GM Makes Outsourcing an Engine for Improvement


General Motors has taken a lot of heat from financial analysts for the supposedly ineffective management practices that have left it trailing Japanese rivals like Toyota and Honda and their highly regarded process improvement techniques.

Yet there is one area where the automaker is being hailed as a leader -- at least for now -- and that is outsourcing.

About a year ago, GM CIO Ralph Szygenda decided to end the company's long-time supplier deal with EDS and switch to a multisourcing model.

Szygenda was already hailed as a cost-cutting whiz, having whittled nearly a billion dollars from the automaker's IT budget in his 10-year tenure. While impressive, it's not nearly enough, say analysts, some of whom believe GM needs to slice IT spending in half.

Though it's too early to tell if the outsourcing initiative can save GM that kind of money, early results look fairly promising. During the first two months of the transition, GM's half-dozen chosen suppliers trained 8,100 people on 29 standardized work processes, redeployed 2,800 employees, and re-mapped 1.2 million assets to new contracts, among other necessary tasks, according to this InformationWeek article.

Szygenda is stressing simplification and standardization, insisting that all of GM's suppliers hire and manage their own subcontractors, use standardized work processes, and report to GM via a single common interface.

Of course, not all CIOs have the kind of IT budgets that can be used as collateral to bend suppliers to their will, as Szygenda apparently did, based on this Q&A on Gartner's Web site.

But even those with somewhat smaller budgets are reaping the benefits of multisourcing, as seen in this case study of ABN Amro. The financial services company says it expects to save some $322 million a year by contracting with a half-dozen suppliers. Like GM, ABN Amro offloads many of the management responsibilities to its suppliers.

The CIO of ABN Amro Services, North America says no single supplier can provide the consistent service levels, quality, cost reduction, talent availability and flexibility required by a global company like his.