GM’s announcement that it will bring most of its IT work back in-house over the next three to five years was certainly a dramatic about-face for the automaker, which was an early adopter of outsourcing and offshoring.
Former GM CIO Ralph Szygenda’s “third wave” of outsourcing is being replaced by new CIO Randy Mott’s first generation of insourcing, resulting in the $150 billion company’s hiring–or rehiring–10,000 technology professionals.
“GM seems to index far to one side or another–first being a major outsourcer to one primary firm, then creating a very public multi-vendor environment with shared responsibilities and risks, and now actively espousing [its] insourcing decisions,” says David Rutchik, a partner with outsourcing consultancy Pace Harmon. “These [moves] grab attention but need to be right for the business goals.”
“Most other car operations have this capability and it is not surprising that GM would follow this direction,” says Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group. “What is surprising is the [scale at] which they are attempting to do this.”
Manufacturing CIOs Look to Shift the Mix
While most companies may not be making such major insourcing moves, many CIO are reconsidering the outsource-insource mix, particularly in the manufacturing industry.
[Related: GM ‘Insources,’ Set to Hire 10,000 IT Pros]
“Manufacturing will be an interesting area to watch over the next few years, because we are hearing a lot about insourcing among the big manufacturers,” says Cliff Justice, principal in KPMG’s shared services and outsourcing advisory. “We’re talking to many companies that are considering some large-scale insourcing, because they believe they need better access to the innovation engine of technology.”
Will they scrap all of their incumbent outsourcing deals? Not likely. But, says Justice, “they will focus on partnerships that drive innovation, new technologies, and competitive advantage into the organization, as opposed to just low-cost commodity outsourcing done principally for labor arbitrage.”
[Related: GM CIO and Outsourcing Pioneer Ralph Szygenda Retiring]
There’s a big potential upside to GM’s insourcing effort–if managed correctly. “Higher productivity, lower management burden, reduced travel costs, improved quality, reduced ‘rework,’ increased convenience of shared working hours, and better cultural fit are all tangible benefits experienced by organizations that have repatriated roles,” says F.B. Mack, director of operations for outsourcing advisory Sylvan Advisory.
“Being able to generate some positive public relations buzz is not a bad intangible benefit either,” says Mack. (And that’s no small benefit given the company’s struggles in recent years and its continued partial ownership by the U.S. government.)
So why doesn’t everybody do it? The cost.
[Slideshow: Bringing IT Back Home: 10 Prime Locations for Onshore Outsourcing]
“Insourcing offshore can be done cost effectively,” says Pace Harmon’s Rutchik. “We’re a bit dubious that GM can bring in resources in the U.S. at a price point that makes sense.” The transition recruiting, and hiring costs will add up quickly. Then there’s the knowledge transfer.
But a strategic IT function should never be judged on cost effectiveness alone, but rather by other measures including productivity, business alignment and innovation.
“Costs can certainly be measured, and we expect them to be higher,” says Rutchik. “The question is whether productivity, innovation and agility can be translated into [outcomes like] better vehicles and more sales.”
That may be easier to do in certain areas of the IT function-the computer-aided manufacturing systems that drive produce design. “Insourcing could be proven to be worth it if it drives faster design turnaround, and higher quality and better selling vehicles,” Rutchik says. “It’s a big if, though.”
Managing IT Change at GM
Change management will also be a big task, as Mott must transform and IT organization used to managing contracts to one capable of managing IT delivery, says Bendor-Samuel of Everest Group.
And the benefits will be years in coming, which could be difficult for business partners with an appetite for quick returns.
While most IT leaders who bring certain IT functions back in house tend to focus on core competencies like architecture, design and relationship management, GM says to-hire list includes everything from developers and testers to PeopleSoft wranglers and messaging engineers.
“We see many of these skillsets as commodity capabilities that won’t provide competitive advantage by being supported internally,” says Rutchik. “Business analytics is an area that makes more sense; it can be tied to internal marketing and product development and drive a true competitive advantage.”
GM’s current partners may not be too keen on handing its prized talent over to its-possibly former-customer. “The nastiest surprise that might be encountered is that right now vendor talent is hard to come by,” says Samuel. “Turning over talent would lose vendors the opportunity to redeploy them.”
Insourcing Equals Time and Money
Many will be watching to see how GM fares. “I don’t believe [insourcing] has been done on this scale before. The degree of difficulty is high and is risk,” says Bendor-Samuel. “It can be accomplished, however, I suspect it will cost more money and take longer than anticipated.
Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.
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