IBM motors away with Hertz outsourcing contract

IBM Corp. has driven out from Hertz Corp. headquarters with an early extension to the information-technology (IT) outsourcing relationship the companies have had since 1993.

Hertz, the world's largest rental-car company, will pay US$154 million over six years to have IBM continue to provide it with a variety of IT services, the companies announced Wednesday. The contract extension comes about one year before the current contract was set to expire.

IBM manages IBM mainframes at Hertz's data center and provides application development and application management for Hertz's claims management and equipment rental units, said Claude Burgess, vice president of technology and e-business at Hertz. IBM also provides disaster recovery services to Hertz. The services support Hertz operations worldwide.

One difference with this renewal is that some of the application management and development work will be done by IBM employees in India, whereas all of that work was previously done in the U.S., he said.

The long and substantial outsourcing relationship with IBM is a rarity for Hertz, a company that, according to Burgess, manages most of its IT tasks internally. The IBM contract is the largest IT outsourcing agreement at Hertz, which has a few other small outsourcing agreements, he said.

Hertz chose to extend the contract because IBM continues to provide good, consistent service, and a knowledgeable staff with little turnover. "They are consistently graded highly by users," he said.

Throughout the years, the core outsourcing agreement has spawned off separate consulting engagements for IBM when Hertz has needed advice on a particular IT project or issue, Burgess said. He expects that this will continue to happen, as it has in the past.

"IBM has a long history with us. We do a lot of one-off projects and we use IBM as consultant. If we're going to look at something new or different, IBM is certainly one of the first people we look to for advice and assistance," Burgess said. "We have used IBM for significant projects in the past, outside of the outsourcing agreement."

For example, Hertz tapped IBM recently to evaluate how the system it uses to provide quotes for car and heavy equipment rentals to various points of sale can be improved so that quotes can be provided faster and more efficiently.

"Anything that touches (rental) rates obviously touches customer service, so we've asked IBM to take a very close look at that system and offer advice on potential reengineering," Burgess said, adding that the retooling project, if it gets under way, would fall outside of the outsourcing agreement announced Wednesday.

While separate, this consulting project is an offshoot of the outsourcing relationship, said Buddy Meyers, IBM's managing principal for travel and transportation industry consulting. "Although this (consulting engagement) stands on its own two legs as a separate deal, it's really enabled by the spirit of the outsourcing agreement," Meyers said.

Armonk, New York-based IBM is exploring various business and technology improvements for the rate system, such as new pricing methods and supply-chain concepts that could improve the utilization of rental assets, with the ultimate goal of improving the delivery of Hertz services and increasing customer satisfaction, Meyers said.

Extending outsourcing agreements beyond the mere provision of services and into the realm of improving business processes for the client is something IBM is focused on doing increasingly more often, Meyers said. "It's been growing. IBM has institutionalized it, and we're making more of this happen," he said.

A recent example of a new type of broader outsourcing agreement, Meyer said, is the one IBM signed with Finnish airline Finnair Oyj in June, which in addition to the provision of IT services also calls for the creation of a jointly operated technology development center at which IBM and Finnair will develop Internet-based airline services. Hertz, based in Park Ridge, New Jersey, renewed the original 1993 IBM outsourcing contract in April 1998 with a five-year, $100 million extension that was itself renewed before it expired, with the agreement announced Wednesday.

Hertz, a subsidiary of Ford Motor Co., has over 7,000 locations in over 150 countries. In addition to renting cars, the company also rents heavy equipment, trucks and vans, sells used cars and provides claim management services. Hertz had revenue of $4.9 billion in 2001.

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