IT Outsourcing - The GM Way


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Case study from 2004

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IT Outsourcing - The GM Way

  1. 1. IT Outsourcing - The GM Way
  2. 2. Agenda1. GM‟s IT Outsourcing2. Problems / Issues3. Alternative Analysis4. Recommendations 2
  3. 3. GM„s IT Outsourcing 1984• GM acquired the company Electronic Data Systems (EDS) at a cost of $ 2.5 billion• All IT operations were transferred to it 3
  4. 4. GM„s IT Outsourcing 1996• 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 4
  5. 5. GM„s IT Outsourcing 1996Challenges 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 5
  6. 6. GM„s IT Outsourcing 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 6
  7. 7. Structure of the GM Matrix CEO Corporate CIOProcess Information 5 Business Officers Unit CIOs Supply Chain PIO Product Development PIO Latin America, Africa, North America CIO GM Finance CIO Middle East CIO Asia-Pacific CIO Production Europe CIO PIO Business Services PIO Customer Experience PIO 7
  8. 8. 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 8
  9. 9. GMs IT Outsourcing 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 9
  10. 10. Problems / Issues ?• 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 10
  11. 11. Option 1: Insourcing of ITInsourcing: How it works for GM?• integration of former outsourced IT processes into own value 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 11
  12. 12. 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 • specialized know-how and cost• gaining and preserving of know-how advantages of IT vendors• standardized technology deployment • GM in charge of failure risk• gaining flexibility in projects • Equipping, staffing, and managing the• sustainability of IT IT organization• maximizing value added • no concentration on own core competencies 1 See Werner (2010) 2 See 12
  13. 13. Option 2: IT Modular SourcingModular IT sourcing: How it works for GM?• limiting to few Tier1 IT vendors• realizing the new matrix structure 13
  14. 14. Option 2: IT Modular SourcingModular sourcing for IT services:  What speaks in favour of modular sourcing for GM? Pro Con • Retaining of IT outsourcing model • Dependence on only few IT vendors • Reduction of IT vendors cost dictation • Reducing of transactional costs by failure risk reduction of overall interfaces ex-post dependence on • Easier to implement common know-how standards for fewer IT vendors 14
  15. 15. Evaluation of suggested optionsPerformance Fully IT ModularObjectives at IS&S outsourced Insourcing SourcingProductivity & Quality   (short  term)  (long term)Sustainability   Business and   Information SecurityGlobal Business Solution with Option 3Process ImprovementProject Flexibility   Efficiency    15
  16. 16. Option 3: New Governance StructureShift from matrix to divisional management structure3Features 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 16
  17. 17. Supply Chain PIO Product Dev. PIO NA PIO Business Unit Production North America CIO PIO Bus. Services PIO Customer Exp PIO CIO NA Business Unit CIO Corporate Supply Chain PIO Product Dev. PIO EU PIO Business Unit Production Europe CIO PIO Bus. Services PIO Customer Exp CIO EU PIO Business Unit Asia-Pacific CIO … Latin America, Africa, … Middle East CIO Option 3: New Governance Structure17 GM Finance CIO …
  18. 18. RecommendationsPerspective of Sourcing1. 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 services2.1 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) 18
  19. 19. RecommendationsPerspective of Decision Making Structure3. 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) 19
  20. 20. Thank you! 20
  21. 21. BibliographyLiteratureKeuper et al.: Managed Services- IT-Sourcing der nächsten Generation. Wiesbaden: Gabler VerlagWerner, Hartmut: Supply Chain Management – Grundlagen, Strategien, Instrumente und Controlling, 4th edition. Wiesbaden, 2010Internet Sources 21