GM Sourcing Strategy – Value vs Price Redefined

There has been much hype about the variety and value of outsourcing contracts estimated at ~$100B over next 3 years coming up for renewal.  One of the big prizes is the GM contract (~$15 B (US)).  In reading a great article in Business Week (see For Partners, It’s GM’s Way Or The Highway ) there were some interesting highlights.

  • Looking to package services to make them interchangeable among vendors
    – Goal to modernize GM’s global operations?
    – I think this will ultimately make this a commodity and lose the added value that a partner could bring as that will be scooped by competitors (see my POST)
  • Nearly 50% of outsourcing engagements are rated as disappointments – Gartner
    – anedotally that number is a lot higher
  • Accountability by multiple vendors – example of Brazil site
    – This is not the vendor’s responsibility, the client does need to own the solution along with the vendor(s)
  • Redefining the relationship
    – never a bad idea if it adds to the ultimate value for the organization.  But this article does not discuss the idea of what is the real value that they want to achieve.
  • Shorter contract duration
    – This only reduces the financial model of outsourcing, not service level

In any organization, you have three variables to work with people, process and technology.  Wrapping these things together and saying bid on this is not new it’s called business process outsourcing (BPO). 

But does this get GM where it wants.  Probably not unless they build in a model for handling innovation or process re-engineering.  Now you will know that the vendor if they add value will be sharing it within 5 years.  How do they ammortize the intellectual property cost.  Some will say that is the cost of doing business, but over the long term it will not be sustainable by the vendor community under their model.

Then this is just a glorified reverse auction on a broader scale and you only have commodity bidding.  Don’t get me wrong, there is nothing wrong with commoditizing IT services, but not everything should be a commodity.  If it is, why didn’t they invite an offshore player?  They are the king of commodity of IT.  Tell them what to build and you will get that and only that whether you like it or not.

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