GM Takes Wraps Off Outsourcing Model

By Stan Gibson  |  Posted 2005-12-05

GM Takes Wraps Off Outsourcing Model

Two-and-a-half years ago, General Motors Corp. unveiled to eWEEK its third generation of outsourcing—a plan in which contracts would be parceled out among different suppliers that would have to compete for the work and then cooperate in getting it done.

In an exclusive interview here, GM CIO Ralph Szygenda said the time has come to select the vendors that will bring that plan to fruition. Although contract winners wont be named until next month, Szygenda took the wraps off the contract categories for which providers have been competing.

Because of the unusual dynamics of the outsourcing model, which attempts to meld competition and cooperation, Szygenda said he and his staff have worked closely with major providers in drawing up ground rules under which they can both compete and work together.

"For the last two years, we have been preparing this transition, transforming how were doing things with all the suppliers. There was a two-year quiet period," he said.

Business process outsourcing is growing at a rapid clip. Click here to read more.

Szygenda said he believes he and his team have developed an IT management business model that will be used widely in the decades ahead, one that will not only make IT governance more effective but also enable IT providers to streamline their own operations in becoming more standardized.

"A lot of the growth in the IT industry is stymied because of lack of standardization on things that dont matter," he said. "Companies need to work together. They should be graded on innovation and value."

GM, based here, will award about 40 contracts. A key requirement for successful bidders will be their ability to deal with GM on a global basis, Szygenda said. "Theyve had to show me their global model," he said. GM can now make a product in virtually any country—and sell it in virtually any country. One GM vehicle is made in South Korea and shipped to 120 countries, said Szygenda.

"Very few suppliers have a fully global reach. Some may be strong on some continents but not on others. So they will team with other companies," said Dan McNicholl, GMs chief strategy officer. The result, McNicholl said, is that in each of the 40-odd segments on which GM is entertaining bids, there will be two or three principal bidders, each with up to 10 subcontractors.

Contracts fall into the broad categories of application management, infrastructure management, integration management and other services.

The numerous applications run the gamut from sales and marketing systems to CAD and visualization systems to human resources to the OnStar in-vehicle communications system. Integration management ties these disparate realms together and may include an umbrella role for an integrator to coordinate all corporate IT activities.

Next Page: Stiff standardized requirements.

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Contract winners will face stiff standardized requirements.

"There are firm cost metrics; all suppliers work as one team. These are the processes to run a GM business," said Szygenda. System delivery must be done according to the CMMI (Capability Maturity Model Integration) framework; service delivery and support must conform to the ITIL (IT Infrastructure Library) framework. There are also standards for architecture management, standards management and contract management.

The third-generation initiative evolved from GMs outsourced IT model, which began when the company acquired Electronic Data Systems Corp. in 1984. GM found EDS as a captive provider to be inefficient, however, and spun the Plano, Texas, company back out in 1996, the same year Szygenda arrived to take the IT reins.

In the EDS era, GM had 7,000 information systems. Szygenda said IT costs went up every year, and, in 1996, GMs IT costs were the highest as a percentage of sales in the auto industry. EDS still has two-thirds of GMs IT work, but, since 1996, GM has reduced its IT costs from $4 billion to $3 billion and reduced its total IT systems to 2,600.

EDS CEO Michael Jordan said in remarks in Boston last week that he expects EDS will continue to have a significant piece of GMs business. "Were pretty optimistic we can retain a high percentage of the work weve got," said Jordan, adding that he believes GM intends to spread the work among EDS and two or three other big outsourcers.

Click here to read why Stan Gibson says outsourcing is growing up.

As GM has been pushing its vendors to standardize, EDS has come up with a strategy called Agile Enterprise to standardize its own services around several key vendors, including Microsoft Corp., Sun Microsystems Inc., Dell Inc., EMC Corp. and Cisco Systems Inc. Jordan said the Agile Enterprise concept works at GM, where, he said, there is a 75 percent overlap between Agile Enterprise technologies and GMs needs.

Szygenda said the outsourcing plan could become a model for GMs competitors and suppliers but that was never his intention.

"I never started this to change the industry. It just happened. Standards committees never make it happen. It usually takes one company to change the industry," he said. "This may be the largest bid in history. This could be the discontinuity that gives GM a lead."

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