General Motors: Building a New

Information Systems and Services Organization

Prepared by Keri Pearlson

In the spring of 1998, Vice President and CIO of General Motors, Ralph J. Szygenda, drove his new Cadillac out of the executive parking lot at the Renaissance Center in Downtown Detroit and headed back to his Brewery Park office. Szygenda became the first CIO at GM in more than twelve years when he accepted the position in June 1996. As he left the Renaissance Center, GM’s worldwide headquarters, Szygenda thought about the successes of his two-year organization.

During 1996, GM had split-off Electronic Data Systems [EDS], a leading information technology consulting and outsourcing company, and with it most of the information systems expertise within GM. With a staff of approximately 2000 business analysts and technology personnel employed by GM and various outside contractors, but with little in-house IT knowledge, and a budget larger than some small countries, Szygenda was charged with building an Information Systems & Services [IS&S] organization to support the internal needs of GM as well as its suppliers, dealers, and customers.

What made this task so interesting was the fact that Szygenda had the opportunity to structure and staff an information systems and services group for one of the largest companies in the United States, without having to deal with many of the problems inherent in taking over an existing organization. He, essentially, had a clean slate upon which he could design an entirely new Information Systems and Services (IS&S) organization. Szygenda reflected upon his organizational design and the choices he made to fill some of the 300 positions for information officers (IOs), process leaders and technology specialists and thought about how this group would help GM realize its goals.

Company Background

William C. Durant started General Motors in 1908 in Flint, Michigan. Durant built GM by bringing together many small automobile producers and components and parts manufacturers into a single holding company. By 1920, more than thirty companies had been acquired by GM via purchase of all or part of the acquired companies’ stock. In January of 1998, after the June 1996 split-off of EDS and the December 1997 split-off of the defense business of Hughes Electronics, General Motors consisted of five business units [Exhibit 1]:

· North American Operations [NAO] built cars and trucks under the brand names: Chevrolet/Geo, Buick, Cadillac, GMC, Oldsmobile, Pontiac, and Saturn.

· The international business sector built and marketed vehicles throughout the world, including some of the NAO brands as well as Opel, Vauxhall, Holden, Isuzu, and Saab.

· Delphi Automotive Systems supplied automotive components and systems to GM and external customers.

· Hughes Electronics Corp. was a supplier of, telecommunications and space hardware, systems and services.

· General Motors Acceptance Corp. [GMAC] offered financial services, which covered vehicle financing and leasing, GMAC Mortgage Group, and Motors Insurance Corporation.

The corporate vision of GM had been carefully worded to draw together these diverse businesses.

GM’s vision is to be the world leader in transportation products and related services. We will earn our customer’s enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people.

The word transportation was broadly defined. It included transportation of people and cargo – but also extended to include the transportation of information. Therefore, in addition to GM’s traditional cars, trucks, automotive components and systems, the vision also included, satellites, and telecommunication systems and services.

By the early 1980’s GM had begun automating many of its factories to include cutting edge technology. “We’re the largest manufacturer of controlled computers today, and we use them on all of our cars,” said former GM Chairman Roger Smith. GM has seized the technologies of the computer, robot, and laser to make radical changes in its automobiles, in the way its assembly lines run, and the way its workers work and its managers manage.

In an effort to more effectively organize and manage their information systems and telecommunications activities, GM sought to partner with a computer services company. Rather than simply outsource, GM managers were concerned that they remain competitive in the global environment and they felt they needed to own their information systems organization. Early in 1984, GM executives met with executives of EDS, including founder Ross Perot and others, to discuss GM’s acquisition of EDS.

GM Acquires EDS

In October of 1984 GM completed the acquisition of EDS for approximately $2.5 billion. The deal gave GM both a profitable subsidiary and its own provider of state-of-the-art computer services. As GM Chairman Smith described the merger to the popular press, “GM, which was already heavily into computer-aided design and manufacture of cars, and burdened with a huge worldwide accounting, payroll and data processing needs, had found a perfect partner in EDS.”

The arrangement was outlined in a Master Agreement between Parent and Subsidiary in which GM committed to buy substantially all of its requirements for computers and information processing as well as communication needs from EDS. GM did, however, except from the scope of the agreement Hughes Aircraft and other entities acquired after January 1, 1985.

The GM-EDS relationship was expected to integrate the massive and dispersed information systems of GM into a common system. The shear size and the number of divisions involved complicated this task. The GM organization was fragmented across several operating divisions, manufacturing facilities, and dealer networks.

Both EDS and GM grew under this partnership. In 1995, GM had over 7000 information systems and EDS had more than 10,000 employees working with GM (see Exhibit 2 for number of applications and lines of code). Szygenda explained,

Everyone who knew anything about GM’s IS went to EDS. In doing so, EDS was positioned to understand every division of GM, and to work with them to meet their individual needs. In this way, GM’s divisions, individually, got access to a responsive IS partner who was able to build systems to meet whatever the requirements were.

And Harry Pearce, Vice-Chairman of GM, added,

EDS did some good things for the company over the years. In the mainframe area, they helped us manage our fragmentation problems. They took a lot of cost out of our central processing operations.

GM Splits Off EDS

In 1995, GM announced plans to split off EDS from the Corporation. The deal involved a one-time payment to GM of $500 million and the conversion of GM Class E stock to EDS stock on a one to one basis. The value of EDS had increased more than 10 fold over the $2.5 billion GM originally paid to acquire the computer services company.

“The decision was a pragmatic one,” Pearce commented,

On one dimension, we had not taken steps to enable EDS to provide GM with the world-class information systems support we felt we needed. Intuitively, we knew the competitive nature of a more commercial supplier/customer relationship would be incentive for both companies to excel to world class level in terms of information technology, spending-to-sales, employee knowledge, and best technology to name a few. On another dimension, because of our lack of a unified internal management responsibility for our data processing systems, we were not close to having the common systems we knew we should be able to achieve across the company. There had never been a split off of a company to the holders of its parent’s tracking stock.

Class E Stock was a common stock of GM that tracked the financial performance of EDS. In order for GM to split off EDS on a tax-free basis, the corporation had to obtain a ruling from the U.S. Internal Revenue Service (IRS). Pearce continued,

We subsequently decided to split off EDS because it would be in the best interests of GM, EDS, and both classes of GM stockholders. We believed the environment was changing so fast that we wanted the IT expertise in-house to know that IT recommendations were truly best for our needs. As it had become more and more strategic to the operation of our business, it became evident that we needed an internal team to assume responsibility for architecture and strategy.

A primary goal of GM’s acquisition of EDS was to integrate the disparate computer systems of GM’s units. Throughout the relationship, integration materialized at a slower pace than GM had wanted. Chuck Kirk, one of the new GM Information Officers (IOs) described the situation,

EDS did help us with our mainframe problem, but they didn’t have the power to stop the fragmentation of systems projects across divisions. EDS was not able to integrate GM functions; that required consensus and direction from within GM. For example, in my opinion at least supply chain management and sales should be integrated. Without a strong internal IT management team, GM was unable to realize the very large synergies that are possible, and this became one of the primary goals of the new organization.

This arrangement was outlined in a 10-year, $40 billion contract. Under the terms of the contract, GM committed to buy at least 85% of its information services from EDS through 2000 and at least 75% for six years after that. GM did, however, build into the deal price cuts on some EDS supplied information processing activities and communication services.

On its own, EDS would have greater flexibility in pursuing large-scale multi-year contracts with GM competitors and others. For example, prior to the split-off of EDS, British Aerospace and Lucas Industries, two British manufacturers involved in both the aircraft and auto industries, had awarded separate 10-year $1.5 billion deals to Computer Sciences Corporation (CSC), an EDS competitor. A factor in these decisions was the fact that GM and its Hughes Aircraft subsidiary were closely affiliated with EDS. According to one GM executive, EDS’s independence would allow it to obtain contracts from customers who would not otherwise have done so because the customers were competitors of GM.

The Information Systems and Services Organization (IS&S)

Szygenda was brought in to architect GM’s newly formed internal IS&S organization. Prior to his job as CIO of GM, Szygenda was the CIO of Bell Atlantic, and before that, Texas Instruments. According to Pearce,

Ralph had the track record, and the rare combination of in-depth technical knowledge and broad business knowledge. He could talk with both the IT gurus and with the business guys. He was also known as a tough-minded guy who never gives up and who can really focus. No one would get away with a song and dance routine for Ralph. We needed a hard charger, but someone who also understood the delicate balance we needed to achieve in our future EDS relationship, which would be very different from the past.

According to Szygenda:

The goal of IS&S was to meet the information technology responsibilities, imperatives, and opportunities of GM. In the broadest sense, the organization included GM employees, EDS, and all other suppliers that GM worked with. Further, the extended organization needed to work together as a single, virtual organization to accomplish all of the IS&S tasks.

This goal was communicated to the executive committee as well as the senior managers of each of the GM divisions.

North American Operation’s (NAO) business was undergoing a reengineering. The new vision was elaborated in a “Plan to Win” (see Exhibit 3), where common processes and systems, leveraged global resources, targeted products efficiently and quickly distributed to their markets, and competitive cost and quality were the underpinnings of the transformation. Information technology was seen as a facilitator of communications, material procurement, financial management, human resource management, and knowledge dissemination. IS&S was responsible for helping GM meet its goal of common global systems. Szygenda elaborated,

IS&S is to be the driver of much of the changes to take place in GM. For example, we want to cut the product development cycle time in half. And we mean worldwide. There are some common vehicle platforms worldwide, and we believe we can share knowledge worldwide. This will happen only if we have an IS&S organization who reflects this goal.

Szygenda inherited a systems staff of approximately 2,000 business analysts and technology personnel employed by GM and various outside contractors who were dispersed throughout GM and its subsidiaries. This was a fraction of the total number of people involved in the prior information services organization. EDS and CSC, another vendor, provided direct IS support with more than 16,000 people. Szygenda was responsible for the overall direction of all of these people working to support the organization

Szygenda’s Vision

By November 1996, Szygenda had identified targets of opportunity where information systems would be able to significantly impact the business, including generating customer demand, fulfilling demand, improving product development, integrating international processes and reducing structural costs. The first opportunity, generating demand, involved sensing and responding to customer needs, creating lifetime customers, and building a customer information warehouse. The second opportunity, fulfilling demand, consisted of managing the dealer and supply chain inventory and supporting lean manufacturing. The third opportunity, the product development process, was facilitated by using “soft prototypes” using math based virtual reality, and managing product data. Integrating international processes meant accelerating common processes and systems while reducing structural costs.

There were many opportunities within GM to build a competitive advantage based upon information technology. One example was GM Access (Exhibit 4), a suite of dealership applications linking GM with its 8500 dealers and customers. The dealership software applications consisted of GM PROSPEC, Vehicle Locator, Lotus Notes, current sales, services, and lease information. GM PROSPEC provided product specifications, features, pricing, and competitive comparisons. Vehicle Locator searched current dealership inventories to find available vehicles. Other applications including an Electronic Service Information, a Vehicle Service Information System, a Vehicle Order Management System, a Customer Delivery Reporting System, and a Warranty Information Network System were planned.

Szygenda identified multiple organization structure imperatives to define how he was going to build the internal IS&S organization. Among the imperatives was the need to run IS&S at the lowest cost practicable to meet its goals and responsibilities. IS&S would take on the role of a catalyst for common global processes and systems. Further, IS&S would also meet emerging international market requirements and provide an organization network for rapid response to business requirements.