General Motors’ Drive to Insource most of its Outsourced IT Scope by 2015: Prospects of an “against the tide” success story? A recipe for disaster? A populist political play? | Sherpas in Blue Shirts

Ever since GM acquired EDS in 1984, the company has been on a roller-coaster ride with its global sourcing strategy. As a part of GM, EDS did progress and had many government bodies and enterprises in more than 20 countries as clients. However, GM decided to spin off EDS as an independent company in 1996, ending their 12-year association. Part of the divorce terms included a 10-year relationship with business guarantee from GM.

Meanwhile, the United States auto sector was experiencing a major downturn in fortunes all the way into the new millennium. GM suffered significantly at the hands of dwindling consumer confidence, resulting in more than US$8 billion in losses during 2005. At that time, Ralph Szygenda was leading GM’s IT. When the 10-year period for GM’s promised sourcing relationship with EDS ended in 2006, Szygenda put together a massive transformation blueprint with a $15 billion ticket value. Multiple outsourcing providers, including IBM, HP, EDS, Capgemini, and Wipro, were beneficiaries of the initial solution framework. HP and GM renewed a US $2 billion contract in 2010; Capgemini and GM also renewed. All this led to the reasonable assumption that GM was very serious about its sourcing strategy and confident of the advantages of the solution.

Fast forward to mid-July 2012, when current CIO Randall (Randy) D. Mott announced that GM will bring down the outsourced IT scope from 90 percent of total IT scope, with a goal to reduce the number to 10 percent by 2015. So what can we make of this announcement?

On one hand, Mott argued this will lead to better productivity and increased agility of IT in responding to business changes, given that new initiatives will be channeled into action instead of disappearing into procurement due diligence and contract negotiations. Another implication is around GM being able to extract scale advantages (a typical outsourcing value lever), given its large size of operation across multiple geographies. Also, keeping IT largely in-house will allow GM to adopt solutions tailored specifically for the manufacturing, supply chain, and sales channel challenges inherent in the auto industry.

On another hand, this change in sourcing strategy sounds like a great local employment opportunity for engineering graduates, especially in GM’s operation centers… potentially tens of thousands in “created” jobs.

Nevertheless, speculation is rife that this move is proving beneficial for the prospects of President Barack Obama’s campaign this election year, given the overall developing negative sentiment against offshoring. Not very long ago, in 2009, GM received a fat financial bailout package from the U.S. government; is this perhaps a showing of GM’s return of favors?

The outsourcing model has been around for multiple decades, and has matured over time. Outsourcing buyers around the globe have had problems similar to GM, and have historically adopted other measures such as vendor consolidation, scope rationalization, and standardization. With that, it sure does feel like GM is throwing out the baby with the bath water. And if its insourcing move doesn’t go well, that may be the only way to sum up its decision.

The jury is still out on whether this was a populist move by a recipient of political benevolence, and the world will watch closely the results of this massive, ambitious project. Even a minor deviation from stated goals will be scrutinized, considering that most major service providers are landing on the losing side of this deal. Net-net, Randy Mott will need all the help and luck he can get to pull this one off. Should he succeed, murmurs of blueprint replication in other corporations are bound to reach fever pitch.

What are your thoughts on GM’s insourcing strategy? Please post them in the comments section. I look forward to hearing from you!

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