News > Technology
    SAVE   |   EMAIL   |   PRINT   |   RSS  
GM's $15 billion bet on tech
Despite financial woes, auto giant's tech chief sticks to massive overhaul of software.
December 15, 2005: 2:52 PM EST
By Owen Thomas, Business 2.0

NEW YORK (Business 2.0) - For the chiefs of the world's tech giants, it's not visions of sugarplums dancing in their heads this holiday season.

Instead, they're dreaming of plum outsourcing contracts from General Motors (Research), which in the weeks to come will dole out a five-year technology budget of $15 billion. It will be the largest batch of technology contracts ever awarded at the same time.

Playing Santa is Ralph Szygenda, GM's chief information officer. While he won't have his presents ready by Christmas, he plans to award 40 contracts covering everything from desktop PC support to real-time manufacturing systems.

How did Szygenda come to have such a large prize to award, at a time when GM's finances are looking so grim? Outsourcing GM's information technology isn't a short-term cost-cutting move, he says. In fact, General Motors has outsourced its IT for decades, dating back to the days when it owned EDS (Research), a large tech-services outfit. Since it spun off EDS in 1996, GM has continued to rely on the company to run most of its IT operations under a contract set to expire next June.

Since 2003, Szygenda and his team have been working overtime to swap that large contract with a series of smaller ones -- and in the process, he's been trying to change the way the tech business operates. "People in the industry tell me this is the largest IT buying event ever," says Szygenda. "I can use economic buying power to change things."

A lack of standardization on how the tech industry operates -- in everything from developing software to writing up contracts -- is hurting both customers and tech suppliers alike, Szygenda says. Over the past two years, he asked GM's largest vendors -- EDS as well as IBM (Research), Hewlett-Packard (Research), Microsoft (Research), and Capgemini -- to draw up 44 different standards on how to do business.

Those current vendors are best positioned to win the new contracts, says Szygenda: "You wouldn't be able to function at GM unless you had experience being here." EDS CEO Michael Jordan and IBM CEO Samuel Palmisano are among the tech chiefs who have paid court to Szygenda in Detroit, hoping to keep or add to their current GM business.

EDS, which currently gets about two-thirds of GM's annual $3 billion in technology spending, has warned Wall Street that it could lose half of that when the new contracts are awarded. IBM, says Peter Misek, a senior analyst at investment bank Canaccord Capital, has the best shot at walking away with a large chunk of the business, perhaps as much as $5 billion over five years.

While that wouldn't add much to IBM's annual services revenue of $46 billion, winning a large chunk of GM account would provide an opportunity to showcase IBM's abilities to tie together IT outsourcing, high-end supercomputing, business consulting and cutting-edge research.

Hewlett-Packard, a longtime supplier of computer hardware to GM, could end up with more responsibility for maintaining GM's desktops and servers, a job currently held by EDS.

And Canaccord's Misek says that we shouldn't count out aerospace defense contractors like CSC, Lockheed, and Northrop Grumman: "They're not high-probability winners, but there's a lot of similarity between the aerospace and automotive businesses." And those players are eager to expand their non-government outsourcing contracts.

What about start-ups? While Szygenda says they won't be given the responsibility for running GM's infrastructure, he's setting aside $2.5 billion to $3 billion to spend on innovative technology. "We use hundreds of start-up companies," says Szygenda. "We're not closing out innovation."


Why does S&P say a GM bankruptcy isn't 'far-fetched'?

GM Chief Executive Rick Wagoner says the company's shakeup could cause a slowdown.  Top of page

Technology (general)
Manage alerts | What is this?