In 1996, when Ralph Szygenda took over the top IT spot at General Motors Corp., he was the company's very first CIO. His task: Take a highly decentralized company that had relied on one IT vendor, EDS Corp. (which GM owned) for more than a decade, and integrate its far-flung IT operations.
"It was an impossible job," Szygenda recalls. "EDS had been here for 12 years, and they were driving everything. It was assumed the autonomous businesses at GM would never come together."
It's now ten years later, and Szygenda is still CIO, as well as group vice president. He has cut the cord with EDS (mostly) and shaved billions off GM's annual IT budget. In the meantime, Szygenda has earned a reputation as one of the most influential CIOs in the world, and not only because of his $3 billion IT budget. He has acted as a visionary within the IT industry, driving innovation and standards by sheer willpower.
Now Szygenda is attempting to do something that no CIO has ever done: create a standard set of business processes among the most powerful, and fiercely competitive, IT vendors in the world. On Feb. 2, Szygenda announced the awarding of $15 billion worth of IT outsourcing contracts to the likes of IBM Corp., EDS, Hewlett-Packard Co., Capgemini and others. The goal: to create a truly global IT organization that could support the design, assembly and sale of cars and trucks anywhere in the world. Szygenda also revealed that the companies had been working together to create standards that could change the future of multi-sourcing. "We've got another difficult journey ahead," he says. "But I think we can do it."
CIO Insight Executive Editor Dan Briody spoke with Szygenda about bringing the vendor community together, how innovation is possible in an outsourced model, and how IT can help GM build better cars and trucks. An edited version of their conversation follows.
CIO INSIGHT: Give me a quick history of IT at GM.
Szygenda: In 1984, GM tried to integrate its technology better, so it bought EDS Corp. Ross Perot and EDS took tens of thousands of IT employees from GM, and they were put into EDS, but amazingly enough EDS supported GM the same way it existed before: as autonomous business units. So it created more profit-and-loss units than there were autonomous GM business units. This isolated the true GM company from information technology. There was one company running IT, and the rest was doing the other business stuff. It was kind of like two separate worlds.
That was what we call a first generation of outsourcing, from 1984 to 1996. GM went to one company, gave it the strategic responsibility for the technology, the driving of its business and everything else. Just basically outsourced it away. Costs went up drastically, and improvements were minimal, at best. But truthfully, EDS was owned by GM. So it wasn't all bad.
In 1996, GM split EDS off as an independent company. That's when I came inthe first CIO in the history of the company, which is quite amazing when you think about it.
GM was spending far more on information technology than any other automotive company, and we weren't changing the world. There was no efficiency. This was the second generation, from 1996 to 2003. We brought in all the major IT companies in the world to work at GM. And we went from 7,000 information systems down to 2,500.
So we cut a tremendous amount of costs from the environment. We spend $1 billion a year less on IT today than we did in 1996. I insourced 2,000 people. So GM took back the total strategic responsibility for IT, and the suppliers became only arms and legs to the company.
The third generation, which you're hearing about now, says, "Hey, GM has become totally global." We are running the business today so that we can design, deploy, manufacture and distribute from any part of the world to any other part. There are no regional boundaries at General Motors anymore.
So we are using those 2,000 people to integrate our IT suppliers, who were using dissimilar processes to run their own IT business. They all had different models. Everything from requirements definition to asset management. Not only did they have different models from one company to another, they had different models within their own companies, from one business transaction to another. That is the immaturity of the IT industry.
So you were able to change all that?
Yes, and let me tell you why. The IT industry started off on innovation, so each of these companies in their earlier days competed on who had the best product, and they didn't want to share. But they weren't really solving business problems in the companies they served. Their customers were left to integrate all the products.
IT vendors had very little knowledge of how companies ran, and they had very little knowledge of how to service them. If you look at Microsoft, they didn't have to worry about security issues. They just made a product.
I remember when I introduced Windows 2000, with Bill Gates, on the stage of the Moscone Center in San Francisco. I was the first corporate guy to work with Microsoft. They were talking about how they could do corporate work, but they didn't know what corporate work meant. They didn't do corporations.
The whole history of IT vendors says, "Don't work with each other." So you had a Larry Ellison and a Bill Gates, and the last thing they were going to do was work with each other. Maybe they even disliked each other. When people tried to integrate their products, it didn't work, and they got aggravated.
So people stopped buying those products. If you look at the growth of IT companies, it hasn't been that great, and their stock hasn't grown, because we're not buying innovation anymore. We still want innovation, but we want everything to work together, and until it all works together, we're not going to buy more. I'm serious: It is getting to be suicidal out there.
Given the complexity of the global environment, I knew that my model of 2,000 people trying to manage all our vendors every day would die in a few years. I had to change it, and the only way I could change it was to make it look like it's working as one, not many IT companies.
So two years ago I went to the CEOs of these major companies and said, "Hey, bets are off. This isn't going to work anymore." Now it does help that I buy $3 billion of IT every year. I probably have the biggest stick in the world. GM buys more IT than any other company in the world. So that helps.
I sat down with [IBM CEO] Sam Palmisano and [at that time H-P CEO] Carly Fiorinaand you can go down the list for every major IT companyand I said, "It isn't going to work in the future. The complexity's too great. You guys are causing all kinds of problems here. I've watched this industry for a long time, and you're really messing up. But realize you're causing yourself more problems than you're causing me. You're not growing. Go look at the stock price of Microsoft. Go look at Oracle's stock price. None of them grow."
And I said, "You've got to basically take the mundane stuff that doesn't differentiate and make it work together. If you don't have that in place, that foundation, you can't innovate any more. Even if you innovate, nobody wants it."