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General Motors is cutting 30,000 jobs and closing plants, yet its latest IT transformation isn't focused on cutting tech costs. It's on reinventing how GM competes globally.
The view from CIO Ralph Szygenda's 34th floor office at General Motors Corp. includes a thick slice of the muddy Detroit River and much of the city's downtown. First in the line of sight, though, is EDS's electric-blue logo beaming from a shorter tower next door.
These days, most of the IT industry's heavy hitters are trying to catch Szygenda's eye. After 10 years with EDS as its main IT-services contractor, GM next month will divide up $15 billion worth of contracts, likely to four main outsourcers and a number of lower-tier providers. It's a risky transition for Szygenda and GM, a company that-with falling market share and massive restructuring under way-can't afford factory delays or design problems caused by glitches as one IT vendor hands off to another.
GM's CIO is asking vendors at different companies to adhere to 44 standard processes for various IT tasks, a move that could broadly change the IT-services business. It's an opportunity being discussed at the highest levels, with Szygenda holding dinner meetings with the likes of IBM CEO Sam Palmisano and EDS CEO Michael Jordan, showing that General Motors' spending gives it ample clout in the IT industry despite its struggling sales.
Globalization means GM must change its ways, CIO Ralph Szygenda says.
Photo by Bridget Barrett
Szygenda, who joined GM almost 10 years ago, treats it all as a matter of survival. "The issue is that globalization will intensify," he says. "I realized that if this company is to go to the next level-and it is very important that we run our operations globally better than any auto company-that the model we put in place in 1996 wouldn't work."
For a guy who works at a company that just announced it's slashing 30,000 jobs and closing nine North American factories, Szygenda's view on IT cost reduction comes as a surprise: He ranks it No. 4 on his 2006 priority list. No. 1 is mitigating the risk of next year's IT transition. "We don't want to blow up the company, no matter what we do," he says. That's followed by supporting GM's international manufacturing strategy and advances in global distribution. In some cases, IT vendor responses to a single request for proposals could fill a Chevy Suburban; many of the proposals focus on innovation in the supply chain and product development, not cutting costs. "You've got to innovate in IT to be efficient in the rest of the business," Szygenda says. "You don't hear [CEO Richard Wagoner] saying we're cutting a bunch of IT dollars at GM." Besides, GM already has cut about $1 billion in annual IT operating expenses compared with what it spent 10 years ago, through platform consolidation and other cost-cutting.
The IT change is part of a larger move to make General Motors a better global company, Szygenda says. GM has been working for years to get Opel in Germany and GM Holden Ltd. in Australia, for example, to run engineering, manufacturing, and distribution following similar processes, and IT needs to be consistent with that global approach. Nearly all of GM's IT is operated through outsourcing vendors-EDS last year had $1.96 billion of the carmaker's IT business, and another $1 billion went to 17 other IT-services companies. Szygenda has grown tired of those vendors' proprietary ways of doing tasks that add complexity and hamper innovation. "We can't have outsourcing companies doing their own processes at GM," Szygenda says. "In the next generation, we have to have common processes." The automaker also will require its selected suppliers to run their parts of the GM operations as a single global group, with one profit-and-loss center, not divided across various country business units.
Szygenda paints GM's push for outsourcing standards as a move that will help the IT vendors, too, and something that more buyers of IT services will demand. "Globalization is going to make all companies cannibalize processes and reinnovate," he says. "The next 10 years are going to be the most exciting in the IT industry."
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