General Motors Will Slash Outsourcing In IT Overhaul - InformationWeek

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6/28/2012
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General Motors Will Slash Outsourcing In IT Overhaul

GM's new CIO Randy Mott plans to bring nearly all IT work in-house as one piece of a sweeping IT overhaul. It's a high-risk strategy that's similar to what Mott drove at Hewlett-Packard.

Sweeping Transformation

Besides the move away from IT outsourcing, the key elements of Mott's plan include:

>> Data center consolidation: GM plans to go from 23 sizable data centers worldwide to just two, both in Michigan. In the process, GM will replace servers, storage, and networking with today's more efficient gear, in hopes of reducing costs and using more automation so that fewer of GM's IT pros are involved in "run the business" kinds of IT operations and more are involved in new development and innovation.

>> Application consolidation: Mott estimates that GM can cut 40% or more of the company's 4,000-plus applications that have sprung up in various regions and divisions by moving to standardized, global applications for everything from financials to factory-level processes.

>> Hiring: Mott plans to dramatically increase the IT organization's hiring of new college grads and will look to top computer science schools beyond the universities with which it now has recruiting ties. Most of GM's development will be done in the U.S., even though the company's growth is very much tied to China, Brazil, and other countries. Mott does plan to hire internationally to bulk up an "IT planning community" that can gather the requirements needed for GM to build global apps.

>> Three new software development centers: One will be in the Detroit area, with the other two in U.S. locations still to be determined. They'll be chosen based on the kind of development talent the company can attract there, including their proximity to key universities. (Silicon Valley, anyone?) Dispersing IT development will be a cultural change for the still Detroit-centric GM.

6 Steps For GM
1. Insourcing Flipping from 90% outsourced IT to 90% of work done by internal staff. Lots of hiring ahead.
2. Data center consolidation From 23 data centers to two new ones, with the latest hardware and more automation.
3. Application consolidation 40% or more of GM's apps could go, by moving to standardized, global applications.
4. Software development centers Likely three in U.S. sites to be determined, based on the local development talent.
5. Portfolio management Every IT project will require a cost-benefit analysis and a priority set by business units.
6. Data warehouse consolidation GM has about 200 data marts today and plans to move to one data architecture, so data's easier to access and use.
>> Portfolio management: As he did at HP, Mott will require that a cost-benefit analysis be done on every IT project, spelling out the project's benefits in ways that the business unit, finance team, and IT agree to. The results of those CBAs produce a metric Mott calls the "revenue of IT," measuring the value IT projects generate, not just how much they cost. Likewise, Mott will insist that business managers prioritize the various projects they have planned.

>> Data warehouse consolidation: GM has about 200 data marts today, and Mott wants to move all of them to one architecture. The goal is to make data easier to access and use, and to integrate it better across groups and divisions to reveal more insights. CEO Akerson told Fortune in a May interview, "We're looking at our IT systems real hard. Data warehousing of customer information was not a strength in the company. Maybe it wasn't even existent, but it will be in the future."

Mott's ambitious transformation plan won't be universally popular. End users will complain: You're taking away the application that I love for the greater good of cost savings? Business unit managers will complain: You're making me do a cost-benefit analysis for my little upgrade? Isn't this the kind of bureaucracy a nimble GM needs to avoid? Even Mott's IT team will grumble: You're messing with the fiefdom of IT contractors I manage?

Mott's critics at HP complained that he cut too fast and deep, leaving business units vulnerable, or that he spent precious resources on internal bean counting.

There's one additional, controversial piece of Mott's plan: It all happens at once, over the next three years. Mott described it in the past as "choosing is losing." For example, if you move to an insourced IT staff and away from outsourcers, but you don't modernize the data center to increase IT automation, then you won't get the benefit from those new staffers working on new projects instead of maintenance and support work.

It fits Mott's general philosophy that many IT projects fail because they just take too long. It's why he favors putting more staff on a project for a shorter period--doing fewer projects at a time, but faster. "Every month that goes by, every quarter that goes by, the ROI goes down," he says.

The clock has started ticking. Mott launched this IT transformation plan internally in late June on a town hall webcast with GM's 1,500 IT employees worldwide. The world will be watching: If Mott and his team botch any of this IT transformation, it could put the company's historic turnaround in jeopardy.

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CBess
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CBess,
User Rank: Apprentice
7/9/2012 | 2:19:29 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
One of the things that is a bit humorous about the statements in this article is that many of them are the exact same as what was said back when GM bought EDS. I was part of GM back then.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
7/9/2012 | 2:42:15 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
That's an interesting long-term perspective. Any examples?
MyW0r1d
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MyW0r1d,
User Rank: Strategist
7/9/2012 | 3:32:49 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
Agree with CBess in that non of the initiatives are truly innovative (that haven't been a part of most firms plans the past 5 years) and that is not to say 2-3 years isn't aggressive to bring it all back in house. It is another high level contradiction to those which continue and support sending US IT jobs to overseas out sourced markets because local talent is inadequate.

I would have recommended further geographic separation among the DCs maybe one colocated with one of the SDCs (nuclear conflict is a remote possibility but as we have seen with Amazon's clouds and current heat waves, electrical outages can still impact a large geo area).
Wakjob2
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Wakjob2,
User Rank: Apprentice
7/9/2012 | 6:20:26 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
Well, what do you know - some American business execs finally get it. Everyone here does know GM was booming in 2006 - until it signed a $300 MILLION outsourcing deal with India's WIPRO. Guess that didn't work out too well for GM because they went bankrupt 2 years later due to Wipro's incompetence. Now American execs are waking up to the India, Inc. con.
Leo Regulus
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Leo Regulus,
User Rank: Apprentice
7/9/2012 | 7:25:36 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
(Showing my age here) There used to be a 'Union' label on purchased goods that were 'Union Made'. Now we seldom know what percentage of a purchase price goes off-Shore. GM & other companies keeping jobs on-shore need to be supported. Let's stay with them!
joelapp
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joelapp,
User Rank: Apprentice
7/9/2012 | 7:31:44 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
while it is easy to agree with your sentiment, it is entirely unrealistic when it comes to IT.
joelapp
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joelapp,
User Rank: Apprentice
7/9/2012 | 7:38:55 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
GM has yanked the HP/EDS chain ever since they sold their IT off. Each contract they tend to contradict the requirements from the previous one. This "new idea" is another example of GM's continuing IT services pullback since around '04. A lot of those thousands of applications mentioned in the story were a result of the decentralization effort they made in the early 2000's - letting the plants do more development. They then cut back a huge number in an effort to "commonize" their apps prior to the '06 contract and now they are just continuing to move in that direction and that led to HP job cuts. So, in reality, this is really nothing new.
SRV
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SRV,
User Rank: Apprentice
7/9/2012 | 8:14:30 PM
re: General Motors Will Slash Outsourcing In IT Overhaul
To Wakjob2:

You are the same troll who visits multiple web sites and blogs, bashing all Outsourcing/IT services companies, especially Indian outfits. Your reasoning for GM's bankruptcy being the signing of a piddly $300MM outsourcing deal with WIPRO shows your utter ignorance and pathetic racism. There's a good proverb that's applicable to you: "It's better to remain silent and be thought a fool than speak and remove all doubts". Just apply that to posting on all blog sites, you moron.
AS71
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AS71,
User Rank: Apprentice
7/10/2012 | 12:19:42 AM
re: General Motors Will Slash Outsourcing In IT Overhaul
I agree that these are not new ideas. "Revenue of IT", "business value driven IT", "business aligned IT" and other popular phrases for tying IT spend to ROI have been around for decades. The problem is that the juice, generally, isn't worth the squeeze. Yes, you can probably hammer down a fairly comprehensive ROI for projects if you have a dozen analysts working on the numbers, DCFs, NPVs, etc, but, except for very large projects, the cost of the analysis and the bureaucracy consumes the gains. All of this analysis on ROI also makes it really complex to do anything as building the business case is such a hassle. Also, many IT projects don't have a clear cut ROI even though there is a clear cut need. What is the ROI on a collaboration application or an intranet portal? There may be some productivity gains, but it is a far stretch to say those productivity gains will hit the bottom line. Likewise with social media development, mobile consumer apps, etc. It is pretty difficult to determine that for every dollar spent you will receive $x in ROI. It is generally more cost effective and faster to just let managers make some judgement calls under a certain dollar amount.

On the age old application rationalization and data center consolidation topics, no one created 4,000 applications because they thought it would be more cost efficient than 40. They did it because they needed to get things done without going through the months long change management process of adding a field in SAP or some other enterprise wide application to ensure their change does not have an unforeseen impact on some other user group. By the time changes are made in centralized organizations, the requester usually has moved on or found a manual work around. Everyone has a slightly different task they are trying to perform and everyone needs their change requests processed now. Consolidation equals cost efficiencies, but they generally do not equal agility or speed to market efficiencies. You end up with a really cost effective IT organization that does not meet any group's needs particularly well. The same reason that local fire departments are not managed at the Federal level.
Marrach
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Marrach,
User Rank: Apprentice
7/10/2012 | 2:22:20 AM
re: General Motors Will Slash Outsourcing In IT Overhaul
Let me put another spin on this--

Consultants and Outsourcers came into the picture because, frankly, a lot of Internal IT Dept's were all about inertia and maintaining the 'Sacred Mainframes'

Back then, the Consultants and the outsourcers WERE the Breath of Fresh air-- introducing the new technologies and new ways of thinking.

But that was years and years ago. NOW-- the Consultants and the Outsourcers are suffering the same poison of Inertia, Inability to Change and Lack of Nimbleness to adapt to new circumstances. The Article is right-- if you need a change, you need to re-negotiate the Contract-- and then the outsourcer/consultant ONLY gives you what they see outlined in the contract and not ONE line of code more.

People, that's the attitude that's KILLING Business.

Add to it the unspoken truth that a Lot of current CIO's are CIO's in Title Only. Many of them just dressed up Executives who rotated out of the CFO's staff. They can rotate an Excel Sheet and open a PowerPoint...and BadaBoom!.. they're Instantly qualified to say what is and Is Not crucial to a company's IT force.

The Consultants LOVE these overdressed Executives. They ask no Hard Questions. They NEVER KNOW ENOUGH to understand when they are being sold a bill of worthless goods. And even when they have Competent IT staff to ask the relevant questions, they willfully ignore the Opinions of the 'Drones' below the Executive Suites as too troublesome. So the Consultants come in, they complement each other on how sharp their suits look, they do a 'Business Lunch' where NO HARD QUESTIONS are asked, and then the bubbly is popped when the contracts are signed..Here, here...and here, thankyou!

Mr. Mott needs to clean out the upstairs IT Executive ghettos. So do a lot of other American Companies. I say, it's about time!
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