For years, automotive companies have outsourced software development and IT tasks in an effort to cut costs. A recent strategic shift by General Motors to add up to 10,000 software developers, programmers and IT employees in four new Innovation Centers suggests there may be a competitive advantage to moving such functions in-house, according to onlookers.
The move to insource technology-focused functions such as software development runs counter to the industry’s history of buying these services from outside companies, Canadian Manufacturing noted. Prior to the February arrival of CIO Randy Mott, 90 percent of GM’s IT tasks were handled by third-party providers. Mott plans to reverse that trend by ensuring that 90 percent of company IT operations are handled by GM employees.
The move is likely to give GM a competitive advantage in the auto market, according to onlookers. Software plays a role in parts of GM’s business ranging from the choice of manufacturing components to the interface between engineers and designers, MIT Technology Review noted. By moving from relying on outsourced providers to handling these functions internally, GM hopes to realize new efficiencies.
Insourcing software development could also help the company stand out as cars become more computerized, MIT Technology Review noted. The software offerings in vehicles themselves are becoming more sophisticated and integral to operations, with GM planning to introduce a partially self-driving car to its Cadillac line by 2015, for instance. In such an environment, superior car software becomes critical to differentiating a product and driving innovation.
“Everybody can make a decent enough powertrain,” Harvard Business School professor Alan MacCormack told MIT Technology Review. “But what differentiates you is what you can do with your software. Companies have to be careful that they don’t outsource the crown jewels.”
Standing apart with software development
Michael Robinet, managing director of industry consulting firm IHS Automotive, agreed with MacCormack, telling Canadian Manufacturing that developing new technology in-house would allow automakers to hold exclusive rights to their innovations and roll them out before their competitors. In the current outsourced environment, auto manufacturers are either forced to rely on the same vendors for new technology or buy software rights in expensive bidding wars.
According to MIT Technology Review, Mott noted that outsourcing is a cost management strategy that ensures operations remain consistent, but that innovation requires a different approach. Staff at the company’s tech centers will work to stay on top of current tech trends, such as finding ways to integrate smartphones with cars, but they will also be expected to develop new ideas that ultimately create long-term cost savings, Canadian Manufacturing reported. Other auto manufacturers are following suit, the publication added, but none with the level of investment GM has made.
“The companies that build the software themselves in general are going to have an advantage,” David Kirkpatrick, CEO of tech conference company Techonomy Media, told Canadian Manufacturing. “If you outsource the development of software in particular to others, you can risk … your own ability to compete in the future.”
Another reason companies might choose to bring IT tasks such as software development in-house is to ensure quality control. By overseeing its own coding process, GM can minimize the risk of embedded software flaws, such as a recently discovered glitch in the Chevy Volt which sometimes caused the car’s engine to shut off. Additionally, managing software development in-house can improve compliance with MISRA standards and other regulatory provisions. As auto manufacturers seek to stay competitive, they may find that following GM’s example of insourcing software development is one path to innovation and success.