What made GM to cut down IT offshore contracts?

It was a shock for the outsourcing industry when General Motors announced its decision to move out from IT outsourcing. Earlier this July, the US car maker announced their plans to reduce IT outsourcing to 10% from the current 90% under the leadership of their new CIO Randy Mott who joined GM this February.  Some of the questions which still lie unanswered are: What made the auto giant take such a decision all of a sudden? Was it politically driven or was it a part of their business plan?

General Motors to cut outsourcing

As of now GM’s 90% of IT services are outsourced to major players like HP, IBM, Capgemini and Wipro.  The decision is to bring in 90% of these services back to in-house and outsource only 10% of the IT services. What is driving the attention to the news is that the decision has come at a time when sentiments against off shoring jobs in US is at the peak and the notable factor is that recently GM emerged out of bankruptcy.

According to the reports, GM plans to reduce their data centers from 23 to 2 which are currently handled by HP. The automaker plans to set up three new software development centers in-house. Further they have planned for restructuring of its data warehouses whereby they plan to shift their 200 data marts to single data architecture. GM plans to make all these changes over the next three years.

What initiated GM to curb the offshore contracts?

According to IT researchers, the move by GM is something that is politically driven rather than as a part of the business plan. It is said that GM is trying to build an image in the political circles by bringing back jobs to America.

However some other researchers believe that the decision to curb IT off shoring contracts is a part of the company’s plan to gain more control over the IT development activities. According to them, the real loss of outsourcing for GM can be measured in terms of losing ownership and control, and increased costs as a result of reworks that have taken place. They are of the opinion that decision to bring back IT services back in-house will require the company to secure its own talented people from a pool of IT professionals.

According to KPMG, the leading research firm, the decision by the GM to bring back IT services in-house is driven by the changes it has undergone in the period of bankruptcy rather than loss incurred by outsourcing the services to offshore destinations.

Whatever be the reasons that have prompted GM to make such a decision, the waves of the decision have already started affecting the IT outsourcing world. Many US companies have started following the path of GM in bringing jobs back to home.

However, majority of analysts are of the opinion that GM will return to outsourcing in future by consolidating their agreements in such a way that deal with only a single service provider.




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