GM reverses gears on outsourcing, plans big IT overhaul

DETROIT Thu Jul 12, 2012 9:21pm BST

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DETROIT (Reuters) - General Motors Co (GM.N), a pioneer in outsourcing information technology, said it is beginning to reverse that trend with plans to at least double the number of in-house IT experts over the next three years.

GM now outsources about 90 percent of its IT services and provides 10 percent of that work in-house. Within the next three to five years, GM hopes to reverse those percentages in part by hiring "thousands" of new software developers, database experts and others globally, GM spokeswoman Juli Huston-Rough said.

The IT overhaul is spearheaded by GM Chief Information Officer Randy Mott, who outlined the plan to GM's 1,500 IT employees in June.

The IT services industry has flourished in recent years as big corporations bet that outsourcing computer operations would cut expenses and allow managers to focus on their core businesses.

If Mott's strategy enables the U.S. automaker to boost efficiency without increasing costs, it could be a blow to the industry because other companies might follow GM's example, affecting IT services leaders including Hewlett-Packard Co (HPQ.N), Dell Inc DELL.O, IBM (IBM.N), Xerox (XRX.N) and Infosys Ltd (INFY.NS).

Mott, a former HP executive, believes the moves will make the largest U.S. automaker more efficient, and ultimately more productive. Some elements of the overhaul will take five years to implement.

"If you're more efficient and you can go through the process more quickly, you have more time and more resources to be looking at innovations that provide a competitive advantage for the company," Huston-Rough said.

GM plans to cut the automaker's sprawling list of IT applications by at least 40 percent and move to a more standardized platform. GM will also simplify the way it transmits data.

A GM spokeswoman declined to comment on how much the planned move would cost or on the overall cost savings that might result. Details of the planned move were reported earlier by Information Week magazine.

The automaker will shift from 23 data centres worldwide to just two, both in Michigan. The company will also run four software development centres, including a pre-existing one in Warren, Michigan.

Mott will also require that employees provide a cost-benefit analysis of new IT projects and he plans to expand recruiting efforts and hire new college graduates.

The moves reverse what has been a long-time trend for the U.S. automaker, which accepted a government bailout in 2009 and filed for bankruptcy protection.

In July 2010, GM signed a multiyear information technology contract with Mott's former employer, HP, that was worth more than $2 billion (1.29 billion pounds), renewing an existing contract a year early.

HP said then it would provide such services as network maintenance, product software development and supply-chain management. HP provided much of that work through a former GM unit, Electronic Data Systems, which HP bought in 2008 for about $13.9 billion. HP declined to comment.

GM bought EDS from former presidential candidate Ross Perot in 1984 for $2.55 billion, shifting much of its IT operations to that business, but spun it off 12 years later.

In July 2010, France's Capgemini (CAPP.PA) announced two five-year deals with GM worth about $250 million. Other IT service providers for GM include IBM and India's Wipro (WIPR.NS). Capgemini declined to comment. IBM and Wipro could not immediately be reached.

Shares of GM, which also announced a management shake-up at its European unit on Thursday, saw its shares close 2.9 percent lower at $19.33 on the New York Stock Exchange.

(Reporting by Deepa Seetharaman and Ben Klayman, additional reporting by Poornima Gupta in San Francisco, Nicola Leske in New York and Jim Finkle in Boston; Editing by Matthew Lewis and Tim Dobbyn)

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