Teaching Note

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General Motors: Building a New

Information Systems and Services Organization

Teaching Note

This case describes the creation of the virtual IS organization at General Motors following the divesture of EDS in 1996. It describes the relationship that was developed between GM and EDS after the split, and how the internal IS organization was rebuilt, since everything had been turned over to EDS when the merger first occurred in 1984. This case complements the Continental Airlines case in this book. In that case, Continental is about halfway through a ten-year contract with EDS, and they are trying to figure out how to make the relationship work, as they appeared to have no desire to terminate the agreement.

In this case, General Motors has already spun off the EDS subsidiary, so it must figure out a way to rebuild the IT capabilities that it once had, while continuing to try to accomplish the goal of global, unified systems.
This case ends with Ralph Szygenda, the Vice President and CIO for General Motors, pondering whether or not his organization would be able to meet the needs of GM. Students should have many ideas of why this organizational structure should or should not work, and what the ultimate impact will be on the organization.
Here are some specific discussion questions you may want to use with your students for this case:

  1. Why did General Motors acquire EDS in 1984?

During the early 1980s, GM was using technology in a number of ways, from making the assembly lines run more efficiently through the use of robots and other information technologies, to providing better IT resources for managers so that they could make better decisions. GM considered outsourcing in an effort to gain IT resources, but they decided instead that they needed to own their own IS organization. At this time, EDS was a leading outsourcing provider of IT services – with expertise in state-of-the-art IT resources.

  1. Why did General Motors spin off EDS as a separate company in 1995?

There were many factors in the spin off of EDS in 1995. EDS had continued to operate as a separate business, providing IT outsourcing for a number of firms. However, EDS found it difficult to compete for contracts with firms that competed with one or more of the business lines of GM. The case specifically noted the fact that EDS lost out on bidding for two contracts – British Aerospace and Lucas Industries – because they competed with GM and its Hughes Aircraft subsidiary.

Another factor was the fact that while EDS did do much good for GM, they were not successful in all areas. The case pointed out that one of the primary goals of the acquisition was for EDS to help with the integration of disparate computer systems across GM’s units. This did not happen, nor could it under EDS’s direction. This required consensus and direction from within GM.
Finally, IT had become so important to GM that the leadership felt that they needed the IT expertise to be in-house in order to be as responsive as possible to the needs of GM and its various business units.

  1. Are there types of organizational problems that an outsource provider cannot address in a firm?

EDS had problems addressing fragmentation of systems across divisions. As outsiders, they did not have the power to bring the various internal groups together to reach the consensus necessary to solve the problems that GM was facing. Thus, EDS or other outsourcing providers would face significant problems with the internal political struggles in a firm, as there is nothing that they can do to directly address those problems. Of course, many outsourcing firms provide consulting services that are designed to help address these types of political struggles in firms. However, this is not the strongest capability of EDS.

  1. Why was it so difficult for GM to accomplish its goal of common integrated worldwide systems with EDS? Will they continue to face those same obstacles now that they are running their own IT department again?

General Motors is a very large, complex world-wide organization, with each business unit having its own goals and facing its own problems. As noted above, EDS faced problems when trying to address the fragmentation of systems across divisions because of the political realities in the firm. Once EDS was spun off, Szygenda had an information officer in each sector and major business unit. Each of these information officers had dual reporting relationships – to Szygenda and to the head of the business unit or sector. Thus, it was somewhat in the best interest of each of the information officers to try to maximize the benefits of IT for their particular business unit or sector, rather than for the firm as a whole.

  1. How effective is a matrix organization like the one that Szygenda is building at GM? Are there any particular advantages or disadvantages of the matrix organization?

Szygenda needed 300 CIOs, information executives, and technologists to make his matrix organization work. Each of these individuals would report to Szygenda as well as to someone in their business unit (e.g., the head of the business unit or sector). This has the advantage that there are key IT decision makers in each of the business areas that can provide input to Szygenda, and who should be champions for IT changes and innovations in their particular areas. Furthermore, the IT employees in each of these business units be catalysts for change within their business unit, and yet be able to help with the cross-organizational problems that EDS faced during their time as a GM subsidiary.

There are also disadvantages, however. Each of the 300 IT employees would have conflicting allegiances – to the central IT function and to their particular business unit or sector. What was good for one was not necessarily good for the other. By being located in the business unit, they were removed from the central IT function, and thus required frequent meetings to help assure that they were up-to-date on company-wide plans and goals.

Keri Pearlson prepared this case, with the assistance of Michael Taylor and Leslie Jorgensen, solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation.
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