For Partners, It's GM's Way Or The Highway

With $15 billion in deals to disburse, it's changing the tech outsourcing biz

In a General Motors Corp. (GM ) 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 billion 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 (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 Co. (HPQ ), says: "I'm sure Ralph will want to look in the whites of my eyes and make sure we're fully committed."

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 Corp. (EDS ), historically the biggest outsourcer for GM, has the most to lose. It carried out $2 billion 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 billion 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 Inc. (FORR ). "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 Inc., 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 Web site 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.


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.

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

Before it's here, it's on the Bloomberg Terminal.