it outsourcing - the gm way
DESCRIPTION
Case study from 2004TRANSCRIPT
IT Outsourcing - The GM Way
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Agenda
1. GM’s IT Outsourcing
2. Problems / Issues
3. Alternative Analysis
4. Recommendations
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• GM acquired the company Electronic Data Systems (EDS) at a cost of$ 2.5 billion
• All IT operations were transferred to it
1984
GM‘s IT Outsourcing
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• 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
1996
GM‘s IT Outsourcing
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1996
Challenges 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
GM‘s IT Outsourcing
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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
GM‘s IT Outsourcing
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Structure of the GM Matrix
Corporate CIO
Process Information Officers
Supply Chain PIO
Product Development
PIO
Production PIO
Business Services PIO
Customer Experience
PIO
5 Business Unit CIOs
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Am
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Eu
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La
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CIO
GM
Fin
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IO
CEO
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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
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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
GMs IT Outsourcing
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?
• 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
Problems / Issues
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Option 1: Insourcing of IT
Insourcing: How it works for GM?
• integration of former outsourced IT processes into ownvalue 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
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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 • gaining and preserving of know-how• standardized technology deployment• gaining flexibility in projects• sustainability of IT• maximizing value added
• specialized know-how and cost advantages of IT vendors• GM in charge of failure risk• Equipping, staffing, and managing the IT organization• no concentration on own core competencies
1 See Werner (2010) 2 See www.sourcingmag.com
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Option 2: IT Modular Sourcing
Modular IT sourcing: How it works for GM?
• limiting to few Tier1 IT vendors• realizing the new matrix structure
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Option 2: IT Modular Sourcing
Modular sourcing for IT services: What speaks in favour of modular sourcing for GM?
Pro Con
• Retaining of IT outsourcing model• Reduction of IT vendors• Reducing of transactional costs by
reduction of overall interfaces• Easier to implement common
standards for fewer IT vendors
• Dependence on only few IT vendors- cost dictation- failure risk- ex-post dependence on
know-how
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Evaluation of suggested options
Performance Objectives at IS&S
Fully outsourced
IT Insourcing
Modular Sourcing
Productivity & Quality (short term)
(long term)
Sustainability
Business and Information Security
Global Business Process Improvement
Solution with Option 3
Project Flexibility
Efficiency
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Option 3: New Governance Structure
Shift from matrix to divisional management structure3
Features 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 http://www.referenceforbusiness.com
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Option 3: New Governance StructureOption 3: New Governance Structure
No
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GM
Fin
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Corporate CIO
Su
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Ch
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PIO
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… … …
Business Unit PIO NA
Business Unit CIO NA
Eu
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Pro
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Business Unit PIO EU
Business Unit CIO EU
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PIO
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Recommendations
Perspective of Sourcing
1. 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 services
2.1 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)
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Recommendations
Perspective of Decision Making Structure
3. 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)
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Thank you!
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Bibliography
Literature
Keuper et al.: Managed Services- IT-Sourcing der nächsten Generation.Wiesbaden: Gabler Verlag
Werner, Hartmut: Supply Chain Management – Grundlagen, Strategien,Instrumente und Controlling, 4th edition. Wiesbaden, 2010
Internet Sources
http://www.business-wissen.de/organisation/insourcing-warum-es-sich-lohnt-selbst-zu-produzieren/
http://www.economics.phil.uni-erlangen.de/bwl/lehrbuch/kap3/outsour/outsour.pdf
http://www.referenceforbusiness.com/encyclopedia/Man-Mix/Matrix-Management-and-Structure.html
http://www.sourcingmag.com/offsite.asp?A=Fr&Url=http://www.clarity-consulting.com/it_in_or_out.htm