GM Drives Economies of Scale in IT

Computerworld - Many companies have their own technology and process standards, but getting vendors to conform to those standards is no small feat — unless you’re General Motors Corp. With $15billion in IT spending on the table, the Detroit automaker has plenty of leverage to get what it wants from its suppliers.

Earlier this year, the company concluded its monolithic, 10-year outsourcing agreement with Electronic Data Systems Corp., broke up the work and awarded the bulk of $7.5 billion in new contracts to a small group of service firms that included EDS, IBM, Capgemini, Covisint and Wipro Ltd. It also transitioned to shorter, five-year agreements.

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The changes at GM were driven by the need for cost savings and greater flexibility and the need to re-engineer how the company operates IT globally. GM outsources most of its IT operations and has about 2,000 employees that handle “strategic management of information technology,” says CIO and Group Vice President Ralph Szygenda.

GM’s push toward multisourcing is at the leading edge of a trend, says Peter Allen, partner and managing director at TPI Inc., an outsourcing research and consulting firm in Houston that advised GM on both its original EDS contract and its recent move to multisourcing.

“CIOs are realizing that one service provider can’t do it all” and that they need to actively manage service relationships, says Allen. “They can’t defer that to an external party. They need to be the integrator of those services and engineer that relationship between the business units and the service delivery organizations.”

GM’s transition last June to its new service providers went smoothly. The incumbent provider even assisted the new companies during the process. That level of cooperation happened for one reason, says Szygenda: “I’m still going to bid out $7.5 billion in the next five years, and they want to win that.”

Szygenda first realized that the existing IT strategy wasn’t meeting the company’s needs in 2003, after its Brazilian e-commerce site, which generates 80,000 online car sales annually, crashed. Szygenda immediately convened a meeting of the vendors involved, including Oracle Corp., AT&T Inc., Microsoft Corp., Cisco Systems Inc., EDS and IBM. “I’m listening to these companies pointing fingers, and I’m down,” he says. “I’m not selling cars and trucks.”