InformationWeek

November 16, 1998

Fortune One's Outsourcing Challenge

Analyzing The Integrators

Methodology

For Some, Small Vendors Are Better

Merger Mania Vs. Merger Meltdown

Palmisano Extends IBM Relationships

CSC Chief Emphasizes Flexibility

Sprinkle Delivers For Deloitte

For Aris, Boutique Is Bountiful

Vendors Plan For Post-2000 Work

Behind The Numbers: Sizing Up The Integrators

Research Charts

General Motors Corp., as CIO Ralph Szygenda is fond of noting, is Fortune One--the world's largest company. Pulling in $166 billion in annual revenue has its advantages when shopping for IT services. Vendors desperately want GM's business--and GM has a huge amount of purchasing power.

It's a new world for GM, which for more than a decade relied on one vendor, EDS, for almost all its IT operations. But a master agreement written in 1996--when EDS was spun off from GM as an independent company--has opened up GM's IT services to competitive bidding. But Szygenda laments that too few vendors are broad and global enough to take away business from EDS.

For IT services vendors that can step up to the challenge, the opportunities are ample. Delphi, GM's auto parts unit, alone spends $700 million a year on IT. Once GM spins off the unit next year,Delphi will be free to seek service providers other than EDS. So far, Computer Sciences Corp. has won an outsourcing contract from GM, while Hewlett-Packard has picked up integration services work and Deloitte Consulting, IBM, and PricewaterhouseCoopers were tapped for SAP implementations.

GM has taken careful steps to learn about its outsourcing options. Gartner Group Inc. provided GM with an IT services market analysis, ranking and rating the vendors. Technology Partners Inc., which specializes in outsourcing negotiation services, helped GM develop processes for re-evaluating and managing contracts.

"We are interested in global suppliers," says Pete Schmidt, head of strategic planning for GM's IS organization. Right now, he says, about 20 vendors are candidates for doing business with GM, based on the vendors' capabilities and size.

GM has no intentions of developing internal IT operations or development groups, Schmidt says. Hiring more than two dozen infor- mation officers and 200-plus IT staff for GM's business units was difficult enough--let alone hiring the tens of thousands of IT professionals that would be needed if GM decided to bring outsourced work back inside.

Precedent Setting
GM's locomotive group was the first to apply the company's new outsourcing methodologies, processes, and scoring. In March, CSC won a five-year, $85 million contract to manage the locomotive group's 2,200 desktop computers, LANs, and midrange computers. Those services had been handled by EDS, which still manages WANs and mainframe computing for the division and is also completing year 2000 remediation on applications.

One of the first tasks in opening the locomotive group's business to other outsourcers was to address EDS's home-turf advantage in competitive bidding, says Dana Deasy, CIO of the locomotive group. After an initial field of nine vendors was narrowed to five, "we realized we didn't have a level playing field, because the incumbent had been there for 10 years," Deasy says. The group then brought representatives from each vendor in for a week to expose them to the business. "We needed to make sure every vendor was competing on equal footing," Deasy says.

The transition of systems and people from EDS to CSC was, "to say the least, an exhausting experience," Deasy says. Less than 20% of the 150 EDS employees chose to accept a transfer to CSC, creating labor-shortage and knowledge-transfer problems. To cope with the labor shortage, CSC assigned some of its own people to the account and hired outside people. Despite the difficulties, the transition from EDS to CSC was completed on time last June, Deasy says.

"Outsourcing vendors are going to have to learn how to make these kinds of transitions with minimal disruptions," Deasy says, because such transitions will become increasingly common at GM and other companies whose outsourcing contracts are nearing expiration. "The vendor that figures out how to do that first will be in a very good position."

--Bruce Caldwell