Struggling automaker General Motors is to split $7.5bn of IT services contracts among six suppliers in a major overhaul of its procurement strategy.
After two years of planning and negotiation, the company’s CIO Ralph Szygenda unveiled EDS, IBM, Capgemini, Wipro Technologies, Compuware and Hewlett-Packard as the successful bidders to provide systems integration work to GM over the next five years.
These new deals replace a 10-year agreement with EDS that General Motors signed with its one-time subsidiary back in 1996. EDS made $1.35bn or 9% of its total revenue from GM in the first nine months of 2005, and has now signed new deals worth a total of $3.8bn over five years.
EDS said that it won 70% of the contract awards for which it pitched, including projects to manage and integrate GM’s servers, desktops and LANs, and applications covering product development, manufacturing, and purchasing. EDS said that including some other GM business that was not part of the recompete, it should make between $1.2bn to $1.4bn annually from the GM account.
This will be less than EDS made under its previous master deal, but the vendor’s chief executive Mike Jordan had already prepared the company’s investors for a fall in business from the GM account.
The vendor will be pleased to have secured the largest single share of all six vendors on the new procurement and EDS’ investors responded positively to the news, with shares in the outsourcer creeping up 1.6% on the New York Stock Exchange.
The second largest individual share goes to Hewlett-Packard, which has secured more than $700m of awards to provide server management, applications maintenance and systems integration services for a number of application areas including GM’s SAP architecture and its dealer information systems.
Paris-based Capgemini and IBM Global Services each captured $500m of business for the next five years. Capgemini’s tasks include managing application integration management for GM’s global purchasing and supply chain, as well as application integration management for its global sales, service and marketing systems.
IBM will support the applications of GM’s Service and Parts operations as well as its manufacturing quality assurance systems. The world’s largest services vendor will also support GM’s worldwide IT computing infrastructure.
Bangalore-based Wipro Technologies, India’s third largest IT services exporter won $300m of contracts with GM, adding further evidence to the country’s vendors’ claims that they now compete on an even footing with their Western rivals. Wipro will develop and maintain GM’s middleware systems, with between 40% to 60% of the work being performed in India.
Compuware’s Covisint division will supply GM with a messaging system to link the company to its 18,000 suppliers. The value of the deal was not disclosed, although a spokesman described it as a significant piece of business.
GM said that the six vendors will between them share out around half of the $15bn it would spend on technology and services over the next five years at current rate although it said that cost savings generated under the new deals should mean that it actually spends less than $15bn. The other half of the total will be spent on software, hardware and telecommunications systems and services.
GM’s overhaul of its IT procurement strategy reflects the broader industry trend of clients looking to sign shorter, more focused outsourcing deals with a number of best-of-breed suppliers. In a similar move last year, Dutch financial services company ABN AMRO divided $2.2bn of outsourcing contracts between five main suppliers.
General Motors has made a loss in its last five quarters, suffering from slow growth and rising costs. The company’s shares were down 3.8% following the announcement of the new IT contracts.