GM’s Way or the Highway



In a General Motors wracked by crisis, Ralph J Szygenda plays a
peculiar role: sugar daddy. While the rest of the corporation grapples with
layoffs, plant closings, and the risk of benefits evaporating into the Michigan
air, Szygenda, the chief information officer, holds $15 bn of mouthwatering
contracts to disburse. It’s the world’s biggest-ever tech outsourcing
package. And for a handful of high-tech companies, including EDS,
Hewlett-Packard, CapGemini, and IBM, the beleaguered auto maker represents El
Dorado. To scoop up this treasure, senior tech executives are beating a path to
Szygenda’s perch on the 34th floor of the Renaissance Center in Detroit. Ann M
Livermore, executive vice-president at Hewlett-Packard says, "I’m sure
Ralph will want to look in the whites of my eyes and make sure we’re fully
committed."

SZYGENDA GM’s
new projects add
up
to the largest
outsourcing
package ever

Szygenda’s five-year contracts, due to be awarded within
weeks, are intended to modernize GM’s global operations-but they promise
scant short-term relief. For tech companies, however, winning or losing the
Szygenda sweepstakes could be crucial. An eager IBM has assigned to the case a
team of 500 people worldwide. Electronic Data Systems, historically the biggest
outsourcer for GM, has the most to lose. It carried out $2 bn in business with
GM last year. That amounted to two-thirds of GM’s tech budget and 10% of EDS’
revenue. "We’ll be very disappointed if we don’t remain the leading
player, but we’re optimistic," says CEO Michael H Jordan of EDS.

The 57-year-old Szygenda, a nine-year veteran at GM, has a long
history in tech outsourcing. He has suffered his share of glitches and snafus.
Now he’s attempting to use his massive leverage to change the way business is
done. The result could well reverberate far beyond GM-and shake up the $300 bn
tech outsourcing industry. Under Szygenda’s scheme, the company retains more
control, breaks big contracts into smaller pieces, and imposes standard ways of
doing things that mean one supplier can quickly pick up where another leaves
off. "This is revolutionary," says George F Colony, president of
market researcher Forrester Research. "If it works for both sides, in a
couple of years you’ll see a lot of other companies doing it."

While outsourcing is a megatrend in computing, it has hit a
rough patch recently. Corporations have grown frustrated with their loss of
control and the inflexibility of contracts. At the same time, tech companies
doing the work struggle to make money on the contracts. As a result, according
to market researcher Gartner, nearly half of all outsourcing engagements are
rated as disappointments. Szygenda’s solution is designed to make outsourcing
less expensive and simpler-and to foster innovation.

Szygenda says he came to the conclusion three years ago that the
outsourcing status quo was out of kilter. GM had a website called Hermes, to
sell cars in Brazil. The site-run by EDS, IBM, and a handful of others-kept
crashing. And when Szygenda got on a conference call with his tech suppliers,
"there was a lot of finger-pointing, and nobody would fess up to the
problem," he recalls. "I realized this wasn’t going to work. And I
saw it wasn’t just a GM problem. It was an industry problem."

So Szygenda set out to rethink how technology should be managed.
With his leverage as the world’s largest tech outsourcer, he had the muscle to
turn these thoughts into action. Last year, he invited a dozen major tech
companies to help him design the rules that all would have to follow. The
result: No matter which suppliers do a particular job, they do it GM’s way.

At the same time, Szygenda decided that GM needed to maintain
more control of the process. Rather than relying on service companies to make
the strategic decisions about his technology, he assigns his own employees to
manage it. And rather than the 7- or 10-year contracts that have been typical in
the industry, GM is sticking to five-year contracts. That way, the outsourcers
are under the gun to keep GM satisfied.

One Fell Swoop
Even the bidding process is a radical departure from yesteryear, when GM and
other companies typically requested proposals from a handful of tech companies,
winnowed the list down to two, and then picked one. Not anymore. This fall, GM
summoned a half-dozen suppliers to Detroit for three rounds of intense weeklong
negotiations. The goal was to get everything done in one fell swoop, rather than
ping-ponging through months of negotiations. GM negotiators would meet with
teams from each bidder on each piece of the project every day for five days.
Maryann Goebel, chief information officer at General Motors North America,
reports that a typical workday would last from 6:30 a.m. to 10:30 p.m. "It
was exhausting and exhilarating," she says.

PLAYBOOK:
BEST-PRACTICE IDEAS

The
Pioneer’s
New Model

RETAIN
CONTROL

By managing outsourced projects, GM can react more quickly if it needs to
change direction.

PARCEL IT
OUT

GM hands out contracts to several suppliers so it can play one against
another in negotiations.

KEEP IT
SHORT

Rather than 7- or 10-year contracts, GM is sticking to 5. This keeps
service providers on their toes.

STANDARDIZE
By imposing a single set of operating rules, GM can switch providers more
easily.

For the tech outfits, those sessions were like barefoot
marathons. IBM set up a war room, where staffers would gather any time of day or
night to resolve issues that had been raised in negotiations. The goal was to be
able to come up with answers fast, so talks with GM could go on uninterrupted.
The pace was grueling, but the rivals kept their sense of humor. One bidder
jokingly inserted in the offer a line item for "pain and suffering."

This is just as nerve-racking for Szygenda as it is for the
bidders. Beyond the current financial crisis, GM’s long-term viability hinges
on a flexible manufacturing network, deployed globally, that can turn production
in a flash. The company is shifting its focus from regional to global. That
means that if buyers in the Midwest suddenly fall for Saabs, GM will be flexible
enough to produce them in Ohio-not just Sweden. Szygenda and his suppliers are
building the technology that will make this possible.

Szygenda is a confident man, with many victories under his belt
during 34 years in the tech industry. His voice carries weight. But he’s also
humble in the face of huge challenges. "Pray for me," he says. You can
bet GM’s employees, suppliers, and dealers are doing just that.

By Steve Hamm

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