Ralph Szygenda is group vice president and CIO of General Motors. Having joined GM seven years ago to spearhead the effort to take control of GMs IT systems from former subsidiary Electronic Data Systems, Szygenda is now readying GM for what he calls the “third wave” of outsourcing. eWEEKs Eric Lundquist and Stan Gibson interviewed Szygenda at GM headquarters in Detroit, where he discussed the third wave and other issues, including the state of the outsourcing industry, how GM manages outsourcers and offshore outsourcing.
With regard to return on investment in IT, how do you identify the opportunities and make sure the money is available?
We have never been totally obsessed with ROI. Theres an analytical and an intuitive aspect with every company and information technology.
Analytically, you can identify a benefit, but you have to execute it. The other thing is intuitive. Between the CEO, the business unit head and me, we have to be crazy not to know the right thing to do.
What you assume is, if you have a very literate senior management team, the intuitive approach becomes much easier. However, if executives are very aloof regarding business processes and IT, they may want amazing returns on operations and analysis. They may want big ROI because they dont understand information technology. IT is hard to understand. Its still black magic to most people.
Executives need to learn that IT is not magic—in other words, just because youve built systems doesnt mean youre going to be successful. I have people that have built 2 million lines of code, but if they havent changed the business—which I measure them on—then its a failure.
When I talk to Kirk Gutmann, Im going to look at product development lifecycle time, Im not going to look at whether he put in a Unigraphics system that worked. Thats the least of my worries. He knows that.
How does the management process work at the executive level?
The senior exec team, [GM CEO] Rick Wagoner and I will sit down with the process owners. They will come in and talk about competition, where we think were ahead or behind, and then well get down to what we can do in IT.
Some of its so clear. If we know were behind a competitor in a particular area, we dont need to study ROI to know what to do. We make a lot of intuitive judgments at GM. If we didnt six years ago, do you realize how long it would have taken me to figure out every analytical thing, given the size of GM? We would never have done anything.
By the way, I have 1,700 of the best people in the world. If something goes wrong it is always a GM executives problem.
How do you know if IT is advancing the business mission?
The question is, do we have momentum? Are we moving forward and not sideways and not backward? It may not be the best solution, but if you can keep a company the size of GM moving forward, youre probably in good shape.
One thing makes IT easier at GM—its bid out. So we have three or four companies bidding on the work. That almost guarantees a competitive bid versus an internal IT environment.
When you get these proposals from the outsourcing providers, do you look at the technology theyre using? Do you want them to use a particular vendor?
Not only that, we dictate the technology. I have to drive common technology standards or it would be chaos. I learned a long time ago that I have to have people that are stronger than the outsourcers. Thats how we manage our business here. Its very hard to do.
Who do you see most often in outsourcing bids?
When we bid on IT, we find three or four companies that can respond. They are large companies like Cisco, Lucent, EDS, IBM and Accenture. Thats a pretty small industry today. There is consolidation, and there probably will be more consolidation.
Do you see the number of players ever increasing again?
There will be startups again, and theyre starting to come out of the woodwork. Were getting to the bottom of the downturn in the IT business. There will be a slow rebound in the next couple of years.
There will be more business process outsourcing and significant offshoring. Thats coming from pressure on corporations to cut costs.
Margins are slim on vehicles so you have to make up the difference from cost reduction. A couple of years ago, as long as you spent a lot, you were kind of cool. Today, people are demanding some benefit.
In the case of outsourcers using offshore talent, the people doing GMs work may be in countries like India, Pakistan or China. Is that a concern?
Were pushing them to do that. We have in excess of 2,000 people in India through outsourcers. We use five or six Indian companies. HP, IBM and EDS are all moving over there to be competitive. Its an outsourced model, and the benefits of the outsourced business model are amazing.
If GM were not outsourced, it could have never moved as fast as it did in the last five years. We would have had to worry about culture change in IT; we would have had to worry about educating our people for an Internet environment and things like that. Instead, we found the companies that had the people. If one company didnt have them, we went with someone else. That enabled us to move very quickly.
The quality from offshore is very good. And it comes with a price advantage too. The world is going there.
Where does that leave U.S. IT workers?
I believe it will stimulate new opportunities for business in the U.S. In the last few years, we had trouble getting enough IT people. The U.S. wasnt producing enough IT people. So offshoring started. The dot-com boom also drained off talent.
The U.S. is still the most significant developer of information technology. But protectionism never played out very well in the U.S. in any industry. A question is: Are enough people getting incentives to go to school for technology degrees as opposed to marketing or law degrees?
Does the board of directors ever ask you, “What if something should happen in China or between India and Pakistan?”
Sure. But you have to realize that GM is an international company. Our highest growth in the auto business is China. So it isnt just an information technology question.
You could also say, “How about your business with Fiat in Italy or Opel in Germany, or in Japan with Suzuki?” GM is a world company, and GMs information is going throughout the world every day.
The growth of the auto industry will be much more significant outside the United States than inside the U.S. in the next 10 years.
But I have to be extremely cautious of what companies I have do the development and what kind of work I ask them to do. I would never put everything in one bucket. China might be a concern because of security and piracy, but those things over time will be overcome.
What other countries besides India are doing a lot of work?
China will definitely be a player in the next couple of decades. I think its just starting to develop. You need a lot of people and you need a tremendous educational system that can pump out scientific people. You have to overcome language barriers. But a couple of years ago, people thought there was a language barrier in India, but there are call centers in India today.
Clearly, Eastern Europe still has potential, the Philippines, South America, Mexico. Some of them dont have strong educational systems.
In China, the growth of the automotive industry is quite amazing. This year or next year, China will go into the No. 3 position in the size of the auto market, behind the U.S. and Japan. China will surpass Germany. Thats much faster than we thought. The question was, “Who would have the capital to buy a vehicle [in China]?” But its happening.