany and Dearborn.