Most global companies outsource some aspect of IT, ranging from managing the network infrastructure to developing parts of key applications. However, since 1996, after EDS was split off from General Motors  (GM), outsourcing the entire tactical IT organization has become the  business model for the Information Systems and Services group.

Recently, Enterpriseleadership.org spoke with Dr. Daniel McNicholl, the chief strategy officer for GM's Information Systems and Services organization, to get a glimpse of what makes outsourcing work at GM. Dr. McNicholl, the former chief information officer for GM North America, oversees all new outsourcing agreements, as well as develops IT strategies. McNicholl reports to Ralph Szygenda, group vice president and global CIO. Here's what McNicholl had to say:

EL: Can you describe the senior management structure of your IT  organization?

DM: Each regional automotive business unit has a CIO, who reports both to Szygenda and to the president of that business unit. They are responsible for the IT needs of their regions, such as North America, Europe, Asia Pacific, and Latin America.

In addition, Process Information Officers (PIOs) -- who are responsible for global IT strategy and implementation across GM’s major business processes, such as product development and design, or manufacturing and quality -- are part of the senior management team, and also report to Szygenda and GM’s global business process leader.

There are three other key IT senior leaders on Szygenda’s team -- which include myself as the chief strategy and business management officer along with the chief systems and technology officer and chief services officer.

EL: In a nutshell, describe your outsourcing partners?

DM: We're one of the most extensively outsourced organizations in the world. We spend about $3 billion a year on IT.  We have global contracts with five large, tier-one IT service companies: IBM, EDS, HP, Capgemini, and AT&T for telecommunications. Together, these companies develop and maintain all of our systems, and operate and maintain all of our servers, desktops, and network infrastructure. We have about 2,000 internal GM IT employees who are responsible for all the strategic aspects of IT including managing about 12,000 contractors. We also have some contractors that handle specific functions. For example, Wipro handles middleware. Our major contractors also have subcontracts with other IT providers.

EL: How did you work with this current group of outsourcers to have  one united IT organization?

DM: That's an important part of the success of relying on outsourcing. Starting with senior management, we've set some high expectations of what we want collectively from our outsource partners. Our expectations are universal throughout the entire organization.

Because we have different contractors handling different parts of our IT organization, we developed standard work processes. That happened in 2005. All of the outsourcers participated in developing these processes. Right up front, we told them how we were going to do business together. Off-the-shelf best practices such as CMMI and the IT Infrastructure Library (ITIL) provide the underpinnings of these processes. However, we've customized some of these best practices for the outsourced IT model.

EL: What lessons have you learned about dealing with  outsourcing?

DM: A lot of large-company executives say that outsourcing can't work. We're proof it can work; we've been at it for more than two decades. We're also one of the top 10 Fortune 500 companies in revenue, and we do business in more than 200 countries. Outsourcing might not be right for every company. It does take a lot of hard work to get it right.

You can outsource the services, but you can't outsource the leadership work. First, you must develop an outsource model. Internal people need to work daily with the suppliers to keep them on track and to resolve any problems they might have. You also need to have complete and accurate statements of work and appropriate service levels. You'll need to fine tune these things to make them better.

Contracts aren't enough. You need to have good relationships with each outsourcer's senior management team. Ralph Szygenda has these very close relationships in place. Several times a year, we'll sit down with each outsourcer's senior leadership team. If something goes wrong, we can pick up the phone and resolve the problem with a senior-level executive.

EL: Describe your governance model?

DM: It's incorporated into our GM organization. Relative to suppliers, PIOs are in charge of their contracts so oversight of suppliers is part of our model.  For example, once a year, we produce a scorecard for all suppliers, and they take them very seriously. We do a lot of communications with our suppliers. The heads of all of the suppliers attend bi-weekly supplier meetings where we talk about what's going on. We have a very strong contract management organization that helps all of these people write contracts and carry them out. These are some of the elements we use to help direct IT.

Ralph Szygenda is an integral part of the decision-making body at GM. He sits on the senior-level executive committee, which we call the Automotive Strategy Board. It is led by Rick Wagoner, the Chairman and CEO, and is comprised of all of the business unit presidents and most senior functional heads.  Together, these executives make funding decisions. All of the PIOs and CIOs meet with Ralph to hear his recommendations, and together, they decide what they are going to do.

EL: Can you go into more detail about how the best practices fit into  the GM standardized work model?

DM: ITIL helps to guide the network and computing operations area, while CMI does the same for software development. We are also incorporating CobIT. Over the years, we've tried to rely on industry standard processes, but we quickly found out that some of these processes, such as CMMI, weren't set up for an outsource organization. In 2005, we worked with the Software Engineering Institute (SEI) to develop a version of CMMI that is appropriate for the outsourcing of software development. SEI just published a draft of CMMI for outsourcers. SEI plans to bring out our customized outsourced CMMI version as an industry standard. We also use elements of Six Sigma in IT.

EL: What strategic initiatives do you have planned for  IT?

DM: We're making great strides to globalize many aspects of IT so we can bring new vehicles faster to market. Our goal is to leverage the strengths we have around the world. By doing this, we can reduce costs. We've deployed a lot of these new global applications. For example, regardless of where you are working and what vehicle you're working on, you're using the same engineering analysis.

Looking forward, to help increase our revenues, we're working with our global retail dealers to streamline the GM system between them and us. We're reducing the time it takes to configure and to order new vehicles. The sales people will now have more time to spend selling vehicles.

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Elizabeth M. Ferrarini is a writer from Boston,  Massachusetts. Reach her at elizabethferrarini@yahoo.com.