How you'll benefit from GM's new outsourcing strategy

* GM set to redefine outsourcing again

While it has been in the news for some time now, General Motors' new model for outsourcing is getting closer to becoming a reality. More than two years ago, GM CIO Ralph Szygenda announced a plan to handle outsourcing following the expiration of a 10-year EDS contract. The new model, dubbed the "third generation of outsourcing" by Szygenda, will be a multi-sourced deal on a mega scale with major providers both competing and cooperating. With the EDS contract set to expire in June 2006, GM has been working diligently to redefine how it will structure IT operations and how it will work with outsourcers. GM has issued a total of 43 RFPs to cover $2.5 billion to $3 billion in IT spend per year, with winners expected to be announced early in the first quarter of 2006.

Szygenda believes that he and his team have developed an IT management model that will be used widely in the decades ahead. The model will make IT governance more effective while enabling IT providers to streamline their own operations through standardization. A key factor for bidders will be their ability to serve GM on a global basis. Where providers do not have full global reach, they may team with other companies to provide the complete global picture for a given function.

While the pending GM outsourcing contracts may be a major shift in the outsourcing market, it is not the first major shift resulting from moves by GM. I joined EDS in 1985, one year after GM's acquisition of EDS. Back then, GM essentially consummated a mega single-sourced deal by buying EDS; merging much of its IT staff into EDS and handing over most of the IT tasks. This was a major change for thousands of GM employees, for EDS, and for the market. Given the take charge mentality of the Ross Perot EDS in those days, many GMers were heard to ask, "Who bought who?" And many EDSers in Dallas would avoid the company dinning hall because it was not uncommon to cross paths with an executive at lunch and find yourself on the way to Detroit that afternoon.

GM's reach is far and wide, and as a subsidiary of GM, EDS was given instant global reach. Over the past 20 years, that global reach changed regional competition as EDS and others bought up smaller traditional outsourcers. The resulting consolidation forever changed the competitive landscape. When EDS went back to an independent public company in 1996, GM slowly moved bits and pieces of its IT outsourcing to other providers, but EDS retained two-thirds of the work in a 10-year contract. This was done primarily to stabilize EDS stock, as the GM pension plan was a significant holder of EDS shares.

A major drive throughout EDS during the GM days was to grow non-GM revenue. Senior management was concerned from the start that EDS be more than GM's IT department and always focused on growing the business in other directions. GM provided the resources, the reach and the motivation that fueled EDS' growth in the last half of the 1980s.

In the mid-80s, GM needed a drive toward automation and innovation, and EDS, as a wholly-owned subsidiary was one way to make that happen. I think it was the right deal at the right time. Now that GM is once again free to source all of its IT through competitive bids, it is smart to create a strong IT process and governance model and expect the outsourcing providers to adapt to a multi-sourcing model that serves the business. In one way, GM is following a trend already underway in the market. GM is not alone in working toward aligning IT and business, standardizing IT processes or in finding advantages in multi-sourced outsourcing. However, GM has the scale to change the outsourcing landscape to meet its needs, and while the GM model may be inspired by existing IT trends, GM is forcing outsource providers to move in a very specific direction and at a faster pace than they had previously.

Outsourcers are putting competition on the back burner to make whatever alliances they need with each other to meet the standardized global challenge GM has put in front of them. Szygenda believes this will result in sweeping changes that will benefit all future clients of the major outsource providers. If he is right, you should see processes for cooperation and more standardized practices among outsourcers in the last half of this decade. That would result in easier switching between providers and easier multi-sourcing for companies large and small.

If you have been considering ways to tie your IT organization and processes closer to your business through service-level management, check out EMA’s new online tool, SLM Solutions: An online Buyer’s Guide. This site lists over 75 SLM vendors and their SLM products and services. The site includes a powerful search engine and enables side by side comparisons between products. This free tool also includes helpful SLM info and best practices.

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