A Blog by Jonathan Low


Feb 19, 2015

Why General Motors Just Hired 8,000 Programmers

Electronics is now driving the car. That may soon be a literal rather than figurative statement but from the standpoint of controls, weight and cost, the future is now.

What GM and other large corporations are realizing is that the cost savings they may have achieved were based on extremely dubious accounting.

It was flavored by executive preference for outsourcing and quite often driven (as it were) by biased assessments of benefits, costs as well as calculations of what may or may not have been appropriate allocations.

What they have come to realize is that so much of their core business is dependent on the effective application of technological solutions that leaving that to contractors not only diminished their own leverage in design, manufacture and marketing, but it robbed the enterprise of essential knowledge about the future of the industry and its products.

So these large corporations are bringing that expertise in-house. This will be tough news for the vast organizations that sell such knowledge and skill to even larger customers, but it could be essential to the future of the institutions that do so. JL

Jeff Bennett reports in the Wall Street Journal:

GM is among companies ranging from General Electric Co. to Tesla Motors Inc. that are building custom software for products and internal use. They believe it is the best way to differentiate themselves and respond as rapidly as possible to customer preferences.
Alvin Kowalik has purchased many General Motors Co. pickup trucks over the years. But last year, the cattle rancher in Selma, Texas, tried something new, and purchased a pickup through GM’s Shop-Click-Drive website.
“I found the truck, listed my trade-in and was given the sales price. A nice lady from the dealership calls me, we made a deal, they drove it out and I signed the papers,” Mr. Kowalik said.
For Mr. Kowalik, 68 years old, the transaction was easy. For GM, the deal effectively took three years, involving an overhaul of its computer infrastructure, beginning with creating its own software development unit and building programs to reflect customers’ preference for online shopping and ordering.

Two years ago, Chief Information Officer Randy Mott ended GM’s $3 billion a year outsourcing deal with Hewlett-Packard Co. , replacing it and others with about 8,000 GM software engineers, up from 1,400 previously. “Because we brought the [information technology] work back in-house, we can take the lid off of what is possible,” Mr. Mott said in an interview.
GM is among companies ranging from General Electric Co. to Tesla Motors Inc. that are building custom software for products and internal use. They believe it is the best way to differentiate themselves and respond as rapidly as possible to customer preferences.
The new focus on custom, internally-built software poses a potential challenge to technology outsourcing companies such as H-P and Dell Inc., as well as providers of off-the-shelf business software, such as Microsoft Corp. , Oracle Corp. and SAP SE . While they still play a role even in custom projects such as Shop-Click-Drive, the role may be smaller than it otherwise might have been.
It is still too early to say whether GM’s investments in IT have had a discernible impact on the bottom line. But the technology has led to significant changes in the way the company operates and goes to market, and it has helped open up new sales sources of revenue such as capturing online shoppers.
Changes to the business were just as complex as the technology. “Shopping for cars online has been the Holy Grail for decades. It’s difficult,” said Ryndee Carney, a GM spokeswoman. Many consumers are interested in shopping for cars on online, but the size of the transaction can give them second thoughts about the process, Ms. Carney said. State laws also mandate that new vehicles must be sold through a dealership, not a manufacturer or a third-party. You can’t buy a new car on Amazon.
Until now, the closest that the market has come to online shopping for new vehicles has been third-party websites like TrueCar Inc., which sell leads to dealers. GM said it worked with dealers to give them an alternative. Unlike the third-party sites, Shop-Click-Drive resides on the dealer’s Internet platform, and it is free for them to use. The close rate for Shop-Click-Drive is higher too—30%, compared with at best 22% at third party sites, according to Ms. Carney. So far, about 1,800 of GM’s 4,300 dealers have agreed to participate in the program, she said. She declined to discuss how the program’s margins compare to those of traditional sales channels. In its first year of operation, Shop-Click-Drive helped sell about 15,000 new vehicles.
The creation of the technology platform wasn’t a sure thing, either. The Shop-Click-Drive platform was a two-year, built-from-scratch endeavor designed to link potential shoppers with dealers who had the vehicles they wanted. The auto maker hired software developer, Entrega Systems Group Inc., in Troy, Mich., to develop a small pilot for the program. GM said its internal teams, including software engineers, testers and business analysts, worked on areas such as the “back end” of the platform—the behind the scenes stuff that customers don’t see—and the software tool that connects dealers to GM. The custom applications are integrated into commercial components such as an Oracle database, GM said.
‘There is no way a dealer could do something like this on his own.’
—Shop-Click Drive Manager Jim Bement
Shop-Click-Drive operates like an electronic bridge. A customer who clicks on the site is automatically routed to a dealership website. The electronic exchange takes place on GM’s servers in Warren, Mich. Dealers electronically send their inventory data to GM daily. However, none of the information collected from a customer is kept by GM.
“We pass the customer information, such as names and address onto the dealer and the financial information, such as credit applications, onto our partner RouteOne which secures the customer data on its severs in Farmington Hills, Mich., before passing it to the banks,” selected by a dealer, said Jim Bement, manager of Shop-Click-Drive. “Once that is done, the information is automatically erased” from GM servers.
The move protects GM since the auto maker doesn’t sell vehicles directly to customers as per its agreement with its dealership network. The site also is programmed to work with information providers such as Kelley Blue Book, which offers trade-in value data.
“There is no way a dealer could do something like this on his own,” said Mr. Bement. “They don’t have that type of money and they don’t have access to all the technology we have at the headquarters.”
Mr. Mott says the auto maker is in the early stages of leveraging its new computer and software capability. But he doubts that Shop-Click-Drive could have been built without those investments. “Engineers…were constrained on the computing they could use and the applications we could run,” he says. 


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