In 1991, General Dynamics and CSC entered into what was at the time the largest IT outsourcing agreement ever signed. Two years before, Kodak had outsourced much of its business systems to three vendors, but General Dynamics had bigger plans. The big aerospace and defense conglomerate wanted to turn over the whole IT organization to one vendor.

That was a problem for most vendors, who wanted mainframes, or applications, or infrastructure, but not the whole organization. Finding one vendor was crucial to General Dynamics’ strategy, though. The company knew the defense market would shrink with the end of the Cold War, so it decided to transform itself into a smaller, more focused company. That meant selling off most of its seven divisions, and it did not want to keep providing IT services to the new owners. Hence the search for a single vendor who was willing to provide those services to future buyers.

CSC was the only vendor willing to take over all the services, and in 1991 2,500 of General Dynamics’ IT staff transferred to CSC. Over the next few years, General Dynamics sold off four divisions and went from $10 billion in annual revenue to $3 billion. Then, in the mid-1990s, it began to grow again, presenting the retained IT organization with new challenges. Ken Hill was General Dynamics’ CIO for most of the years since the company started making acquisitions, and we asked him how the new strategy affected his approach to IT governance.

CSC World: What was your biggest challenge as CIO of General Dynamics?

Hill: Bringing new companies into the fold. I came on as CIO in 1997, and in eight years we bought more than 30 companies, so most of my time over the first seven or eight years was spent on transitions. My job was to facilitate the incorporation of their IT systems as quickly and economically as possible.

CSC World: You didn’t have procedures for doing that?

Hill: No, because at that time General Dynamics was very decentralized. I couldn’t tell the business units what to do. The business units could operate their IT organizations any way they wanted, as long as they made their numbers. That was carried over into the outsourcing contract with CSC.

Also, we sold off most of our business units after outsourcing to CSC, so we were a smaller company. Until we bought Bath Iron Works in 1995, no one thought General Dynamics was going to start growing again.

CSC World: How was decentralization carried over into the outsourcing agreement?

Hill: We had an umbrella contract with CSC, but the business units had to negotiate their own contracts within that structure. In the last contract I did, we took care of terms and conditions, basic contract language, rates, profits, and fees at the corporate level. Within that umbrella contract, the business units set up their own outsourcing relationships with CSC, each one setting up its own billing, its own SLAs, and so on.

CSC World: When General Dynamics started growing again, how did you go about integrating the new companies?

Hill: The first thing I needed was information. So I created an IT council made up of the CIOs from every business unit. The CSC account executive sat in on every meeting, too, because CSC was my IT staff. We met at least three times a year to share information about what everyone was doing. The council set up lines of communication that weren’t there before. I also sent a five-page survey to the business unit presidents, asking them what their priorities were, what they thought of IT, what systems they wanted to replace.

The new business units were all operating with policies and systems they brought from their prior owners. They had different applications, different platforms, different governance procedures, and they were all buying from different vendors.

CSC World: How did you manage to get some commonality among the business units when you didn’t have the authority to set policy for them?

Hill: I had to do that indirectly. One of the biggest fallacies in IT outsourcing today is that it will give you commonality. If it’s not supported and pushed by a central authority, it won’t happen.

I couldn’t tell anyone what to do, but what I could do was set goals —  all business units had to have secure networks, for instance — and I let everyone know we would audit them to make sure they were meeting those goals. Annual goals and objectives were set for each business unit, and they were measured on their ability to meet or exceed these goals.

Next, I looked at the software and hardware vendors the business units were already using. I took the top vendors and went out with CSC to get companywide deals that were better than the business units could get on their own. I used the deals I worked out with third-party vendors to get commonality.

CSC World: Give me an example.

Hill: I did a Dell agreement that was so good that no one else

could compete. Over time, Dell became the standard. But I also used what I call the “lead and follow” technique.

Let’s say some business units tell me they’re thinking about new financial applications and are looking at some vendors. I’d say, “Why don’t we get together and do a study?” We do the study and find out how much it will cost for each business unit. Then some of them will drop out because it’s more than they wanted to spend, or they didn’t have the money at the time. So we redo the study for the remaining business units. Let’s say three of them agree to go together to buy from the vendor we chose.

Some months later, at a meeting the chairman has with all the business units, these three report savings of 15 to 20 percent. The chairman then gets up and asks why the other business units aren’t doing that. So he sets a new financial goal: The other business units have to bring him the same numbers as the three that are part of the project. He doesn’t tell them they have to join the project, only that they have to show him the same savings.

CSC World: Which they can do only by joining the project or choosing an alternative.

Hill: Yes. They weren’t told directly what to do, but the compelling nature of the results made it so financially driven that they had to go that way.

CSC World: Did you always wait for a business unit to approach you?

Hill: No. We put groups together in the IT council to evaluate vendors. We had hardware and software vendors come talk to us. I had two guys working for me — one did business-side systems like financials and HR, the other one systems like manufacturing and engineering — and they led groups that looked at the vendors’ products.

The groups were made up of people from each business unit, and they were users as well as IT people. They would do a product usability evaluation and an IT evaluation, and they’d vote for the products and rank them. Then the IT council would decide the best way to go. Not a corporate standard, but our judgment about what were the best products. We’d take the top two vendors and see who could come up with the best deal.

CSC World: Any words of advice for CIOs who are thinking of outsourcing?

Hill: I’ve already said that outsourcing won’t automatically give you commonality. It won’t give you better IT governance, either. The problems you had before outsourcing will still be there afterward, so you’d better have good policies. And you have to enforce those policies, not the vendor. The vendor can’t do it. In the context of an outsourcing relationship, look at your policies and see if they need to be changed.