How GM is driving economies of scale in ICT

The carmaker's size means it has been able to leverage advantageous agreements with its vendors

Many companies have their own technology and process standards, but getting vendors to conform to those standards is no small feat — unless you’re General Motors. With US$15 billion (NZ$22 billion) in ICT spending on the table, the automaker has plenty of leverage to get what it wants from its suppliers.

Earlier this year, the company concluded its monolithic, ten-year outsourcing agreement with EDS, broke up the work and awarded the bulk of US$7.5 billion in new contracts to a small group of service firms that includes EDS, IBM, Capgemini, Covisint and Wipro. It also transitioned to shorter, five-year agreements.

The changes were driven by the need for cost-savings and greater flexibility and the need to re-engineer how the company operates ICT globally. GM outsources most of its ICT operations and has about 2,000 employees that handle “strategic management of information technology”, says CIO and group vice president Ralph Szygenda.

GM’s push towards multisourcing is at the leading edge of a trend, says Peter Allen, a partner and managing director at TPI, an outsourcing research and consulting firm that advised GM on both its original EDS contract and its recent move to multisourcing.

“CIOs are realising that one service provider can’t do it all”, and that they need to actively manage service relationships, says Allen. “They can’t defer that to an external party. They need to be the integrator of those services and engineer that relationship between the business units and the service delivery organisations.”

GM’s transition to its new service providers went smoothly. The incumbent provider even assisted the new companies during the process. That level of co-operation happened for one reason, says Szygenda. “I’m still going to bid out US$7.5 billion in the next five years, and they want to win that.”

Szygenda first realised that the existing ICT strategy wasn’t meeting the company’s needs in 2003, after its Brazilian e-commerce site, which generates 80,000 online car sales annually, crashed.

Szygenda immediately convened a meeting of the vendors involved, including Oracle, AT&T, Microsoft, Cisco Systems, EDS and IBM. “I’m listening to these companies pointing fingers, and I’m down,” he says. “I’m not selling cars and trucks.”

GM, which produces about eight million vehicles a year worldwide, has been moving towards a global operational model where any car for any market can be designed and built anywhere in the world. Collaboration on a project may occur among different design groups in different locations.

“Today, if I have a computer problem, I’m taking down every design centre in the world. I can’t let that happen. That’s what told me that this model won’t work anymore,” Szygenda says.

So GM has worked with its suppliers to develop 44 process standards, 29 of which affect suppliers. “It was like all of these companies were speaking different languages,” Szygenda says. Now all vendors must conform to GM standards, which range from basic system requirements to processes for system verification, validation and project management. “You take all of the mundane IT processes that really aren’t innovation for GM or the IT company and make all that simple,” he says.

GM also demands that vendors adhere to common technology standards, whether for operational monitoring, configuration management or security compliance.

Szygenda thinks such standards are a win for GM and suppliers alike. The way he sees it, vendors’ use of proprietary technologies and processes for basic ICT building blocks have depressed their own growth and held corporate ICT back by bogging down projects in unnecessary integration work.

“You’re telling me asset management is an innovative process? Give me a break,” Szygenda says.

But few other companies have the clout to bend vendors to their will. “If I were [only] running a billion-dollar company, I might not have been able to get these companies to do that,” Szygenda admits.

Nonetheless, other companies stand to gain from GM’s standardisation push by riding on its coat-tails, says Lorrie Scardino, an analyst at Gartner, which counts GM among its clients. “If we do start to see more industrialisation of IT, I think other [customers] will benefit from it,” because they will demand the same treatment, she says. “GM gives you the hall pass to ask to do it.”

But can GM succeed? “There is quite a bit of work in defining and applying standards in a multisourced setting,” says TPI’s Allen.

Scardino agrees. “It is going to take a deliberate, sustained focus by suppliers to make this happen,” she says. “I don’t think this is a done deal. The next couple of years are going to be critical.”

Szygenda hopes his push for standards motivates vendors to start opening up more, but his primary agenda is GM-centric. For example, he has used the company’s clout to persuade Microsoft and Sun to work through differences in how their identity management products work — for GM. “We’re not trying to drive standards for the industry,” he says.

“GM doesn’t care what one of these providers does, as long as GM can see what they need to see, when they want to see it, in the format they want to see it,” says Scardino.

Still, Szygenda thinks vendors should standardise more to reduce integration headaches. “Are they doing enough to solve other people’s issues? No. It should be that these companies want to do this so that they can build innovative products and grow faster,” he says.

GM still has a way to go to achieve its global vision. One area where scale hasn’t helped is with its ERP implementation, which GM has consolidated down to four instances worldwide.

“We did not integrate our SAP environments as well as we should have,” Szygenda says. And while GM has consolidated 10,000 information systems down to 2,500, Szygenda wants to push that down to 1,000 “or else optimise to levels that have never been seen before”.

Although design and manufacturing systems have been integrated, fulfillment is a work in progress. “Right now, it’s been patched together to run globally,” Szygenda says.

Logistics also remains a challenge. Getting the best price on high-quality parts isn’t enough. With the rising cost of energy and a global manufacturing and distribution infrastructure, GM must constantly look at the total cost of a part, including the cost of transporting to the destination where it will be used. In some cases, Szygenda says, shipping costs can exceed the purchase cost. “We’re building systems that optimise logistics for that,” he says.

With a presence in 128 countries, GM’s biggest challenge is to solve what Szygenda calls “the logistics nightmare of globalisation”.

“If you could do it, you could really reinvent the company,” he says. “That’s what we’re trying to do.”

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