GM Awards IT Outsourcing Contracts

Updated: EDS, HP and Capgemini are the biggest winners of GM's IT contracts, worth billions of dollars.

EDS, Hewlett-Packard and Capgemini emerged as the biggest winners as General Motors handed out some 7.5 billion dollars worth of IT contracts for the next five years. Also getting significant pieces of the pie were IBM, Compuware Covisint and Wipro.

The announcement was the culmination of a 10-year process of disengagement from EDS as GMs exclusive IT services provider. EDS was acquired by GM in 1984 and spun out in 1996. EDS was guaranteed a majority of GMs business during that time, in which the automotive giant reduced EDS share of the work by one-third.

Because of EDS history with GM, losing only a small amount of work would be considered a victory.

EDS won deals in product development, GMAC, OnStar, corporate information systems and IT infrastructure; HPs wins included application services, auto manufacturing and server infrastructure management; CapGeminis wins included application integration management, application support and sales systems.

/zimages/6/28571.gifEDS is in the midst of a turnaround that is fattening up its bottom line. Will that mean more customer wins? Click here to read Stan Gibsons analysis.

"This is a significant milestone for General Motors and its Information Systems & Services Group," said Ralph Szygenda, GMs group vice president and chief information officer, in a prepared statement. "Of critical importance is the focus we have had on driving innovation and supporting future globalization and digitization of the company."

In a press conference, Szygenda said that cost savings, although not the primary criterion in selecting bidders, will be one result of the process. "There are savings that are meaningful to the business. Rick Wagoner [GM CEO] is always looking for savings."

Some savings will come from standardizing processes and mandating that service providers conform to the standards, Szygenda said.

The news comes as GM is hemorrhaging money. For 2005, GM reported a net loss of $8.6 billion, compared with a profit of $2.8 billion in 2004. Revenue was $192.6 billion in 2005, compared with $193.5 billion in 2004. GM CEO Rick Wagoner said 2005 "was one of the most difficult years in GMs history."

Despite GMs precarious state, Szygenda said he did not demand unusually liberal payment terms from the contract winners. "We didnt let payment terms and low cost drive us," he said.

Based on todays spend rate, GM said it would spend approximately $15 billion over the next five years. As a result of savings generated through the bid process, the spend rate will be less, however, GM said. Approximately half of the spend is being awarded to systems integrators now. GMs telecommunications contracts will expire at the end of 2006, and those contract awards will be made later in the year, according to GM. The balance will be awarded throughout the five years for software, hardware and application development.

/zimages/6/28571.gifClick here to read more about GMs outsourcing model.

For GM the key to making the new business model work will be management. Observers believe that with such a large IT budget—about $3 billion annually—and so many contractors, GMs ability to manage outsourcers will have to be the best in the world.

GM is in hot water financially, and some observers fear the company could be skirting bankruptcy. In this dim picture, Szygenda has endeavored to paint the companys IT under his leadership as a bright spot, noting that when he came aboard at GM in 1996, the company was spending $4 billion per year on IT. Having cut that expense to $3 billion, Szygenda aims to cut it further in this round of contracts. Szygenda has also said that IT enables GM to have industry-leading design-to-build timeframes for its vehicles.

The suppliers and GM will have until June to develop a transition plan, which will be put into effect in the same month, when the GM-EDS contracts officially expire.

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Winning bidders had to prove they could support GM operations globally, a tall order for all but the biggest IT services providers, such as IBM Global Services, Accenture, EDS and Capgemini.

Now the hard part begins, as GM sets its selected vendors to work on its IT projects and mandates that they cooperate with each other in doing so.

Editors Note: This story was updated to include additional information about the contracts.

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