Capgemini Explains Its Role in GM’s Outsourcing Plans

Joe Kovach, Capgemini’s Global Account Manager for General Motors, expects the consulting company to “come up and running fairly quick” between now and early June 2006, when six tier-one vendors take over IT management from a single vendor for the world’s largest automaker. But he still anticipates that the transition will be a challenge in turning the “open standards kind of discussion” participating service providers have had over the last 18 months into something “real.”

The Capgemini Contracts

Capgemini won six contracts in the bidding that assigned $7.5 billion worth of services. Although the company won’t put a value on it, it did say the work it’s signed up for tallies more than a “half billion dollars” over five years.

Joe Kovach with CapgeminiFour of the contracts involve application integration management work — for the entire enterprise as well as global purchasing and supply chain; global sales, service and marketing; and business services (encompassing finance and HR).

As Kovach explained, the work performed by Capgemini for GM will involve managing the vendors actually doing the work in those areas — a role typically retained by the client in outsourcing endeavors.

He considers the enterprise-wide contract Ôthe “big daddy.” “At the enterprise level we do the four main things that every application integration provider does,” said Kovach. “That is strategic planning. We will establish the process that everyone who does business goes through at GM — strategic planning on GM’s behalf.

“We are also responsible for architecture… That means establishing things like what role service oriented architecture is going to take at GM and how GM will take advantage of it.

“We are also responsible for setting up all the program management functions across the company.

“Lastly, we’re responsible for doing this verification validation. It’s a nice way of saying, to make sure all the vendors are doing what they’re supposed to. It’s a bit of a policing function.”

Capgemini also won two contracts in the areas of systems support for sales and marketing and dealers. The consulting firm was already handling the latter for GM in Europe, where, Kovach said, “dealerships are entirely different.” Whereas in the US, there are three primary dealer management systems, in Europe there are 45. “It’s just a much more complex environment.”

Capgemini expects to have people all over the world working on the GM account — in “upwards of 40 countries,” said Kovach. However, a large portion of staff dedicated to the application development and management work will be in lower-cost areas, namely Eastern Europe and India. For application integration management, “by necessity, those will be in the front office,” he said. For at least the first couple of years of the contract, Kovach said the company expects to have a “vast number of people in Detroit.” Eventually, the effort will sift out to other parts of the world where GM has headquarters. For Europe, that means Germany and the UK; for Asia Pacific, the work will come out of Shanghai and Australia; and for Latin America, it will be in Miami and Brazil.

Kovach anticipates that the company will do “some hiring, but not a whole lot.” He expects that Capgemini will pull people into Detroit who live in other cities today.

The Bidding Process

Kovach said three times the number of companies were involved in the early stages of the entire process, of which six were named winners in early February. These encompassed incumbent EDS, as well as HP, Capgemini, IBM, Compuware Covisint and Wipro. Most of the others were knocked out of the discussion prior to issuance of the RFP.

During the last two years, the contenders have gone through a three-phase bidding process, Kovach said. The first was a “qualification stage,” where, Kovach said, “you had to help GM get a good feel for who you are.” That included discussions around how the vendor is staffed in various regions, how it works with various open systems and standards, and whether the company truly was a “tier one” supplier.

Kovach suggested that some of the vendors knocked out in earlier stages of the bidding process actually will end up subcontracting to the tier-one companies. He specifically cited Satyam as a subcontractor example. “They were already administering some of the applications that we won,” said Kovach. “So GM asked us to strongly consider them in that role because they thought they were a good provider.” Capgemini has worked with the India-based company “a ton,” so “they’ll still largely administer the same things they’re doing today, but we’ll just manage them,” he explained.

The second phase of the bidding process was a “solutioning stage, he said. As [GM] released more detail about what was out to bid, now you really got to roll up your sleeves and show them what you could do.”

The third stage was what he’d call “negotiation” — both parties coming to agreement on some of the details about the work, such as staffing numbers and where geographically it would be performed.

A New Outsourcing Model: Multisourcing for Management

GM actually deals with hundreds of other IT vendors — Kovach put the number for 2005 “in excess of 600.” “That’s impossible to manage,” he said. “Absolutely impossible.”

In the systems integrator model, GM will rely on the six “tier-one” vendors to manage the companies providing the services. As Kovach said, GM’s thinking is, “We’ll give you some coaching on some other vendors that we think have some great capabilities or things we’d like you to do. But at the end of the day, you’re in charge. You need to deliver on our behalf.”

In anticipation of the end of a 10-year contract it has had with EDS to deliver IT services, GM “chunked” its work into 40 requests for proposals, according to Kovach.

In a GM press release, the automaker estimated that it will spend about $15 billion over the next five years. But in this latest round of announcements, which tallied about $7.5 billion, the company didn’t award all 40 contracts. Kovach estimates that about half were issued. Still to come: a telecommunications contract, expected later this year, and other contracts related to services required by GM’s Information Systems and Services group. The automaker said those would be rolled out over the next five years as it assesses spending on items such as software and hardware acquisition and new development and deployment of information systems.

The contracts covered three types of RFPs: application integration management (the area Capgemini dominated in), infrastructure (such as servers, PCs and desktop support pursued by the likes of EDS, IBM and HP), and application development and sustain (such as the sales and marketing systems and dealer systems support work Capgemini will be performing).

Applying Global Process Standards

A major thrust of the goals GM set for itself in multisourcing its IT was to globalize and standardize operations.

Kovach said GM has already experimented with globalization of product development — calling the company the “most advanced in the industry” in terms of how it handles that. Now it believes it can achieve even greater savings in supply chain. “I think that GM really believes that in order to take advantage of their size, [they] have to do things one way. Otherwise, all you really are is a big company that shares a name tag,” said Kovach. “They don’t do that very well today. They have a fragmented method. Some of that is because the systems aren’t where they need to be to support one common process.”

So as part of the bidding process, the companies spent a year and a half working out standards for 44 core processes, such as change management and source code management. All service providers must adhere to the processes worked out by the consortium of tier-one vendors.

The philosophy at GM, according to Kovach, was that it didn’t gain any advantage by each vendor following its own processes. “GM is saying, ÔWhy don’t you guys get your act together — come up with a common way for these low level things, so we can start spending our time doing better things?'” said Kovach.

“We all worked with GM to construct this,” said Kovach. “No one knew what role they were going to win at the time, which, if you think about it, is a pretty good way to structure it: Get everybody to agree to how these things are going to [be done] before your name is on the org chart. Then when the business is awarded, we have to go play those roles that we jointly worked to define.”

Along the same lines, the group of vendors has reached agreement on the governance structure they’ll follow. That involves developing a framework for how communication is done, Kovach said. “Contact points within all the vendors as well as GM, escalation points, communications standards, how things are released in a production, how changes are communicated, how resource planning is done.”

As part of the transition period, said Kovach, the companies will probably continue working under their own processes, but all have agreed to a common set of interfaces. “I may still manage the code the way I’ve always done it, but I’ll also put it in a central repository so everyone can get to it. Over time, we’ll skip that middle step… We’ll just use that totally agreed-upon process.”

But eventually, Kovach predicted, Capgemini will probably change a lot of its processes to the GM approach. “We’ll be able to piggyback off the training that we’ll all be doing… [And] I happen to believe that my competition will do the same thing.”

In fact, he anticipates a day when a CFO, negotiating with an array of companies vying for the company’s IT business, can say to the service providers, “We want the GM model.”

Useful Links:

Details from GM’s IT Outsourcing Awards

Capgemini’s announcement:

General Motors’ announcement: