Did General Motors just fall out of love with outsourcing?

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I recently blogged about GM's decision to insource IT. I asked whether people think it is a one off or a move that might be copied by other large firms. I am working on an analysis of the move so want peoples' views.

Sean Finnan, who used to be the UK head at EDS and later had a pan European role at IBM Global Services sent me his thoughts.

He said: "There are always some that are falling in or out of love with outsourcing. I don't think this is the start of a new trend beyond the normal ebbs and flows of business.Outsourcing remains an important and viable part of the IT landscape.

The essence of rejecting outsourcing as an option is normally a CIO who believes he or she can gain sufficient scale advantage to equal or outweigh the profit requirements of the market.

The forgotten element is often the transfer of risk. Not just risk of project failure (where suppliers soak up cost over runs) but also the risk of innovation failure.

The failure to provide sufficient new features from the IT environment to remain competitive is often overlooked."

Tell me your views.

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3 Comments

Sean Finnan makes an interesting point: "The forgotten element is often the transfer of risk".

From what we've seen of many outsourcing deals in the UK, particularly in the public sector, there is no real transfer of risk. It is the customer's business that remains dependent on their IT systems, whoever provides them, and there has been very little evidence of suppliers really having to pay the true cost of failures to the customer's business. As for "innovation", many business systems (and virtually all public sector systems) can do without wasting resources on chasing the latest fads - e.g. social media - simply to build the CVs of inexperienced offshore development teams. RBS doesn't need another Twitter feed or iPhone app - it needs basic competence in the teams supporting its critical IT systems.

The bigger problem is that outsourcing inevitably removes skills and experience from the customer. And once the in-house jobs/skills have been shed, there is very little most businesses can do to retreat from the outsourcing trap - at best they can try to switch from one outsourcing supplier to another, with the same risks and costs.

GM is in a rare position here to reverse the trend, and I wish them the best of luck in this admirably clear-sighted decision.

A long standing principle on outsourcing, is that you don't outsource anything that is critical to your business - a core competence, or capability.

Typically, you would outsource repetitive, commodity activities. If you did outsource a core competence, it was because the supplier was much better at doing it than you, e.g. had exclusive access to technology or knowledge. but you would then work in very close partnership, to fully achieve the 'collaborative advantage'.

What we are seeing today, are companies ignoring these fundamentals.

http://design4services.com

Having worked for EDS for many years, and on several outsourced accounts, I do not recall one account where the outsourced employees werent, in large part, almost begging to leave EDS and go back to their previous employer. EDS promised much, but delivered false expectations in terms of salary progression, training, bonuses etc. HR was never trusted to look after the employees. They were largely complicit in forcing people to resign without redundancy. Much of the previous poor management has now left, and I notice them being quoted in various web pages as some sort of outsourcing experts. Most of these managers were a pretty poor sort, managing an image being their only strenght, but the employees who worked for them detested them.

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This page contains a single entry by Karl Flinders published on October 26, 2012 2:53 PM.

Has Barnet council lost its way on outsourcing and could its leader be axed over issue? was the previous entry in this blog.

Could outsourcing damage the Police's ability to police? is the next entry in this blog.

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