Outsourcings Next Generation

GM's IT leader, Ralph Szygenda, prepares to spread contracts among multiple vendors-and require them to cooperate.

Having taken the technology reins at general Motors Corp. seven years ago with much fanfare, Ralph Szygenda has brought in a team of top IT management talent to guide IT operations that are almost entirely outsourced. In those seven years, he has weaned GM from total dependence on Electronic Data Systems Corp., once a GM subsidiary, and sought to take advantage of market competition by using multiple outsourcers.

Szygenda is now seeking to foster even greater competition among outsourcers so contracts are parceled out to many providers rather than given entirely to a single contract winner. He calls this trend outsourcings "third wave." Further, Szygenda said he believes managing this process will require new software, which he describes as "IT ERP [enterprise resource planning]." He explained his ideas to eWEEK Editor in Chief Eric Lundquist and Executive Editor Stan Gibson in his offices in Detroit this month.

Whats the state of outsourcing at GM?

We are the largest outsourced environment in the world, and we use the most vendors in the world. Were on our third generation of outsourcing.

Weve done a lot of things wrong. In the first generation, we went with one company [EDS]. In the second generation, we went to a combination of companies but were still weighted towards one company. Now, were moving to the third generation, in which well go to a balance of companies. 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.

I believe all companies will go to an outsourced business model in the next 25 years. The world is going there. GM is already there.

How far into the third wave are you?

Were now in the second wave. I have some standard contracts, but I cant go to the third wave unless I standardize things further. There is a dying need for standardization of outsourcing processes. Lets say three companies, Accenture [Ltd.], EDS and IBM, are going to build software in a $500 million project. To GM, this has to look like one development scenario, not three different ones. At the same time, I dont want to dictate to these people how to run their businesses.

In one room, youre going to have, say, IBM, Cap Gemini [Ernst & Young] and Accenture all working together. Pretty interesting! This is pretty secret so far, but those companies all appreciate the need. I havent had one company say, "Ralph, we dont want to do this."

Maybe we could have one vendor, say GM, dictate the processes to the industry. But we dont want to dictate too deeply. Thats why I want to hear their comments.

What we have to do is put a layer on top, to manage the outsourcers, so they look like one to GM. The outsourcers also have to understand how to work with each other.

Outsourcing suggests a reduction in overhead, in things like HR, but it sounds like youre adding a complex management layer. How will you handle that?

Thats really hot on our minds right now. The next thing is IT ERP. At GM, the complexity of managing IT is an astronomical thing. How do I manage hundreds and even thousands of [SLAs, or service-level agreements]? And how do I cash in on penalties if I dont monitor them?

There are software companies that have great interest in IT ERP. One module could be project management, another might be SLA management, another one might be operational reporting for problem resolution or configuration or change management. I think its coming. With offshore outsourcing and the business process outsourcing, its going to have to come pretty fast.

The third wave sounds like it makes sense to GM, but whats in it for the vendors?

If these companies had to create an operating scenario, the overhead would be tremendous. At GM, these people are being brought together to work on the standardization of processes so when I start up a new project, I dont have to spend [the] first six months trying to get them to work together as friends.

Tomorrow, of course, theyre going to be violent competitors on another project. How do Microsoft [Corp.] and Oracle [Corp.], who hate to work with each other, work together? Or IBM and Accenture?

Very few companies have a model like this. Today, I have 17 outsourcers that are strategic for GM. I give them report cards every six months. We evaluate them and how they work with each other. These companies are very worried how well theyre doing because you could win a lot of business here. We all know that every year there will be billions of dollars of business at GM. These companies like this idea because if they go to another company, they can use the same processes.

Its important to understand, however, that when a company like Accenture comes in here and works on a project, they cant go to another auto company and work on the same kind of project. Not at GM. However, they could use the same IT management processes every place.

Do you have any examples of this working so far?

In a particular area, for example, building an online sales capability in Brazil, we have five or six companies working together to build or support the operations.

We have something called Version 28, which standardizes terms and conditions for all suppliers. We have standardized contracts. If you dont, youll go crazy.

And you think that other big users of IT will follow your lead?

Twenty-five years from now, most companies will be there. But most companies are in the first generation of outsourcing. Theyre giving it all to one company. Theyre going to learn its pretty hard to be competitive.

Why is GM doing it? Because we will not survive in the third wave of outsourcing if we dont. If I have six companies working on one project and if they dont have the same processes, its going to be a disaster for General Motors.

This is kind of like the aerospace industry. It worked there. I came out of there 20-some years ago. You could have Lockheed Martin [Corp.] work with [The] Boeing [Co.] on one project and then be violent competitors on the next one.

The government works this way but has had to build the environment from scratch on every project. Every time. Theyll spend a year to figure out how they were going to work with each other.

Youre going to be able to come back here five years from now and see if GM pulled it off. If GM pulls it off, it will dictate outsourcing methodology for the IT industry. If it doesnt, itll be a great case study on why things didnt work. The IT industrys going to benefit one way or another.

This sounds like the process of building an industry-standard bus or establishing Internet standards. But in those fields, many companies are creating the standards. Here, just you are creating the standards. Is that an issue with your competitors?

No, because most of them arent even outsourcing. It wont be an issue with anybody else because the business of outsourcing isnt necessarily a competitive advantage. We think it will be in years to come, but nobody understands that now.

The outsourcers all work for me. If they dont work with each other to create this environment, they dont get any more business here. However, if those companies are going to spend their time here to learn how to work together, when they go to a different company, they may use the same process.

IBM, Accenture, [Hewlett-Packard Co.] and EDS are all major providers to General Motors today. They are already seeing these issues of working with each other. Im managing them through "heroes" who report to me. The vendors are all egotistical, but we tell them the terms and conditions of working with GM.

Lets look at how you got here. How far has IT come at GM in the past seven years?

GM has evolved from many different companies, processes and systems to a unified company. Seven, eight or nine years ago, we werent very attractive in cost, productivity or quality.

The company had to change. GM probably has the most complicated supply chain in the world. IT is very critical for all of the processes at this company. We have leveraged it and put it into every process.

We tried to really change GM. Now all the metrics are going in the right direction, probably for the first time in 20 years. Our approach is that IT processes have to make a difference. We call it precision information technology. Whatever changes we make in IT have to make a change at the company.

What has been the payoff?

Today, we spend $1 billion less on IT than we did in 1996. In that time, we also spent about $1.5 billion on Internet applications in order to link with our suppliers over the Web.

We started with 7,000 legacy information systems, and 4,000 systems were gone within 5 years. We believe the digital side of this company lets us run the real-time company that we want. We think were pretty much there.

At one time, GM didnt understand its global business as one company. It spent a lot of money on IT but didnt get a lot of value. Previously, GM handed everything away to one company, so we knew the model that didnt work. Not only that, there wasnt anyone left in GM to manage them.

I had a clean sheet of paper. I was the only person here—I was debating myself! What we had didnt work, and there was no model of where to go.

GM is a pretty decent auto company now; not where we want it to be. Besides being the largest, we want to be the best. Weve still got a ways to go.

For Szygendas take on the outsourcing industry, including offshore outsourcing, go to www.eWEEK.com.