I have been with Forbes India since August 2008. I like writing about ideas, events and people at the intersection of business, society and technology. Prior, I was with Economic Times. I am based in Bangalore. Email: firstname.lastname@example.org
GM's U-Turn In Anurag Mathur’s Inscrutable Americans, an immensely funny novel about a small town boy who goes to an American university to complete his education, the hero, Gopal, meets a fellow student who would be his mentor and friend throughout his stay. The American introduces himself: “I am Randy”. But, Gopal knew only the dictionary meaning of randy (lustful) and he is absolutely perplexed.
Many tracking IT sector were as perplexed with another Randy yesterday: Randy Mott, CIO of General Motors. Information Week reported that Mott plans to cut down GM’s IT outsouring from 90% now to 10% three years down the line. His idea is to integrate IT better with GM’s business. There are three reasons why those who track IT were perplexed.
First, Randy seems to be betting against a big trend. One of the reasons why many IT executives are confident about their businesses is the possibility of increased ‘wallet share’. They believe the benefits of outsourcing IT has more or less been established and all that the clients need to do is to find a right partner and a good way to outsource non-core activities such as technology and business processes. It's true that some captives have taken a U turn before, they were mostly in BPO side and for specific reasons, But the case for outsourcing remains as strong as ever.
Second, Randy's timeline seems to be pretty aggressive. Sudin Apte, Research Director and CEO of Offshore Insights, in a note to journalists, called it impractical: "A time line of three years too looks too steep. Doing it all - Recruiting that large number, on-boarding, cultural issues, org structure creation and settling (and he also talks about org structure based on need in that space..) and change management, managing disruptions – looks even more difficult", he wrote.
Third, the plan involves setting up two software development centres - both in US. While it makes a lot of political sense – GM is a beneficiary of a big government bail-out, and in return it makes sense for the company to say it's generating jobs for Americans – the economic logic is not clear. Unemployment in services sector in US is low, and there is still a short supply of technology talent. How will he fill the centres – in a way that makes economic sense?
It should have surprised no one that Randy Mott chose to walk this path. InformationWeek notes that “Mott's philosophy on outsourcing at GM, as it was at HP, Dell, and Wal-Mart, is that the company needs more creative, business-changing ideas from IT, and IT teams need to deliver those innovative projects faster.”
But, the interesting part is GM has gone on this route before. In 1984, GM under Roger Smith, acquired EDS from Ross Perot for over 2 billion dollars. The idea behind the merger was somewhat similar – better integration of high technology and business. However, the move also meant Ross Perot got a good chunk of GM’s share, and a place in the board. There were heavy clashes of ego in the board room between Perot and Smith, and clashes of culture between the automobile and the IT firm. Ten years later, GM decided to spin off EDS. No one knows if owning EDS helped GM in its operations in any way. However, the value of EDS had gone up many times, and GM made good profits when it sold it off. In a piece just ahead of the spin off LA Times called the merger GM’s "most successful failure ever."
If Randy’s big bet fails, the word successful would be missing in the judgement.
Infosys results: Now, what will happen to hiring
As I write this, Infosys shares prices have dropped by over 9% on the back of its cutting annual revenue guidance. (Infosys also seems to have given up quarterly guidance). In a weak echo, TCS is also down by about 1.5%, reflecting investors’ concern that TCS might not be able to continue its dream run.
A key question now is what will happen to hiring?
Given the predominantly linear model of Indian IT Services sectors, the need for people will also go down. This might suggest that the hiring will also come down, but that doesn’t take into account that companies often hire with long term growth in mind. Wipro did the mistake of slowing its hiring during the last slow down, and struggled when the market picked up.
So what will Infosys and TCS do? Infosys has already said it would stretch the onboarding of freshers till next year. It’s utilization rate is coming down. Which means it can well do with the resources it has in the short term. TCS has been growing its headcount faster than its revenues, and it might feel the need to slow down on hiring.
During the course of today, we will know what these two big companies have in store in this area.
Also of interest: