Outsourcing a business function is common these days. It involves contracting out to an external provider a business function previously performed in-house. More and more businesses are increasingly outsourcing to suppliers outside their nation.
Over the years General Motors has been pushing into multi-sourcing (contracting out to multiple companies), according to Peter Allen, Managing director of outsourcing firm TPI, which has provided consultancy services for GM. In fact, in the year 2005-2006, General Motors emerged as the world’s top outsourcers of Information Technology with an estimated budget of $3 billion. GM contracts out its entire data center and application development to the renowned EDS. The reasons GM prefers to outsource its business functions include:
- To save costs: GM’s move to outsource is primarily to “cut costs by accessing services offered by other companies” in various countries at lower cost (David, 2002). Outsourcing generally helps to cut capital expenditure, training costs as well as costs on infrastructure and manpower. For example, Paris-based firm Capgemini has been offering outsourcing services for GM since the year 2006. And on July 28th, 2010, this world-class provider of outsourcing services announced the signing of two, $250milion, and five-year contract renewals with General Motors Holdings. “We look forward to continuing our commitment to GM by providing the most innovative, high quality and cost-effective services in the market today”, says Marc Martinez, Capgemini’s Global Account Executive for GM.
- Focus on core business: GM operates in 128 countries and “its biggest challenge is, therefore, logistics”, (Maxton and John, 2004). GM is fully aware of the fact that as it continues to grow its global network, a routine non-core business may affect its main operations. And for this reason, it finds it necessary to contract out most of its business functions so that it can “focus the resources towards activities which are core” to the business (Barabbas and Vincent, 2004).
- Improve quality: GM is one of the companies “committed to ensuring quality” and works to improve customer service (William, 2006). With adequate skills, resources, commitment and expertise, outsourcing partners provide quality deliverables and excellent customer service. As Terry Kline, GM’s vice president, IT and Chief Information Officer explains, “Continuing support by our (outsourcing) partners helps our dealers provide even better service to our customers as well as design, build and sell world’s best cars and trucks”.
- To give the company a competitive edge: One of the many benefits of outsourcing is that it gives a business “a competitive advantage” over other market players (Stuart, 1983). Strategic outsourcing helps increase productivity and gives customers top-quality services and products. GM remains one of the world’s top automakers because “it is able to utilize the workforce of its overseas partners” and value of working round the clock as a result of different time zones (Maryann, 1989).
- Acquire operational expertise and enhance Innovation: Another benefit of outsourcing and one of the reasons GM outsources its operations is because contracting out enables the company to acquire specific skills and expertise that are not core competencies of the business. GM utilizes the cutting edge skills of its outsourcing partners and “combines with in-house competencies” to improve product innovation (Cray, 1980).
All these factors help improve product quality, business performance, customer loyalty and ultimately increased profits.
Maynard (2003) indicates that General Motors’ approach of measuring success is by considering the annual reported profits. In the year 2010, for example, the company reported annual profits to the tune of $ 4.7 billion. Lawrence, R. (2008) explains that General Motors also uses cost and productivity as success metrics to measure business performance. Thus, the company ranked second in2010 global motor industry having produced 8.5 million units. And for the first half of 2011, it re-emerged as the world’s number one automaker ahead of Japan’s Toyota and Germany’s Volkswagen.
References
Barabbas, and Vincent, P. 2004. Surviving Transformation: Lessons from GM’s Surprising Turnaround, New York: Oxford University Press.
Cray, E.1980.Chrome Colossus: General Motors and Its Times, New York: McGraw-Hill.
David, R. 2002. Sloan and the Triumph of General Motors, Chicago: University of Chicago Press.
Lawrence, R. 2008.Billy Durant: Creator of General Motors. Ann Arbor: University of Michigan Press.
Maryann, K. 1989. Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors. New York: Morrow.
Maxton, G. and John, W.2004. Time for a Model Change: Re-Engineering the Global Automotive Industry. Cambridge, England: Cambridge University Press.
Maynard, M. 2003. The End of Detroit: How the Big Three Lost Their Grip on the American Car Market. New York: Currency/Doubleday.
Stuart, W.1983. Boss Kettering, New York: Columbia University Press.
William, P. 2006.Billy, Alfred, and General Motors: The Story of Two Unique Men, a Legendary Company, and a Remarkable Time in American History, New York: Amacom.