General Motors ends outsourcing to slash IT costs

General Motors has gone from having the highest IT costs in the automotive industry to the lowest after bringing its IT...

General Motors has gone from having the highest IT costs in the automotive industry to the lowest after bringing its IT department back in-house.

Six years ago, General Motors' IT was entirely outsourced. This left it burdened with the highest IT costs in the automotive industry, at 2.5% of global sales.

IT spend now, at 1%, is the lowest in the sector, and IT integration is so complete that General Motors' entire business has adopted the global organisational structure of an IT function that had to be built from scratch.

According to Jose Eiras, chief information officer, information systems and services at General Motors Europe, the company is reaping the benefits of transforming to a Web-intensive global digital business.

Speaking at The Economist's CIO and IT Directors Summit last week, Eiras said the vehicle development process timescale has come down from 48 months to 18 months since 1996, enabling a new product to be launched every 27 days.

The company's online sales site receives 1.5 million visits a month, with 40% of sales going to new customers, he said. The company has reduced delivery time from 45 days to 11.

Until 1996, the entire IT function, including 40 different SAP projects, 23 Cad/Cam systems, and 7,000 legacy systems, had been outsourced to EDS, which General Motors then owned.

The outsourcing arrangement with EDS lasts until 2006, but as a result of the negotiations when selling its stake in EDS, the company now has the right to outsource systems to other suppliers.

Following the sale, General Motors built an in-house IT organisation from scratch to manage the function and take it into the digital age.

The IT organisational structure involved a mix of integrated horizontal global functional management with a system of geographically based business unit CIOs.

Eiras said a major factor in its success was the reporting structure of those CIOs. "From the start, all CIOs were part of the boards of their companies and transformation was made easier because they do not report to the financial function," he explained.

There is a weekly, seven-hour, virtual meeting of all senior IT executives, regardless of time zone, to "make things happen", he added.

Eiras now aims to reduce costs further and continue deploying the IT programme. Customer relationship management, standardising on Siebel, is a particular challenge.

"In the automotive business the dealers own the customers, so we need to work on connecting with the dealers," he said.

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