Ok, so maybe this is not really the best time for this posting seeing as the desperate situation all three of the major U.S. manufactures are currently in due to the current recession. However, if you can put all of that aside for just a bit, then Ralph Szygenda who is the CIO at General Motors (GM) had a talk with the folks at eWeek and he has some suggestions on how IT departments can use outsourcing to drive innovation. Now there are two terms that you don’t often see together! Let’s see what Szygenda has to tell us…
Who Does GM Outsource Their Work To?: About 60% of it goes to EDS (now part of HP) for historical reasons (GM once owned EDS), the rest goes to AT&T, HP. IBM, Capgemini, Covisint, and Wipro. Whew – is there anyone who is not on that list?
What Kind Of Money Are We Talking About Here?: In 2006 GM spent $7.5B on outsourcing contracts and, assuming that they don’t fold during the current economic crisis, they plan on spending another $7.5B in 2011.
How Many GM Employees Are Needed To Mange All This Outsourcing?: 1,500 GM employees manage the combined outsourcing vendors.
How Does GM Keep Their Outsourcing Vendors In Line?: GM continues to outsource additional business every year to the tune of 100’s of millions of dollars. All of the outsourcing vendors want to win this additional business. GM uses a report card that gets updated every 6 months to let each vendor know exactly where they stand and then GM uses that report card to make decisions about who gets additional business.
Does GM Kick Out Under-performing Vendors?: So far – no. However, all development of new systems are done at a firm, fixed price. That means that they start to lose money if they are missing a due date. There aer some firms that have not been able to win new business because of how they have performed; however, nobody has been kicked off the team yet.
Are IT Costs Going Down Because Of This Outsourcing?: GM reports that they are spending a lot less on support and maintenance. However, they’ve taken these savings and are plowing them back into the development of new IT systems. The overall cost of operating the GM environment has been going down for the past 12 years and they are forecasting it to continue to do so for at least the next three years.
Why Did GM Decide To Outsource So Much Of Their IT Operations?: GM did not get into the business of outsourcing their IT operations to cut costs; however, the results have been that costs are being cut. The reason that GM originally decided to outsource their IT operations was because they had started with autonomous business units – every branch had it’s own IT shop. Over the course of 10 years they’ve gotten rid of over 5,000 systems. In 2006 they decided to consolidate their IT operations. Outsourcing IT operations has allowed processes to be standardized across the organization.
What Is The Key To GM’s Innovation?: Szygenda says that it comes down to three things: standardization, simplification, and collaboration.
Do you think that GM’s massive use of outsourcing is a good thing or a bad thing? Do you think that distributing the work among so many different outsourcing firms makes managing the work harder or easier? What do you think that Szygend’s next steps need to be? Leave a comment and let me know what you are thinking.