GM Third Wave in the Works

Automaker's outsourcing plan calls for greater competition and cooperation.

Give General Motors Corp. credit for one thing: the worlds largest automaker is not afraid to break new ground. Now the company is seeking nothing less than to rewrite the rule book that outsourcers and their customers will follow for years to come. Group Vice President and CIO Ralph Szygenda calls it the "third wave" of outsourcing: Competing providers will vie for many smaller slices of the GM pie, oftentimes partnering with intense rivals on the same projects. And theyll have to like it—or hit the highway.

"In the next generation of outsourcing, people will not pick one company to give everything to. Competing outsourcers will have to work with each other," said Szygenda in an exclusive interview at GMs headquarters in Detroits Renaissance Center.

The third wave continues GMs history of exploring new outsourcing territory. Having acquired Electronic Data Systems Corp. to take over its IT operations in 1984, GM divested itself of the systems integrator in 1996. The company is still in the midst of a divestment deal that stipulates a special relationship, gradually relaxing through 2006.

"What Ralph is trying to do is have the best of breed rise up to the surface," said Frank Dzubeck, president of Communications Network Architects Inc., a Washington consultancy.

Another analyst concurred. "You would get the best of what the providers have to offer. Its an interesting idea, and providers are already fighting tooth and nail for each new contract. This would move it to a whole new level," said John Madden, of Summit Strategies Inc., in Boston.

Similar practices have been followed in the aerospace industry, where contractors often break a big project into pieces. "This is kind of like the aerospace industry. It worked there," said Szygenda, who spent the early part of his career at Texas Instruments Inc.

According to Kirk Gutmann, information officer for global product development and global service delivery, "The goal is to foster competition among outsourcers" across GMs three so-called IT factories: operations, applications and IS, and business management.

Thats the intent, anyway. But, said Madden, "this creates a management headache." The need for new procedures to manage the complex task of handling multiple outsourcers—and their contracts—is where plenty of work needs to be done before the dream can become reality.