General Motors put the pedal down on its plan to spend about billion on IT services. Can it take GM in a new direction?
Your company just posted an $8.6 billion loss, the second-worst year in its history. It's planning to lay off 30,000 people and shut about a dozen factories. And you're holding the pen to sign off on $15 billion worth of IT services contracts.
Better be sure you're getting your money's worth.
General Motors CIO Ralph Szygenda didn't blink last week as he handed out a bit less than half of that amount. EDS--the one-time GM unit that has done most of the automaker's IT for the last decade--retained the largest share. Capgemini and Hewlett-Packard grabbed new business, and IBM came away with far less than expected. Covisint and India's Wipro Technologies round out the six IT vendors that received substantial contracts.
"Global" is the name of the game for GM CIO Szygenda.
Photo by Bridget Barrett
Szygenda expects the vendors to remake GM's IT organization into a single global team. "We had contracts by country or by region, but we're now doing one contract for the whole world," he says.
It's hard to see from the details released so far how the new contracts will make an immediate dent in GM's crushing problems: Lagging North American sales, fierce competition, huge legacy costs such as health care, and inflexible manufacturing that makes it difficult to satisfy fickle car tastes. Szygenda acknowledges that this batch of contracts isn't focused on building new, innovative IT applications and systems but instead aims to improve IT operations and integration in support of the new processes GM needs to compete as one company around the world.
The contracts also didn't bring the sweeping change many expected in who does the work, since EDS got much of what has been let so far. Yet Szygenda says marked change will come in how work is done and that EDS was most willing to rework its own operations to fit the approach GM demanded. "It was about who 'got' the global model and who was going to be able to do the transition," he says. "... A lot of people thought they were so stuck in how they had been at GM for 20 years that they wouldn't see that future. But they did very well."
Capgemini also did well, nabbing $500 million over five years and nearly doubling its GM business. Under one contract, Capgemini will help car dealers in 40 countries understand customer buying patterns to ensure that the dealers order cars that locals are most likely to buy. That takes direct aim at top-line growth. GM set sales records in Africa, Asia, Latin America, and the Middle East last year but saw unit sales decline 3% in the United States. Revenue was $192.6 billion, slipping from $193.5 billion in 2004.
Yet much of Capgemini's work will involve IT architecture and integration consulting. GM calls it application integration management--developing the strategies, architectures, programs, and verification processes for the bulk of GM's applications and the vendors that support them. This plays into GM's push for worldwide standards. The automaker is insisting that its IT vendors adopt 44 standard processes for common IT tasks. Capgemini will make sure vendors are following those guidelines and implementing them correctly, says Joe Kovach, a Capgemini VP and GM account manager.
Capgemini has about 75 people in the cluster of office towers known as the Renaissance Center in downtown Detroit, where GM has its headquarters, and it will add another 50 as a result of the wins. Capgemini won business in every one of the six contracts it pursued, including nabbing IT operations for sales and marketing from EDS. And it's bidding on another $500 million in the next round of contracts.
As GM pushes for one global IT organization, it will mean fewer tech jobs in the United States. EDS may lay off people as a result of losing GM business, and it expects more of its remaining work will be done offshore. About 40% of EDS employees working for GM are in other regions, including Brazil, Canada, India, and European countries. Over the next five years, that number will increase to 60%, says Jeff Kelly, EDS's VP for the GM business.
At HP, the company will do most of the help-desk and services work it won out of offices in Ireland. And it will tap its worldwide workforce--HP has 13,000 non-U.S. employees, including those in lower-cost countries such as China, India, and Malaysia--to fill its contracts. "We're going to use an offshore or near-shore model not only to help GM achieve cost savings but to help us get to our margins to be a successful deal," says Jim Angers, VP of the GM account for HP. Capgemini's Kovach says most of its people will be in North America, but "over time, we expect to flatten out and concentrate in all major hubs. We'll be all over the world."
Other companies will be watching how well GM can keep its diverse supplier teams working together. The six primary IT vendors must prove they can work collaboratively using the standard processes they spent months developing together. "The hardest part was getting everyone to a comfort level where they're OK with sharing," HP's Angers says. "You could share a certain amount but not to the point of sharing intellectual property. Obviously, we'll see how that will work in transition."