Can General Motors Change How Companies Think About IT Outsourcing?

A new CMMI model for acquisitions coming out this fall could make it easier for companies to mirror its standardized approach to dealing with IT outsourcing vendors.



General Motors CIO Ralph Szygenda pulls a book with an electric orange cover from his office shelf and plunks it on the table: CMMI For Outsourcing.

Not exactly The Bourne Ultimatum. But Szygenda has been using the strategy to manage $7 billion worth of IT services contracts his company handed out about a year ago (and another roughly $7 billion it'll start doling out next year). With two of Szygenda's top staffers among the co-authors, the book lays out how to standardize interactions with an IT services vendor, with the goal of lower costs, smoother cooperation, and better results.


Szygenda has $14 billion of persuasion

Szygenda has $14 billion of persuasion

Photo by John F. Martin courtesy of General Motors
There's more to come on this front. In two months, a process model for acquiring everything from IT services to jet-fighter engines, called the Capability Maturity Model Integration Model for Acquisitions, will be published.

Don't dismiss this stuff as ivory tower whimsy. CMMI-ACQ follows on the CMMI development model, which over the past five years has served as a road map for how many businesses do application development outsourcing. Indian outsourcing firms, in particular, adhered to CMMI processes to bolster their quality reputations. Like CMMI, CMMI-ACQ will be published by the Carnegie Mellon Software Engineering Institute.

GM is the business-world test case for applying CMMI processes to managing outsourcing relationships. Since GM has most of the biggest players on its payroll--including Capgemini, EDS, Hewlett-Packard, IBM, and Wipro--count on them to share what they learn with clients across industries. One year into the initiative, Szygenda says contracted IT employees worldwide follow standard processes 75% to 80% of the time, a mark he's satisfied with so far. "If there's an outage with software in Germany, at Opel, we've got globalized design engineers throughout the world, all who know what to do immediately," he says. "It's like playing a ballgame where everybody already knows what play we're calling."

GM and the Software Engineering Institute provided a first draft for the CMMI-ACQ standards, but the CMMI steering group, sponsored by the U.S. Department of Defense and its top suppliers, is honing those to the final model, set for publication Nov. 1. That makes two of the world's biggest buyers of IT services with a keen interest in this strategy.



THE GM PETRI DISH

For 10 years, from 1996 to 2006, GM outsourced nearly all its IT support and development to EDS, a remnant of when GM owned the company. Szygenda embraced the CMMI, standards-driven approach when that contract was coming to an end last year, and he decided to break up the outsourcing business among multiple vendors. His challenge was to get them working together.

Early last year, GM began dishing out the contracts: EDS got more than $1 billion to manage supply chains and product development: Capgemini, HP, and IBM each got more than $500 million for application support and IT infrastructure; Wipro and Covisint got sizable but unspecified chunks of business. To win, all vendors had to commit to using 44 standard processes GM developed for various IT tasks. For months after that, the service providers had to figure out how to work together to do things the GM way, whether in the United States, India, Brazil, or Ireland. "I'd say they all struggled," Szygenda says.

Mike O'Hair sees the difference from when he worked for EDS and GM 15 years ago, when every business group was run differently by geography and brand. Now, as the head of EDS's team for GM, O'Hair's in charge of the command centers that EDS runs for the automaker at several locations around the world to monitor manufacturing operations. Each uses common tools to monitor all factory systems, from network connections to application availability to robotic devices.

Standard, global processes: It's a mantra from Szygenda and his team, and from the vendors that work for him. But getting there isn't neat and tidy. IBM is expected to use the same process to support GM dealers as they order spare parts, even though dealers use multiple ordering systems. "We support the process, and all the flavors of technology," says Steve Portik, the VP responsible for IBM services to GM.

Szygenda says the cost savings from getting suppliers to follow common processes is significant. He declined to put a number on it but said it's letting GM increase the funding for developing new systems by 30%, all while the company reduces its IT budget. Vendors already are vying for new development work that Szygenda has said could reach $7 billion. Projects include new systems for areas such as order fulfillment and management, human resources, and logistics that can scale to serve all of GM. "We're reinvesting to digitize this company from a global perspective," Szygenda says.

Most companies, of course, don't command their IT vendors' attention the way a $192 billion-a-year company does. Last week, 400 IT architects from EDS, HP, IBM, and elsewhere, all of whom work full time at the Detroit headquarters, gathered for a tech conference to discuss the various projects they have going. "Oracle and SAP architects leave their badges at the door," Szygenda says. "You'll go down the elevator and ride with people from both Wipro and IBM."

In March, at a conference GM held for top suppliers, rival execs did a skit onstage in which they all used one toolkit to do GM work. At a meeting later this month at a suburban Detroit resort, representatives from all those suppliers and product companies--including Cisco Systems, Microsoft, and Oracle--will give 20-minute views on how the world will run in 2012. "They want more time," Szygenda says. "I sit up and critique them. What this shows is the IT industry and other companies want to work with each other if they believe it will solve business problems."



WILL IT GET ADOPTED?

Billions of dollars in contracts are a motivator, too. Which raises the biggest question for other companies: Is there anything in GM's model that applies to them?

Companies' experience with the CMMI development model offers some clues. Few end-user companies saw business payoff in pursuing full level 5 certification for their software development work, since it takes meticulous process documentation, such as detailing the steps taken when a defect is found. But many companies did learn from their vendors, cherry-picking the most practical parts of the model to improve how they worked with outsourcers.

For the CMMI model for acquisition being published this fall, one obstacle to adoption could be that, when problems occur in a project with a supplier, companies tend not to point the finger at their own actions. "Not all acquirers understand the need for them to improve their acquisition process," says Bob Rassa, chairman of the steering group for the CMMI-ACQ model and a director of system support at defense contractor Raytheon SAS.

With CMMI-ACQ, Rassa hopes companies will put less less emphasis on their "level." Indian outsourcers fueled this by heavily marketing their level 5 status. But Rassa says the model is most effective if companies use it to assess what process areas--things like defining the requirements or communicating changes--they're strongest and weakest in when it comes to acquiring services or goods.

IBM's Portik thinks few companies will apply the CMMI approach for outsourcing and acquisitions as widely as GM does, since almost no one outsources IT services on the same scale.

Yet companies everywhere are feeling the strains of global operations. EDS's O'Hair was working with consumer goods companies before GM and says they face some of the same problems. Portik says he's on one or two calls a week with IBM colleagues and their clients who are looking to learn about how GM manages its outsourcing relationships. Last week, the call came from a company in Singapore. Around the world, companies are trying to figure out how to do this right.

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