Back on December 15th I wrote about having read about GM’s new strategy (blog). Well the verdict came out on Feb. 2nd see the Business Week article – GM’s Landmark in IT Outsourcing.
I am not sure what to think about this… The actual contracts are not that large in each award and not very long in nature, so this leads me to believe there is very little financial leverage for the service providers.
So I went and tried to dig further and all I could came up with was a change in the process for packaging and bidding – and so I thought about that.
Here are my thoughts:
- Handed out contracts globally, not regionally – always a good idea to wrap like process and technology globally, especially with the number of large outsource players with a true global presence.
- New Standards for managing technology – I like where this is going, here they can create new paradigms for governance, process and collaboration. Might be some savings here, but due to the shortned timeline of the contract, it is hard to say how much innovation will be brought to the table, but that is my skeptical nature (see last post).
- Bringing the Offshore players to the Tier 1 group – good for them, but EDS, IBM, HP and so forth leverage this stuff in all their contracts so be carefull as this can be short-lived value if not managed properly.
- The idea of a "Tipping Point for IT" is very questionable. The duration of a contract is not always a direct correlation to control – most outsourcing vendors are not making money in the first 2-4 years of a 10 year deal, to help them drive customer value and has them focused hard on fixing things for long term return. And the transition time is cost when switching.
- As is mentioned, vendor management is going to be huge. That is an understatement. The biggest and the smallest organizations constantly struggle with this regardless of size and duration. So this will be good if they can manage it, but these are expensive overheads that once again add to some cost.
My thoughts are that having shorter contracts cost them 10-15% more per contract. The competitive landscape and nature of this (especially for EDS) cut that down by half to 5-7.5%. Now add some governance overhead and we are 6-9% more expensive. I hope those standardizations and globalization as mentioned in bullet 1 and 2 bring some serious savings.
