A Closer Look At GM's Tech Spending Cuts

General Motors' CIO claimed at one time that he slashed his budget by 25%, but does that mean anything?

General Motors CIO Ralph Szygenda reportedly said in 2004 that the auto giant achieved at least a 25% cut in I.T. spending over an eight-year period. His annual budget declined from more than $4 billion in 1997 to about $3 billion in 2004.

From 1997 to 2004, while sales were growing 13%, GM reduced its I.T.-spending-to-sales ratio—a frequently cited efficiency benchmark. The ratio went from 2.4% in 1997 to about 1.6% in 2004, a 33% improvement.

By the numbers, these look like superb achievements. But understanding CIO claims about differences in technology spending is very important, regardless of whether expenditures are up or down. Nowadays, CIOs are frequently asked to explain information-technology budget changes as business conditions change. And this can be done only by examining indicators that reveal how a firm's economic environment has been altered—and those indicators go beyond I.T. spending.

And GM is not the same company it was in 1997. It is much smaller and highly unprofitable.

A rise in outsourcing of work—and not just technology operations—has been a significant trend at GM over the past 20 years. In fact, GM was getting set to award some 40 new computer services contracts as of late January.

This article was originally published on 02-07-2006
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