ITO market, will decline to 33.5% of the global market this year, having reached a major tipping point where various datacentre processing systems will gradually be replaced by new delivery models and move more into the small and medium-sized enterprise sector through 2016. However, arguably the biggest impact on the corporate mindset towards outsourcing is likely to come from one organisation, which though its actions could be described as a correction, could also be the start of a trend that others will consider following.
General Motors, one of the world’s most influential users, said it will hire 3000 Hewlett-Packard (HP) employees as part of its ongoing effort to bring most information-technology work back in-house. The employment will be part of a new multi-year software and services agreement between the two companies, General Motors and HP. The employees being hired already work on GM’s business at HP and are subsequently expected to be on GM’s payroll within six months. “These agreements with HP will enable us to accelerate
the progress of our IT transformation by delivering increased innovation and speed of delivery to our GM business partners and reduce the cost of on-going IT operations,” Randy Mott, GM’s chief information officer, said in a statement. “Transforming our internal IT operations will give us the
resources, tools and flexibility we need to provide better services and products to our global GM customers.” Mott said GM expects to save money by using HP’s software to automate some tasks, then reinvest the savings in ways that promote more innovation. He said GM will be able to overhaul its IT operations more quickly by having the workers become direct employees again. “Their jobs will be changing pretty rapidly over the course of the transformation,” Mott said. “We felt it was important they be very well integrated into the GM team.” GM is thought to want to hire up to 10,000 workers as it transforms its IT operations and opens so-called ‘innovation centres.’ GM believes it can improve efficiency and become more innovative by reducing the amount of IT work handled by outside vendors to 10% from 90% within five years. GM’s annual IT budget is estimated at around $3 billion. While most companies are not expected to take steps as radical as GM, many CIOs are said to be reconsidering the outsource-insource mix, particularly in the manufacturing industry, largely because they believe they need better access to the so-called ‘innovation engine of technology.’ The potential upside to GM’s insourcing effort are higher productivity, a lower management burden, reduced travel costs, improved quality, reduced ‘rework,’ increased convenience of shared working hours, and a better cultural fit. But although GM’s plan to move most of its outsourced IT work back in house is being praised by many, most are viewing it as a course correction for GM rather than a worldwide trend. GM’s current percentage of outsourcing, 90%, is much higher than recommended, prompting Mott to consider the change. Normally 30-65% is generally regarded as a safe zone for outsourcing Gartner analysts have previously argued that IT outsourcing can include three broad areas: infrastructure, such as data centres that house servers, the development of software
28 December 2012 | Volume 22 – Issue 4
Moving IT staff back into the organisation enables it to share best practices across business lines
applications, and business process outsourcing. In general, if too much IT is outsourced, a company ends up with many needed functions that its own employees are incapable of doing and don’t understand, thus giving too much power to the IT service providers.
Some believe the GM decision could be as important as a similar one taken by another US giant, General Electric (GE) which opened a large IT centre, the Advanced Manufacturing and Software Technology Centre that marked a significant investment in IT and helped reacquire some of the technical intellectual property that it had outsourced in the past. Moving IT staff back into the organisation enables it to
share best practices across business lines. It allows it to be more competitive, to move much faster, and to drive collaboration within the organisation. It also changes the corporate mindset from one of caution to ambition. If you are an outsourced company, your job is effectively to not foul up. But if you are part of an internal team, you are more likely to take risks and be creative. Unleashing that creativity, some might argue, is what IT managers really should be doing.
Some think that what is behind GM’s move is more to do with IT being an enabler and providing a strategic advantage. Can it help create new products and services that is not possible with outsourced IT? The big challenge is likely to be getting enough of the right people and then managing them. You’re not bringing them into an IT culture. You are necessarily creating a new culture. In the UK public sector recently, there have been two extraordinary public backlashes against outsourcing which have seen council decisions to offload local services to
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