General Motors announced its much awaited multi-billion IT services contracts on Feb. 2 — the largest one in the history of tech outsourcing. GM said its current spend rate would put the value of its total IT services at about $15 billion for the next five years. But as a result of savings generated through the bid process, the actual spend rate is expected to be less — which could have been predicted, given GM’s current financial state. Also, the contracts awarded today only tally to about half of the expected total spend. The other half — including telecommunications services and application development work — will be announced over the next five years.
Here are the details I’ve pieced together from the lot of press releases issued by all of the winning companies, EDS, HP, Capgemini, IBM, Compuware Covisint and Wipro.
First, the big winner. EDS is the company that’s had the work for the last 10 years. That contract ends in June 2006. EDS said it has won about 70% of the contracts it pursued, worth $3.8 billion over five years. With this agreement, plus other business that was not part of the recompete, EDS now expects $1.2 billion to $1.4 billion in annualized revenue from GM over the next five years.
How does that compare to what it was earning from GM? According to coverage in BusinessWeek in December, EDS “carried out $2 billion in business last year.” That was about two-thirds of GM’s tech budget and 10% of EDS’ revenue for the year. So EDS has taken a hit.
The services it will provide includes mission-critical systems in Global Product Development, Global Manufacturing, Global Purchasing and Supply Chain, Global Business Services, Mainframe Operations, Server Operations, GM OnLine (desktops), local area networks, GMAC (financial services) and OnStar (a safety and security system).
Here are the quotes:
“This is a big win,” [Jeff Kelly, EDS vice president for GM business, said]. “We’re very pleased to be a major part of GM’s third-generation outsourcing model.”
“EDS continues to be a very important strategic IT supplier to GM,” said Ralph Szygenda, GM group vice president and CIO. “We expect that EDS will continue to provide and improve our world-class capabilities while reducing our costs globally.”
Next, HP. HP was awarded $700 million in contracts over five years. The agreement spans global product development, manufacturing and quality, GMAC customer and dealer information systems, and global SAP enterprise architecture management support.
HP Services will work with GM’s Information Systems and Services organization to provide server management, application maintenance and systems integration for a number of information systems areas. It will be responsible for management of the vast majority of GM’s global engineering workstations, enterprise resource planning hosting, global product development server environments and many of the servers in GM’s Asia Pacific region. HP Services will provide applications maintenance, monitoring, block-point testing and deployment, and user support for select global product development and GMAC applications.
Here are the quotes:
“HP has a strong track record of collaborating with GM to reduce costs, decrease production cycles and improve quality,” said Ann Livermore, executive VP, Technology Solutions Group, HP. “We selectively bid on areas where we have strong competencies. We are very pleased to be selected to deliver IT operations and application services to GM’s Information Systems and Services organization that will support the core areas of their business — product development, manufacturing, quality and finance.”
GM’s Szygenda said, “HP has and will continue to be a key strategic IT supplier to GM. In their newly expanded role, HP will help support our global IT business goals to ensure that we continue to increase efficiency of operations, cut costs and deliver innovation to the company worldwide.”
Then comes Capgemini, which said it pursued six contracts with GM and was awarded all six, in the areas of enterprise-level strategic planning, architecture, program management and verification/validation services. These include the following:
- Enterprise-wide application integration management, which provides enterprise-level strategic planning, architecture, program management and verification/validation services.
- Application integration management for the global purchasing and supply chain area.
- Application integration management for the global sales, service and marketing area.
- Application integration management for the business services area.
- Sales and marketing systems support.
- Dealer systems support.
Capgemini isn’t publicizing the value of the contracts yet, other than saying it’s in excess of half a billion dollars. My guess is it’s about $600 million worth of work. What arcane accounting formula did I use to derive that? I’ll tell you. That number lies somewhere between the $700 million announced by HP and the $500 million announced by IBM. Since the company was listed in the third position in the press release, my guess is it comes in number three in terms of size of award.
Here are the quotes on the deal:
“We are honored that General Motors recognized our unique experience in systems architecture and engaged us to support many of the systems architecture components of its visionary third-generation outsourcing initiative,” said Paul Spence, CEO Global Outsourcing Services for Capgemini.
Said Szygenda, “Although traditional IT outsourcing represents a significant portion of this endeavor, Capgemini will assist us in key systems architecture management in the future.”
As I said, IBM was awarded work that could be worth up to $500 million over the next five years. IBM will support the applications of GM’s Service and Parts operations as well as its manufacturing quality assurance systems. Also, IBM will play a strong role in the integration management and operations support of GM’s worldwide IT computing infrastructure. (I’m supposing that means help desk, network and data center operations.)
Here are the quotes:
“IBM’s expertise in developing IT systems and in managing and operating global IT infrastructures will help GM achieve new levels of IT performance,” said Frank Roney, IBM’s Managing Director, General Motors Account.
Said Szygenda, “This expansion of our work with IBM will be an important component in our company’s global operations.”
Compuware subsidiary Covisint won the contract to support supply chain collaboration for GM’s 18,000 suppliers. No value placed on the size of the contract, but it’s probably below the $500 million that IBM won. Compuware acquired the company, which builds and supports systems that connect the global automotive industry, in early 2004. Covisint’s solutions integrate messaging, portal and Web services that help companies in the automotive industry to do business with each other.
GM is already using the service in North America. But part of the contract will be to expand the supply chain integration and collaboration into GM’s Europe, Asia and Latin America operations.
“This is a perfect example of Covisint’s ability to create competitive advantage by combining operational excellence with a single, global environment for real-time information sharing and supply chain visibility,” said Bob Paul, President and COO of Covisint.
“Extending our relationship with Covisint will assist General Motors in our efforts to drive innovation, globalization and digitization,” said Szygenda.
Last comes Wipro Technologies. The five-year agreement calls for the lone India-based winner to integrate the company’s middleware systems and information systems and services software tools around the world. Automotive World reported that the deal was worth $300 million. However, Wipro issued a press release on Feb. 3 clarifying that that that was an estimate “of future business we hope to attain with GM and other IT suppliers supporting GM’s business.” The actual value of the direct bid from GM, according to the release, is worth $27 million over five years. Additional revenues come from work Wipro is doing for other companies providing services to GM.
The “direct” services will be delivered under the Integration Factory model which Wipro and GM have pioneered. The Integration Factory will be responsible for delivering middleware and IS&S tool support solutions globally for GM process areas, including Global Sales, Services and Marketing; Product Development and Engineering; Manufacturing and Quality; Global Purchasing; Business Services; GMAC; and OnStar.
“We continue to cherish our relationship with GM and are extremely pleased be selected as one of their Tier-1 suppliers for the future,” said Sudip Banerjee, Wipro’s President of Enterprise Solutions.
“Over the past 5 years GM has had a successful relationship with Wipro. Based on this success, and Wipro’s strengths, we have selected Wipro as one of the Tier-1 system integration suppliers to provide application data integration services,” said Szygenda.
The Final Tally
My math for the deal goes like this:
*Estimates; not publicly announced by company
If my estimates for Capgemini and Compuware are accurate and the total equates to half of the total IT spend, as GM announced, that puts this portion of the IT bill for GM over the next five years at about $12 billion — an expense reduction of $3 billion or 20% over the $15 billion expected to be spent. Is that close enough to the 25% cut in fixed costs that GM Chairman and CEO Richard Wagoner foresees happening in the company by 2010?
Here’s a quote attached to that BusinessWeek article I mentioned earlier, from an anonymous poster, nicknamed “oldtimer,” who doesn’t hold out hope that the renewed relationship between GM and EDS will improve: “I’ve seen EDS in action and GM in action. They work against each other and not together honestly… EDS grossly overcharges GM for marginal results, at best. Good luck!”
The contract renewal effort, which some observers expected to be less dependent on EDS, works to reduce some of that flab. Also, the fact that it’s only five years vs. the previous 10 points to a certain desire for nimbleness on the part of GM. The question is whether this largest of all automakers will still exist as we know it when the next renewal cycle begins.
In the meantime, as I’ve blogged about before, a major aspect of this multi-vendor approach (which isn’t really new, since GM has been working with all of these companies) is to establish standards for IT processes. I’m looking forward to hearing more about that standardization effort as it rolls out, starting on June 6 when the new contracts go into effect, since it requires vendor cooperation that’s heartening to ponder but tough to achieve.
BusinessWeek’s coverage of GM’s outsourcing plans: