IT Outsourcing - The GM Way

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Agenda

1. GM’s IT Outsourcing

2. Problems / Issues

3. Alternative Analysis

4. Recommendations

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• GM acquired the company Electronic Data Systems (EDS) at a cost of$ 2.5 billion

• All IT operations were transferred to it

1984

GM‘s IT Outsourcing

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• EDS was spun off from GM as a separate company

• EDS was the primary supplier of IT services

• All IT people, systems and equipment were transferred to EDS

• Goal: More cost efficiency by distributing all IT services to one single company

1996

GM‘s IT Outsourcing

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1996

Challenges at this stage• Impossible to shift work to other suppliers

• CIO did not have a complete control of the IT-services and a close relationship with the suppliers

• Could not establish acceptable standards of interaction between its business partners and vendors

GM‘s IT Outsourcing

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Mid 1996

• Start of a new division, called IS&S (Information Systems &Services department)

• Difficult for the existing 50 CIOs to take decisions as a committee and to implement common IT services

Invention of a matrix structure

GM‘s IT Outsourcing

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Structure of the GM Matrix

Corporate CIO

Process Information Officers

Supply Chain PIO

Product Development

PIO

Production PIO

Business Services PIO

Customer Experience

PIO

5 Business Unit CIOs

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CEO

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Matrix Structure

• The matrix induced the CIO and PIO to work as a team

• CEO and CIO developed the corporate strategy together

• Every problem was viewed under a business and an IT perspective

Result: Reduction on IT budget, Improvement in quality and cycle time

Disadvantage: Delay of the decision time

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2003

• GM used the services of multiple vendors

• About 20% of the IT work was distributed to other vendors than EDS

• GM specified rules, the ultimate decision was left to the vendor

GMs IT Outsourcing

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?

• GM has about 70-80 IT service providers

• GM plans to have a reorganized model

• Common standards for IT vendors (ERP for IT administration)

• Standard software for intra-business solutions

Problems / Issues

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Option 1: Insourcing of IT

Insourcing: How it works for GM?

• integration of former outsourced IT processes into ownvalue chain

– acquisition of EDS– in-house development, implementation and management of IT infrastructure and

manufacturing

cooperation with external providers possible to “think outside the box”

secondary IT services like support and helpdesk (of not strategic meaning) can still be outsourced

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Option 1: Insourcing of IT

IT in-house vs IT Outsourcing1,2: What speaks in favour of insourcing for GM?

Pro Con• internal quality control • gaining and preserving of know-how• standardized technology deployment• gaining flexibility in projects• sustainability of IT• maximizing value added

• specialized know-how and cost advantages of IT vendors• GM in charge of failure risk• Equipping, staffing, and managing the IT organization• no concentration on own core competencies

1 See Werner (2010) 2 See www.sourcingmag.com

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Option 2: IT Modular Sourcing

Modular IT sourcing: How it works for GM?

• limiting to few Tier1 IT vendors• realizing the new matrix structure

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Option 2: IT Modular Sourcing

Modular sourcing for IT services: What speaks in favour of modular sourcing for GM?

Pro Con

• Retaining of IT outsourcing model• Reduction of IT vendors• Reducing of transactional costs by

reduction of overall interfaces• Easier to implement common

standards for fewer IT vendors

• Dependence on only few IT vendors- cost dictation- failure risk- ex-post dependence on

know-how

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Evaluation of suggested options

Performance Objectives at IS&S

Fully outsourced

IT Insourcing

Modular Sourcing

Productivity & Quality (short term)

(long term)

Sustainability

Business and Information Security

Global Business Process Improvement

Solution with Option 3

Project Flexibility

Efficiency

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Option 3: New Governance Structure

Shift from matrix to divisional management structure3

Features of existing matrix IT management structure in GM:– aligning business with IT (PIO + CIO)– Complex reporting requirements + stressed managers– Delayed decisions (but therefore also no useless projects)– lack of accountability – who is in charge?

Benefits from restructuring into regional IT management:- flexibility in operating separated business units (segmentation)- decentralised efficient decision making (managers with specific expertise to make key decisions in their area)

3 See http://www.referenceforbusiness.com

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Option 3: New Governance StructureOption 3: New Governance Structure

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Business Unit PIO NA

Business Unit CIO NA

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Business Unit PIO EU

Business Unit CIO EU

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PIO

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Recommendations

Perspective of Sourcing

1. Considering the announcement of Szygenda: “no outsourcing of strategic part of IT” Insourcing of IT processes of strategic meaning (product development, manufacturing & quality, sales & marketing)

2. Using outsourcing for standardised processes with clear defined service level3:- After sales services (e.g. OnStar Communication System)- Help desk services- Hosting services

2.1 Complementary use of Modular sourcing helps to reach defined future goals of GM:- Reducing IT vendors- Simplifies thus the introduction of common standards for IT vendors (but not guarantees)- Fits to the new pyramid structure of IT governance

3 See Werner (2010)

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Recommendations

Perspective of Decision Making Structure

3. Switch from global matrix structure to divisional management structure:- IT structure aligned to typical regional requirements (e.g. another established IT standards in

Eastern Europe than in the USA)- The advantage of aligning business with IT remains- Decisions on global IT projects remain possible

3 See Werner (2010)

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Thank you!

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Bibliography

Literature

Keuper et al.: Managed Services- IT-Sourcing der nächsten Generation.Wiesbaden: Gabler Verlag

Werner, Hartmut: Supply Chain Management – Grundlagen, Strategien,Instrumente und Controlling, 4th edition. Wiesbaden, 2010

Internet Sources

http://www.business-wissen.de/organisation/insourcing-warum-es-sich-lohnt-selbst-zu-produzieren/

http://www.economics.phil.uni-erlangen.de/bwl/lehrbuch/kap3/outsour/outsour.pdf

http://www.referenceforbusiness.com/encyclopedia/Man-Mix/Matrix-Management-and-Structure.html

http://www.sourcingmag.com/offsite.asp?A=Fr&Url=http://www.clarity-consulting.com/it_in_or_out.htm