General Motors Will Slash Outsourcing In IT Overhaul

GM's History Of Outsourcing

To understand why Mott's decision to all but end IT outsourcing at GM is such a huge cultural change, consider the company's long history with the practice. GM spends more on IT outsourcing than just about any other company, and here Mott plans to go to the other end of the spectrum. He estimates that other automakers now outsource about 30% of their IT, whereas GM plans to outsource only about 10%.

GM bought Electronic Data Systems, founded by H. Ross Perot, in 1984 as it tried to diversify beyond making cars and trucks, and EDS subsequently took over almost all of GM's IT operations. In 1996, GM spun off EDS to refocus on its auto operations, cutting a deal for EDS to continue running its IT for 10 years.

Ralph Szygenda, GM's CIO from 1996 to 2009, inherited that deal. Szygenda was no great fan or foe of outsourcing--it was the model he had, and he knew there was no appetite at the time for the disruption and risk involved in changing it. His strategy was to evolve how GM did IT outsourcing.

In 2006, as the EDS pact ended, Szygenda split the work up among six IT outsourcing companies. EDS landed the most, but Capgemini, HP (which at the time didn't own EDS), and IBM took large new shares, and India-based Wipro was among the vendors added. Szygenda mapped out for the bidders how 44 IT processes would be done in a standardized way, making it easier for GM to change vendors if needed.

Mott didn't discuss the details of GM's existing outsourcing contracts and how he would unwind them. At HP, Mott slashed the company's IT workforce in half--from 19,000, with half of them contractors, to less than 10,000, with 90% on staff, in 2008.

Mott thinks GM has too many IT people running and supporting the business and not enough doing new development. "We're really upside down on that when 75% of the people are spending their time trying to make sure the same thing happens today that happened yesterday," he says.

Few CIOs are as adamantly against outsourcing as Mott. More often, they hire outsourcers to handle routine IT operations, with the idea that it will free up staff people for development.

A more typical example sits up the road from GM, at southeast Michigan's power company, Consumers Energy. CIO Mamatha Chamarthi this year hired Indian outsourcer HCL to take over support of Consumers' IT infrastructure and applications. HCL is building a new center for that work, hoping to serve other U.S. clients from it. Chamarthi plans to retrain Consumers IT employees for development and business analyst roles.

While companies regularly take back projects or discrete functions from outsourcers they're not happy with, strategic shifts like Mott's are rare. Only 4% of the 513 business technology pros we surveyed in our 2011 State of IT Outsourcing Survey said their companies plan to decrease their use of IT outsourcing. Seventeen percent were weighing their options, and the remaining 79% were maintaining or increasing their outsourcing.