GM to Outsource $15 Billion in Contracts

Capability, not cost, drove contract awards, said car maker.
Stephen TaubFebruary 2, 2006

Officials at General Motors Corp. announced plans to spend about $15 billion over the next five years to outsource information technology (IT) activities, in what many believe to be one of the largest IT outsourcing efforts ever.

The financially beleaguered auto giant awarded contracts to EDS, Hewlett-Packard, Capgemini, IBM, Compuware Covisint and Wipro. GM said the initiative was driven by the ending of a 10-year deal with EDS that expires in June 2006.

EDS will continue to be the car maker’s main outsourcing partner, but officials admitted that the workload for the long-time partner would be reduced somewhat. Meanwhile, HP and Capgemini will increase their existing business with GM. IBM, Compuware Covisint and Wipro will remain “strategic IT partners”.

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Half of the contracts are being awarded now. The other half will be handed out later in the year when GM’s telecommunications contracts expire.

“This is a significant milestone for General Motors and its Information Systems and Services Group,” said Ralph Szygenda, group vice president and chief information officer. “Of critical importance is the focus we have had on driving innovation and supporting future globalization and digitization of the company.”

GM did not indicate how much money it expects to save from outsourcing its IT work. However, Szygenda told reporters in a conference call that, “there are savings for GM as a result of increased efficiencies through this process.”

According to Reuters, he also said the winners of the outsourcing contracts were not driven by the lowest costs, stressing, “The winners today [won] because they had the best capability. We didn’t let payment terms drive us.”