What Drove GM to Kill Offshoring Contracts and Bring Work Back to Detroit?

What Drove GM to Kill Offshoring Contracts and Bring Work Back to Detroit? 

General Motors has shocked the outsourcing industry with its announcement to radically cut external IT projects. The U.S. auto giant has talked of reducing its IT outsourcing to just 10 percent from the current 90 percent. What could be the reason behind such a move? Is it political, philosophical or just a business plan? At present, 90 percent of GM’s IT services are outsourced to vendors such as HP/EDS, IBM, Capgemini

At present, 90 percent of GM’s IT services are outsourced to vendors such as HP/EDS, IBM, Capgemini and Wipro, while only 10 percent is performed internally. The GM’s new CIO Randy Mott is aiming to change all these over the next three years. The move comes at a time United States is facing presidential election. What is also to be noted is that GM has recently emerged from the brink of bankruptcy, a crisis only averted by a $50 billion government bailout.
The reduction in outsourcing is part of Mott’s far-reaching overhaul of GM’s IT. As part of the plan, the company reduce its data centres from 23 to just two, a 40 percent reduction in GM’s 4,000 plus apps. It will create three new software development centres; new forms of portfolio management that will require a cost-benefit analysis for every IT project and a restructuring of its data wearehouses – moving its current 200 data marts to one data architecture.
Mott and GM say the new structure will take shape quickly and help deliver more value to customers. It is a philosophy that Mott has employed previously, most notably at HP where he tried to implement a near identical plan.

Politics than Philosophy
However, in the case of GM, some believe the plan may have more to do with politics than philosophy. “It is not a bad message for GM to say they are bringing these jobs back,” said IT researcher and renowned outsourcing critic Dr. Art Langer.
“I think GM could have a very nice message saying we are going to create all these jobs for America,” he added, “-and GM is America – so there could (also) be some marketing and sales aspect to this.”

However, Dr. Langer believes the move is aimed at boosting its image in political circles. Among the others, he includes cost. “The true cost of outsourcing is not properly measured,” he said. “The easy way to measure it is to say the rate is lower but there are costs of losing ownership and control, there are costs in the increased amount of time and rework that has occurred.”

Dr Langer also believes bringing IT services back in-house will allow GM to assert greater control over the risks involved in IT development and, crucially, enable it to secure its own talent from a pool of IT professionals likely to be hit hard in the near future by the loss of workers who had deferred retirement due to the economic crisis.
“There is going to be a dramatic loss of talent and there is a real need to start replacing that talent internally or else what’s going to happen is you will have companies that are American that will be run by foreign people,” he said.

KPMG outsourcing analyst Stan Lepeak agrees with Dr. Langer that cost is a likely factor but believes GM’s decision could have been caused more by the changes it has undergone since bankruptcy than the hidden cost of outsourcing. “They were able to take out a lot of labor costs going through the bankruptcy and they didn’t have the ability to do that restructuring with the outsourcing arrangements unless they pulled them back,” he said.

However, Lepeak believes downsizing operations such as its data centres will not alone boost its image in the U.S. “It looks good from the perspective of supposedly bringing work back onshore but I think the reality is the level of work that will come back is over-stated,” he said.
Whether the move is successful or not for the company will depend not on GM’s motivations but on what the company does next, according to Lepeak. “You can argue philosophically that that’s the way to do it,” he said, “but the reality is that it is going to be the execution that is going to determine retrospectively whether it was a good idea.”

Whatever the final results for GM, the influence of the decision is already being felt throughout the ITO world. Some analysts believe bringing jobs onshore will become common in the days ahead and it could also be an indication of what is to come.
“What you are going to see is a rebalancing,” said Dr. Langer. “It went too far in one direction and it is not only creating problems for certain companies, it is creating problems for economies and countries.”

“Certain things can be outsourced effectively, economically and that make sense [to outsource],” he added. “And then there are many other things that were outsourced strictly based on rate and what has happened is the realization that some portion of that needs to come back.”

Which Model is More Agile?

Outsourcing providers must share responsibility for the trend towards insourcing, according to David Rutchik, a partner at consultancy firm Pace Harmon and outsourcing specialist. ”There have been frustrations that they are not as agile or flexible as they need to be and that they don’t understand the specifics of their customers business to the extent they need to,” he said.
“People are looking for an alternative,” he added. “If the model were meeting more needs this would be less of a consideration.”

However, Stan Lepeak believes the apparent trend towards in-sourcing is not the straight reversal of outsourcing. “We do see a lot of firms shifting work around – taking work that was outsourced and putting it into a shared service centre, occasionally bringing work back from offshore,” he said. “But one thing we see is that when work is brought back in-house it often ends up being automated.”
According to Lepeak, these reversals do not mark a decline in outsourcing. “The trend is still towards more outsourcing, still towards more cloud software and commercial service software,” he said.
Lepeak even believes we may see GM return to outsourcing in the future. “I wouldn’t be totally surprised if in a few years we saw some additional outsourcing being done,” he said, “but perhaps through contractual arrangements that give them more flexibility or through the consolidation of those arrangements so they are not having to deal with so many providers.”

By James Bargent

President Obama Calls on Bill Clinton

President Obama Calls on Bill Clinton

At the request of Barack Obama, former President Bill Clinton will have a marquee role in this year's Democratic National Convention.

WASHINGTON — Former President Bill Clinton will have a marquee role in this summer's Democratic National Convention, where he will make a forceful case for President Barack Obama's re-election and his economic vision for the country, several Obama campaign and Democratic party officials said Sunday.

The move gives the Obama campaign an opportunity to take advantage of the former president's immense popularity and remind voters that a Democrat was in the White House the last time the American economy was thriving.

Obama personally asked Clinton to speak at the convention and place Obama's name in nomination, and Clinton enthusiastically accepted, officials said. Clinton speaks regularly to Obama and to campaign officials about strategy.

Clinton's prominent role at the convention will also allow Democrats to embrace party unity in a way that is impossible for Republican rival Mitt Romney.

George W. Bush, the last Republican to hold the White House, remains politically toxic in some circles. While Bush has endorsed Romney, he is not involved in his campaign and has said he does not plan to attend the GOP convention.

Clinton will speak in prime-time at the Democratic convention in Charlotte, N.C., on Sept. 5, the night before Obama formally accepts the party nomination. While the number two on the ticket often speaks that night, the Obama campaign has instead decided that Obama and Vice President Joe Biden will speak on the same night.

Biden will speak before Obama on Sept. 6, in front of tens of thousands of people expected to fill an outdoor stadium in Charlotte, and millions more on television.
The vice president's speech will focus on outlining many of the challenges the White House has faced over the past four years and the decisions Obama made to address them, officials said.
"To us it's about deploying our assets in the most effective way," Obama campaign strategist David Axelrod said. "To have President Clinton on Wednesday night laying out the choice facing voters, and then having Vice President Biden speak right before the president in prime time on Thursday, giving a testimony to the decisions the president has made, the character of his leadership and the battle to rebuild the middle class that's so central to our message."

Clinton's role at the convention was to be formally announced Monday. It was first reported by The New York Times.

Clinton spoke at the 2008 convention, part of a healing process for the Democratic party following the heated primary battle between Obama and the former president's wife, Hillary Rodham Clinton.
Since then, the ties between Obama and Bill Clinton have strengthened significantly. Obama has called on the former president for advice several times during his term and the two have appeared together this year at campaign fundraisers for Obama's re-election bid.

By JULIE PACE and KEN THOMAS 07/29/12 11:49 PM ET

Associated Press writer Beth Fouhy in New York contributed to this report.

GM Vows To 'Insource' Most Of Its IT Jobs: Beginning Of A Trend?

GM Vows To 'Insource' Most Of Its IT Jobs: Beginning Of A Trend?

U.S. workers have been dealing with the effects of outsourcing for years now. But in a trend that many no doubt would like to see continue, General Motors Co. has committed to bringing back technology jobs it now outsources.

 

 

The automaker currently outsources about 90 percent of its information-technology services, including running data centers and writing applications, to other companies. But in a 180-degree turn, newly installed chief information officer, Randy Mott, who joined GM in February, wants to "insource" 90 percent of the company's IT operations within three years, InformationWeek reports.

Bringing back IT jobs at the scale GM needs would require the Detroit-based company, which currently employs about 1,500 IT workers worldwide, to go on a hiring binge to staff the three U.S.-based software development centers it's planning to build. Those would include jobs such as software developers, project managers, database experts and business analysts, according to the magazine.

In doing so, GM follows a path first blazed by Ford Motor Co. about five years ago. The plan focuses less on the bottom line and is more concerned with getting the most value from IT development.
But the move is rare. InformationWeek notes that in a survey it conducted of 513 business-technology professionals last year, just 4 percent said their companies plan to decrease IT outsourcing. Seventeen percent were weighing their options, and the remaining 79 percent were maintaining or increasing their outsourcing.

One reason for that is that companies have cheap and reliable access to virtual networks, known as cloud computing. The technology allows businesses to take advantage of low-cost labor in countries such as the Philippines, Malaysia and India, where wages are a fraction of those in the U.S. and other developed nations, according to Staff.com, a website that allows employers to hire workers virtually through the Internet.
Not only can workers be hired on the cheap, Staff.com boasts that its software allows employers "to track low-wage workers minute-by-minute using time-tracking software -- all in the cloud." Moreover, global access permits employers to find people who can work around the clock.
Those attributes, says the site's founder and CEO Rob Rawson, make continued outsourcing a no-brainer.
For more on the wage disparities among workers around the world, check the infographic below from Staff.com

Source: By David Schepp

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