GM Goes for New Outsourcing Model

General Motors decision today to split its multibillion-dollar outsourcing contract into 40 projects managed by six vendors gives the auto giant two things: vendor leverage and a fair amount of risk.

The $15 billion, five-year IT outsourcing contract taps big name systems integrators (SIs), including rivals HP and IBM, Capgemini, Compuware Covisint, Wipro, and EDS. (See IBM Picks Up $500M GM Deal and HP Grabs $700M of GM Biz.)

Previously, EDS handled the bulk of GM’s technology infrastructure. But now the six SIs will be responsible for tying together hardware and software products from a range of vendors in different parts of the GM empire. HP, for example, will manage all the auto firm’s servers.

Among the 40 different projects are challenges for financial services, computing operations, and applications support, and the scope and scale led some analysts to label the approach high-risk.

"There's always a risk -- there's risks in everything that we do," acknowledged Ralph Szygenda, GM's CIO, in this morning's conference call. "I have had to take risks for 10 years."Pulling all these different strands together could be easier said than done, warns Jason Spaulding, senior analyst at IDC: “I imagine that will be a challenge. Any time that you break a project into so many different parts and outsource it to so many different vendors it adds to the complexity.”

In storage alone GM has standardized on EMC gear, which reportedly helped shave 40 percent off its global storage costs in 2004. The manufacturing firm is using EMC kit to support its global engineering operations, e-business, SAP, and Oracle applications. This includes Symmetrix hardware, Connectrix Fibre Channel switches, Celera NAS file servers, and Clariion arrays.

Robert McNeill, principal analyst at Forrester Research, thinks GM should take care to tread lightly with outsourcing its storage infrastructure under this new regime. “Organizations need to be very careful about this,” he says. “The transition process is very important -- it’s not a ‘plug in, plug out’ scenario.”

Szygenda mentioned that the auto giant has spent the last two years developing standardized processes to ensure that its outsourcing partners are all on the same technology page. These cover areas such as software and systems development and how to monitor computer operations.

The exec also promised that GM’s internal IT department will be responsible for overseeing the SIs, although McNeill warns that this presents another set of challenges: “They need to develop vendor management (skills), and move from hiring IT managers that can manage infrastructure to hiring IT managers that can manage vendor relationships and contracts.”Despite the hurdles facing GM, McNeill believes the deal represents the shape of things to come in the IT industry where more and more users will eschew the single vendor mega-deal. Take note, a little over a year ago JP Morgan sent shockwaves through the banking industry when it ended its $5 billion, 7-year outsourcing deal with IBM Corp. (See JP Morgan Ends IBM Outsourcing Deal, IBM Scores $5B Deal With JP Morgan, and Will More Banks Bet on Insourcing?.)

”It solidifies a trend that we see to multi-sourcing,” explains McNeill, with users becoming less content to place all their technology eggs in one vendor’s basket. Spaulding agrees: “There’s less and less single, large contracts being signed. Companies seem more inclined to leverage several different vendors so that they can take advantage of different vendors’ specializations.”

Szygenda praised this multi-sourcing approach as it gives him greater flexibility if something goes wrong. “The benefit is that it’s easier to move from one IT provider to another if they don’t execute well.”

— James Rogers, Senior Editor, Byte and Switch

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