General Motors Corp chief executive officer Rick Wagoner will keep intact a spending plan for information technology, even as he slashes US$7 billion in costs at the world's largest automaker.
Wagoner, who proposed firing 30,000 people and closing 12 plants, preserved his record US$15 billion investment in a network of 200,000 computers that monitor everything from the purchase of pencils to the completion of Hummers.
"We'll take the cost out of the other areas," Ralph Szygenda, GM's chief information officer, said in an interview at the company's Detroit headquarters.
"If our processes and IT don't work better than everyone else, it'll be very hard to be successful," he said.
Wagoner, who authorized Szygenda to award the new technology contracts next month, is betting the spending will increase savings.
Szygenda is using the size of the deals to wrest concessions from suppliers such as IBM Corp and Electronic Data Systems Corp. Szygenda demanded lower costs from suppliers as GM's losses mounted to US$3.8 billion this year.
"Technology is critical for GM," said Dan Genter, president of RNC Genter Capital Management in Los Angeles, who manages more than US$2 billion including GM bonds. "It's not an area they can afford to cut."
Szygenda has insisted that computer services and software from IBM, Electronic Data and Microsoft Corp be compatible. He scrapped regional orders, taking a global approach to eliminate duplication and boost efficiency.
"The challenges for GM are evaluating the skills of the bidders, how those skills can be plugged into what GM is looking for and how well are these companies going to work with each other," said Crawford Del Prete, an analyst at IDC, a Boston-based research firm.
IBM, Electronic Data, Cap Gemini SA, Hewlett-Packard Co and Microsoft submitted bids for the contracts, Szygenda said. The contracts are the largest ever offered by a company at one time, according to IDC, and large enough that chief executives including Sam Palmisano at IBM and Steve Ballmer at Microsoft visited Szygenda in Detroit during the past two months to tout their offers.
"When you have enough money and buying power, you can drive the industry," Szygenda said in the Nov. 28 interview.
"Nobody else has ever bought this much," he said.
Just 19 outsourcing contracts worth US$1 billion or more were awarded last year, according to IDC. The largest was a US$3.5 billion, 10-year order from power company TXU Corp, won by Cap Gemini for technology, call center, billing, human resources, supply chain and accounting services.
Wagoner is counting on the cost cutting to help return the company to profit after losing market share for three years to Toyota Motor Corp. Toyota had 13 percent of the US market in October. GM fell to 26 percent.
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