Volkswagen (VW) is opening an IT development centre in Pune, India, to keep IT knowledge in-house while also benefiting from the offshore delivery model.
The German car maker will open the centre next month. It will eventually have 1,000 engineers and provide support to all VW’s global operations.
Sidharth Yadav, regional CIO for Asia-Pacific at the VW Group, said the centre was being set up “to insource group processes and critical technical knowledge”.
Milan Kumar, who will head the centre, said it wanted the knowledge of critical applications to be in-house.
“The problem we are facing is that a lot of knowledge has gone out to suppliers and it was becoming hard for us to understand our own systems,” he said.
Kumar added that security is also an important consideration: “We don't want data about key Volkswagen processes to be with a supplier.”
Kumar said there are additional benefits to insourcing, such as making training easier and increasing opportunities to innovate around services.
"Whenever we get a new supplier on board, there is a gap in knowledge and there is an effort in training them. When we do this in-house, it will reduce the time and means we can be creative and innovate on our processes because we have an understanding of our business," he said.
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There is a current trend of large global businesses bringing more IT in-house but retaining offshore delivery capability to retain its advantages.
For example, pharmaceuticals giant AstraZeneca recently opened an IT delivery centre in Chennai. This is part of its plan to reduce the amount of IT it outsources to Indian suppliers, yet it is retaining the advantages of the offshore delivery model through a captive centre in India.
Last year, another German car manufacturer, Daimler, said it planned to achieve savings of €150m a year by bringing IT services in-house and expanding IT operations in India and Turkey.
Peter Schumacher, CEO at management consultancy the Value Leadership Group, recently told Computer Weekly the ideal corporate sourcing executive is now expected to apply a broader business-oriented understanding and approach for value creation and capture, taking into account internal operations, captives and global suppliers.
“The many new investments in large captives underscore that European firms are taking a strategic view and are committed to implementing globally distributed IT organisations and work models,” he said.
“Large companies, like VW, are selectively rolling back some supplier relationships as these firms believe they have lost important technical know-how and capabilities to their suppliers,” added Schumacher.
But he warned that although captives offer a compelling value advantage, that often comes at the expense of prudence.
“Many companies underestimate the upfront and ongoing investments required to establish the organisational capabilities needed to scale and sustain excellence to create and capture the added value they aspire to gain,” he said.