As Randy Mott, the new CIO of General Motors, goes about his workday, he carries with him a well-worn calculator. It sits in front of him in the place of prominence that most people reserve for a smartphone.
Mott, who has been CIO at Wal-Mart, Dell, and Hewlett-Packard and joined GM in February, believes in numbers. And as he tries to transform GM's IT operations, he plans to flip one set of numbers on a scale that no CIO has ever done before.
Today, about 90% of GM's IT services, from running data centers to writing applications, are provided by outsourcing companies such as HP/EDS, IBM, Capgemini, and Wipro, and only 10% are done by GM employees. Mott plans to flip those percentages in about three years--to 90% GM staff, 10% outsourcers.
Insourcing IT on that scale will require GM to go on a hiring binge for software developers, project managers, database experts, business analysts, and other IT pros over the next three years. As part of that effort, it plans to create three new software development centers, all of them in the U.S. IT outsourcers, including GM's one-time captive provider, EDS, face the loss of contracts once valued at up to $3 billion a year.
This dramatic move away from outsourcing is just one piece of the "IT transformation" Mott is leading, which includes consolidating data centers and applications, centralizing IT planning and execution, and getting a better grip on GM's customer and production data. GM's IT transformation doesn't emphasize budget cuts but instead centers on delivering more value from IT, much faster. In many ways, the foundation Mott is laying is similar to the one Ford started laying four or five years ago as part of its One Ford/One IT initiative.
The overhaul Mott envisions puts the everyday operations of GM at risk during a time when the world's No. 2 automaker (Toyota is now No. 1) is still climbing out of bankruptcy protection and a $50 billion government bailout. GM's factories, supply chains, and financial reporting rely on the IT organization to keep information flowing in near real time on a global scale. The fact that Mott's boss, CEO Dan Akerson, would bless this level of IT change and accept this level of risk at a still-fragile stage of GM's recovery shows how essential the best data and technology are to the company's future.
Akerson "was looking to make changes in the speed and cadence of the company," Mott says. "Whether it was with me or someone else, Dan Akerson was going to do an IT transformation here."
Mott's philosophy on outsourcing at GM, as it was at HP, Dell, and Wal-Mart, is that the company needs more creative, business-changing ideas from IT, and IT teams need to deliver those innovative projects faster. Mott doesn't think GM can be creative or fast enough with outsourced IT. "When the business says 'go,' then that means we start working on a contract, we don't start working on a project," Mott says of the current outsourced model. (Mott is on InformationWeek's editorial advisory board and was named our Chief of the Year in 1997, when he was at Wal-Mart.)
The shift away from outsourcing is only the most dramatic element of Mott's IT "transformation." The plan, approved by Akerson and the rest of the executive operating committee, comes straight out of the playbook Mott has developed over a three-decade career in the retail, high-tech, and now automotive industries. Mott's plan for GM is nearly identical to the one he led at HP between 2005 and 2008 under CEO Mark Hurd, before Hurd and then Mott got bounced in an executive shake-up.
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.
>> 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.
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.
Mott is using the same playbook he used at HP, but there are important differences. GM isn't looking to make big IT budget cuts, while at HP Hurd pushed Mott to cut IT spending from 4% of revenue to 2%. Culturally, GM has been humbled by bankruptcy and the government bailout, hiring a CEO from outside the auto industry to set a sense of urgency for change that HP didn't have (see "Randy Mott's Journey To General Motors").
And while cutting outsourcing will no doubt bring operational disruptions, job losses at outsourcers, and the end of some long-held relationships, Mott is hiring, offering candidates the chance to join GM at a watershed time in the company's history. (Note to readers: GM bought an ad in this issue. GM knew an article would be running about the company but had no knowledge of or influence over the content.)
But Mott and company face plenty of challenges.
Akerson noted how GM doesn't have a good grip on its customer data. Warranty data is in one place, VIN and parts numbers in another, social media sentiment analysis in a different silo, Mott says. Much of that data is outside IT's control at this point, and Mott plans to bring it under IT in one data architecture, so it's more accessible and integrated. Mott tried the same at HP, where internal IT was the marquee customer for HP's Neoview data warehouse product. While Mott says he closed more than 600 data marts at HP as it consolidated, HP ended its Neoview development and its plans to become a major data warehouse vendor.
It's a complex challenge to bring myriad data types under one architecture, and GM's consolidation will have to rely on different technologies, Mott says. If his team doesn't deliver something notably better than what employees and partners use today, it'll not only feel like changing tools for change's sake, hurting the team's credibility, but it could disrupt the business. "You have to run in front of what the business is doing today," Mott says. "... It has to be a step change better. Then you win their hearts and minds."
As far as GM's data center consolidation is concerned, work was under way before Mott arrived. His predecessor, Terry Kline, began building a modern data center in Warren, Mich., which should open in October. Mott thinks it's cheaper and more productive to run a few highly automated data centers and access them via powerful networks than to disperse that processing power. However, in addition to the two data centers GM will consolidate to, it will have six caching centers near most of its auto engineers, to ensure that the processing-intensive work they do maintains the highest performance.
Mott Addresses His Critics
Mott was a polarizing figure at HP, and his plans for GM are no less ambitious. Former HP employees have written to us charging that Mott's IT organization was too slow to get things done, cut too many valuable people, and left the company underperforming. Many of those comments came soaked in emotion. "Like Hurd, Mott was an operator who burned the furniture with a short-term focus," wrote one commentator.
Mott acknowledges the tension caused by IT restructurings of this scale. A business unit leader may OK shutting down an app in favor of one used worldwide, but for employees of that unit "what you just did is take an application with which they were very comfortable ... and you set the time frame and didn't give them a choice," he says. For that, he says, IT "sometimes becomes a lightning rod."
Mott organized that June town hall meeting, with about an hour of presentation and 90 minutes of Q&A, in hopes of getting his IT people behind the effort. While Mott talks about letting people move into new roles and hiring others, employees of GM and its outsourcers will lose their jobs in this transformation. "'Change the mix' is very personal," Mott says. "You've got skill sets that you're going to change, and in some cases people can make transitions to those skills sets and in some cases they can't."
There also won't be a rigid IT org chart. "We will organize every year based on what we're trying to accomplish for the business," he says.
Outside of IT, GM employees will feel the effect of transformation, too. Mott's portfolio management process was a culture shock at HP, since it centralized IT control and forced business managers to prioritize projects. Mott will fight to quash "shadow IT." He insists that his cost-benefit analysis process scales to fit the size of the project--that a small project won't generate excess red tape and that it's worth the effort in order to allocate scarce IT resources efficiently. But he knows it will work only if employees feel like they get more IT benefits as a result.
Mott won't say what GM plans to spend on its IT transformation, only that it's much less than the $1.7 billion in capital HP spent. "I'm competing with capital to build a car," he says.
But the three-year time frame is the same. By January, Mott expects to have many pieces in place: a strategy and vendors for GM's new enterprise data warehouse; the Warren data center up and running; an IT portfolio management and CBA system in place with business units; and a portfolio of projects laid out that's bigger than 2012's. "Part of the goal is to go to the business and get them to imagine" what they want from IT, Mott says.
That statement points to what Mott's grand transformation doesn't address: What GM will do with its faster, more effective IT operation if this overhaul works. Can GM use analytics to better forecast sales or better read changing customer tastes? Would better collaboration tools help engineers and designers be more creative? Could GM and its dealers share customer insights that move more metal off the lot? Those kinds of ideas will come from working with business units on their priorities.
IT isn't the key to whether GM lives or dies. Making great cars and trucks and selling more of them is. Mott's transformation is big, but its success will be measured by whether it helps or holds back that goal.