How do you continue to cut IT costs when you’ve already cut to the bone?
Daniel McNicholl, chief strategy officer of information systems and services at General Motors, explained how in a recent interview with CIO Executive Editor Christopher Koch.
CIO: In a recent talk, you said that in the past six years your overall IT budget at GM has gone down from $5 billion to about $3 billion.
Daniel G. McNicholl: But the investment part of the budget has gone up. Break the total IT budget into two major areas?investment and operating cost. We were focused on reducing operating cost and using that as fuel to put into investments for both new applications and new infrastructure, and giving money back to the company. For every dollar you save, you put a third in on applications, a third on infrastructure and give a third back to the boss.
How did you do that?
First, everyone in IT has to make [cost cutting] a primary objective. When I ran GM North America, we would have weekly and monthly meetings on seeking out what our cost-saving opportunities were and tracking the status. If you don’t make it as important as creating new capabilities, as talking about new technologies, it won’t happen. Now typically how do you get it? Competitively pricing things by putting things up to bid. That’s very powerful. Try not to get locked into vendors where your choices are limited.
When I first joined GM North America, we had 1,200 Lotus Notes servers scattered across the entire organization. Now I have 100 in four locations doing the same thing. Now imagine how much labor it took to support 1,200 servers scattered all around versus 100 in four locations. Consolidation of back-room operations is key. Standardization: Instead of buying five different tools to do the same thing, go to one vendor and negotiate the best price. And then we have general trends working in our favor. Every year the PC costs go down and storage goes down. So it’s a combination of procurement and structural reductions.
Don’t you run out of initiatives like consolidation and standardization? How do you keep extending these cost reductions?
Every year you have investment and operating costs. Some of the investment you make this year is next year’s operating cost. So you’re always having this opportunity to go after an operating cost?which last year was an investment?as a new area to reduce cost. Combine that with improvements in technologies and dropping prices, and there’s more opportunity. But this is the part that people forget about: One year’s investment is the next year’s operating cost.
At GM’s scale, that gives you a lot of opportunity each year.
But is it purely scale?
Everyone has that same picture. I think what has separated us has been the key emphasis we placed on it from 1996. When I first got to GM and set the cost-reduction targets, my people said there’s no way to do this. So we set up a project for the cost reductions called Project Alexander (after Alexander the Great and his untying of the Gordian knot). Every month we got together and came up with a list of small reductions and big reductions. We brainstormed and made it a major part of our agenda. The message was: Guys, just do it. We found that $50,000 here, $1 million there, and at the end of the year that added up to hundreds of millions of dollars.
So you set cost reduction up as a project as you would a software development project?
Yeah. We just kept one large list and just kept tracking it [every month]. We realized that we should track things vertically as well as horizontally. Every one of my supported CIOs would have their own lists, but some things you’d try to do across everyone, and there would be someone on my staff driving that. So each CIO has a list, plus the operations director has a list of what he’s supposed to drive for everyone else.
To read more about General Motors’ IT management structure, read “GM’s Matrix Reloads” at www.cio.com/printlinks.