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GM software layoffs could signal a shift in digital transformation strategy

General Motors on Monday confirmed layoffs of more than 1,000 salaried employees in its software and services division, in a move that suggests enterprises are rethinking their software and digital transformation strategies. 

Meaningful analysis is difficult because GM’s internal and external comments are cryptic about the reasons for the layoffs. Various industry observers said the move almost certainly reflects a decision to outsource those software efforts to technology partners.

But GM itself said only that these software efforts were a lower priority than unidentified other business needs, and that GM choose to “prioritize the investments that will have the greatest impact.”

Internally, the company said that the shift was “not a cost-cutting measure, but rather a way to more efficiently run software operations,” the Detroit Free Press quoted GM spokesman Kevin Kelly saying. “We took a close look at the resources and what people were working on and realized we needed to make an adjustment,” Kelly said.

“In an email sent to GM salaried employees Monday that was obtained by the Detroit Free Press, Baris Cetinok (GM’s senior vice president of Software and Services Product Management, Program Management and Design) said that GM faces increased competition in the US and abroad, so it must shift resources to its highest-priority work and simplify team structures, including ‘flattening hierarchies’ to avoid duplication,” the Free Press story said. 

A question of ROI

GM’s move is hardly isolated, and it might reveal apprehension about enterprise software investments and their perceived lack of concrete return on investment (ROI). This is especially the case with various Generative AI efforts. 

ROI demands from CFOs and CEOs, along with board members, is what is behind a lot of enterprise software pullbacks, said Steve Taplin, CEO of custom software development company Sonatafy Technologies. 

“This is making software initiatives a lower priority than before because there is simply less patience for results,” Taplin said.

“GM’s layoffs are more than just a cost-cutting measure. They’re a clear signal that the landscape for companies transitioning to software-centric models is shifting. While GM and others still have ambitions to be software powerhouses, they’re starting to realize that building massive in-house teams might not be the best path forward,” Taplin said.

“GM’s decision highlights a critical pivot: companies are recognizing that in-house software development can be a costly and complex endeavor,” he added. “Instead of doubling down on internal teams, we’ll see a growing trend toward outsourcing and nearshoring to fill the gaps. This move allows companies to remain agile, reduce overhead, and tap into specialized expertise without the long-term commitment of a large in-house workforce.”

Strategy shift

Ritesh Seth, CEO of HR firm Empathy Employer, which focuses on outsourcing strategies, said GM is busy reevaluating its strategy. “They didn’t want to partner with RIM or Tesla or use their own software. When software is not your core competency, the sense of software culture just isn’t there,” Seth said. 

“GM’s recent layoffs in its software and services divisions highlight the challenges traditional automotive manufacturers face as they integrate advanced software capabilities,” Seth said. “This move reflects broader industry pressures and underscores the difficulties in balancing software development with core manufacturing operations.”

The bottom line is that GM discovered that delivering a quality software operation is quite expensive, said Sandeep Mukunda, the IDC research manager for digital automation.

“GM was paying a premium to source a lot of this from the tech world (including Apple) and it is not going to be cheap for them to hold onto a lot of those teams,” Mukunda said. 

EV landscape may be changing

Another consideration, Mukunda said, are two market realities. The demand for electric vehicles (EVs) is softening, and if Donald Trump returns to the White House, GM can expect to all manner of EV government financial incentives to disappear, potentially further softening EV sales. 

“This is related to the future EV outlook for the US. There is a noticeable drop in domestic demand for EVs in 2024, and the increasing threat from other new entrants from Asia, with EVs costing fraction of the price, is putting pressure on both GM and Ford,” Mukunda said.

“GM’s strategy for EVs also has a play here. It is very hard to compete with low cost EV manufacturers when GM has standardized all its EVs on one SUV platform,” Mukunda added. “Also, Tesla, and the new Asian manufacturers like BYD, are well ahead in the journey of vertical integration and software platform maturity, giving them the price advantage. With anticipated recession in 2025 and looming threat of changes in EV-related federal grants, funding, and policy with the upcoming election, GM might be planning to reduce risk and rely on external vendors more for SDV [software defined vehicle] development than expanding/developing in-house capabilities.”


Read More from This Article: GM software layoffs could signal a shift in digital transformation strategy
Source: News

Category: NewsAugust 20, 2024
Tags: art

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