The case gives a detailed account of IT outsourcing practice at General Motors (GM), the largest automobile manufacturer in the world. It traces the history of IT outsourcing initiatives at GM and presents the benefits that were gained by the company from its IT outsourcing strategy. The case details how GM was able to use the learning from its initial outsourcing experiences to modify its outsourcing model. It further discusses how the innovative matrix structure of GM’s in-house IT department played an important role in making its outsourcing strategy a success. This case highlights the importance of effective IT and business alignment for a successful IT outsourcing initiative.
Industry analysts hailed GM's success at achieving effective IT and business
integration (Refer Exhibit I). GM claimed to be in the third phase of IT
outsourcing. The company had set policies and frameworks for multiple vendors
to work on common IT projects.
Analysts felt that if GM's initiatives succeeded, it could lead to the development of ERP
software for managing numerous IT contracts. Although a few analysts believed
that the multi-vendor concept was too ambitious and impractical, others were
convinced. In a report titled, 'Predictions for Outsourcing in 2004' published
by Gartner Research, analyst Linda Cohen, observed that the trend for
outsourcing deals would move towards smaller agreements. She noted, "Providers
have to move to a more focused set of delivery capabilities in a more focused
set of industries."
BACKGROUND NOTE
GM acquired the company Electronic Data Systems (EDS) in 1984 from Henry Ross
Perot at a cost of $2.5 billion and transferred all its IT operations to it. In
the mid 1980s, GM did not have a CIO. This phase of IT at GM was characterized
by what was referred to as the "Legacy of many." At this stage, GM had as many
as 40 different SAP projects and 7,000 legacy information systems. It managed to
function without a uniform desktop environment or an e-mail system.
On the manufacturing side, it had as many as 23 computer-aided design and
manufacturing (CAD-CAM) systems. Even purchasing of IT equipment was done by
different departments independently, as and when needed. There was no
centralized model of working and relations with suppliers were strained due to
this reason. Commenting on this, Tony Scott, Chief Technology Officer,
information systems and services, "There was no corporate governance model as
far as standards as it exists today." ....
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CREATION OF MATRIX STRUCTURE
WORKING OF MATRIX STRUCTURE
THE BENEFITS
THE NEW OUTSOURCING MODEL
THE FUTURE
EXHIBIT I : BUSINESS AND IT ALIGNMENT
EXHIBIT II : STRUCTURE OF THE GM MATRIX
EXHIBIT III : PERFORMANCE OBJECTIVES AT IS&S: A BUSINESS FOCUS
EXHIBIT IV : REFINING THE OUTSOURCING MODEL AT GM
ASSIGNMENT QUESTIONS
ADDITIONAL READINGS & REFERENCES
Case Code ITSY046 Case Length 12 Pages Period 1990-2005 Organization General Motors Pub Date 2005 Teaching Note Not Available Countries US Industry Automobiles
Issues
• Analyse the suitability and implications of an outsourcing strategy for a company’s IT needs.
• Study and analyze the problems faced with IT outsourcing.
• Compare the advantages and disadvantages of in-house IT infrastructure development with IT outsourcing.
• Study the role of matrix structure in the effective management of in-house IT department.
Keywords
GM,IT-Business Integration,IT Strategy,Business Process Outsourcing,Matrix Structure,Precision Strategy,Service Level Agreements,Vendor Management,ERP for IT Management,Process Information Officers,Process Improvement.
Please note:
This case study was
compiled from published sources, and is intended to be used as a basis for
class discussion. It is not intended to illustrate either effective or
ineffective handling of a management situation. Nor is it a primary
information source.
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