Why GM Hired Hewlett-Packard

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General Motors (NYSE: GM  ) announced Thursday that it plans to hire about 3,000 employees of Hewlett-Packard (NYSE: HPQ  ) who have been doing information technology work for the automaker.

The announcement is part of a GM plan to bring 90% of the IT work currently being done by outside contractors -- of which HP is the most significant -- in-house, in an effort to gain direct control over the major systems overhaul currently under way at GM.

This may seem like a somewhat odd move, but it's an important part of an effort that is a very big deal for GM.

Another big piece of GM's turnaround
Here's what's happening in a nutshell: GM's chief information officer, Randy Mott, who, incidentally, was HP's CIO before joining GM, is spearheading a huge overhaul of GM's IT systems. GM, like a lot of big companies with long histories, currently has a hodgepodge of internal systems that are overlapping, and in many cases just outdated.

Unlike most big companies, however, GM's systems have at times been so dysfunctional that it was hard for management to actually run the company properly. During the run-up to the company's 2010 initial public offering, then-CFO Chris Liddell said that GM's internal controls over financial reporting were "currently not effective." That wasn't just an IT problem, but outdated and incompatible systems were a big part of it.

Liddell and his successor, current CFO Dan Ammann, subsequently put a comprehensive new system in place, and Ammann has expressed confidence that the new controls are working properly. But much else, from routine IT connections between far-flung divisions to heavyweight operations systems, also needed to be modernized and connected. The old mess of systems has been a factor in many of GM's competitive disadvantages, including the long-dysfunctional new-vehicle development process that product-development chief Mary Barra has been working to overhaul.

Fixing this mess is as important to CEO Dan Akerson's efforts to overhaul GM as many more visible efforts. That fix is now happening -- with a lot of help from HP.

A comprehensive overhaul with big help from HP
HP's George Kadifa said in a statement that GM is the first corporate customer to purchase HP's entire "Performance Suite," making  GM one of HP's largest clients. Among other systems, the purchase includes HP's IT Performance Suite, Enterprise Security Suite, Vertica, and Autonomy Software, GM said.

These purchases build on a $2 billion deal announced  in 2010, in which HP agreed to a multiyear applications and infrastructure services contract with GM.

GM's decision to directly hire the 3,000 HP employees who had been working on its systems is part of a larger effort to move "from a highly out-sourced to a largely in-sourced business model," as GM's PR folks put it. Translated, GM wants to bring teams with the ability to innovate in-house, rather than having its own people focused solely on operations while relying on contractors to innovate.

As part of that effort, GM plans to build four "IT innovation centers," one near the company's existing technical center in Warren, Mich., one in Austin, Texas, and two more yet to be announced.

The upshot: Another part of Old GM is fading
What does GM get out of this? Long story short, it gets the ability to move more quickly. It gets more effective communications among business units, more and better data for senior management, and streamlined operations. And, in time, it will get big savings.

It's not as flashy as a hot new car, but it's at least as important to GM's future. The GM that fell into bankruptcy in 2009 was a dysfunctional wreck of a company, but one with a lot of talent and resources crippled by broken processes and ineffective controls.

Akerson's goal has been to finish the job of transforming GM into a lean and agile 21st century firm, much as rival Alan Mulally has accomplished at Ford (NYSE: F  ) . Modernizing GM's systems to allow that talent to do its best work will be a big step forward.

Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On October 19, 2012, at 6:31 PM, prginww wrote:

    "HP's George Kadifa said in a statement that GM is the first corporate customer to purchase HP's entire "Performance Suite," making GM one of HP's largest clients."

    Oh boy, this is gonna work out well. Being the first is only good for athletic events not software hardware integration.

    Hey was this the same decision make that lost GM half of it's 250 million dollar investment in Peugeot in just a few months?

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