Chrysler Stakes Turnaround on IT Outsourcing

Chrysler made news in Motown with its announcement that several hundred technology workers would lose their jobs as it moves ahead with plans to outsource more IT.

Shortly after the headline appeared in the Detroit Free Press, Tata Consultancy Services (TCS) issued a press release Friday announcing that it bagged a deal [1] to deliver IT application and maintenance support services from "various locations around the world as well as the recently announced TCS Seven Hills Park domestic delivery center outside Cincinnati, Ohio and through a locally recruited team in the Detroit, Michigan region."

On Tuesday, Computer Sciences Corporation (CSC) joined the party [2] with its pronouncement of a deal that has it taking over mainframe, server and storage services for all of Chrysler's worldwide locations, as well as applications support, maintenance and development services for a portion of Chrysler's application portfolio.

Neither Chrysler nor its new vendors disclosed the size of the latest deals. Presumably, TCS learned its lesson in February when it inadvertently included a price tag of $120 million [3] along with its press release for a smaller application maintenance and support services deal with Chrysler. (TCS's PR folks later asked journalists and others to omit the $120 million from reports on the deal per Chrysler's request. Apparently Chrysler-parent Cerberus really puts the "private" in private equity.)

That deal was relatively small in the grand scheme of things. But public angst about potential outsourcing from local union reps [4] back in February hinted at the fact that more announcements were to follow.

According to the Detroit Free Press [5], about 200 of Chrysler's 1,000 full-time employees and "several hundred" of its 1,110 contractors will be shown the door as a result of the deals -- all part of Cerberus's three-year recovery plan for the ailing automaker. There was no word on how many of the remaining workers would be transferred to CSC or TCS.

"This partnership represents the next step in our continuous efforts to operate more efficiently and effectively and gives us the tools and flexibility to drive – not just react – to business growth," Jan Bertsch, Chrysler's vice president and chief information officer told the newspaper. She also said it would better position Chrysler in its attempts to access global markets previously ignored by the company.

Of America's "Big Three" carmakers, General Motors (GM) is the most closely aligned with IT outsourcing. The company bought EDS in the mid 80s, spun it off in 1996, then signed on a ten-year deal with the freed IT services provider. GM CIO Ralph Szygenda loves to market himself as an outsourcing maverick – pioneering what he calls the "third wave" of outsourcing [6], in which competing IT service providers work together to support GM. EDS still has the biggest slice of the pie, but must share the rest with, Cap Gemini, Accenture and others.

Ford has been less forthcoming about its strategy for IT outsourcing and offshoring of late. There is a deal on the books between CSC and Ford's European operations, and the company has its own Indian captive center handling BPO services. Former

CIO Marv Adams (who left Ford for Citigroup and is now at Fidelity) was once quite vocal about the need to keep IT in-house, but not much has been said since his departure.

So, will large-scale outsourcing – and offshoring – help Chrysler? On paper, it looks like a short-term cost-cutter. And perhaps it will better position the company to compete on a global scale.

But will the new IT outsourcing strategy save the automaker? If that's all it took, wouldn't GM be killing its U.S. competition by now [7]?