How IT Outsourcing Succeeds

Problems with some highly visible projects have given state and municipal IT outsourcing something of a black eye, although, as Sarah Rich at Government Technology reports this week, there are plenty of successful projects are flying under the radar.

On balance, IT outsourcing is a sound idea and stands to save state and local governments substantial money over the long term. However, legislators and state CIOs should not see outsourcing as a magic wand that they need only wave and then watch as all their IT redundancies, complexities and costs go away.

Rather, the article (pointing to some of the same examples, such as Minneapolis and San Diego County, I used in Reason’s latest APR), reinforces the importance of governance and long-term vision at the outset. Paradoxically, while states and cities might relinquish ownership of IT assets in an outsourcing deal, they never relinquish ownership of their IT processes.

This will grow more important, as state and local governments, faced with tighter budgets, revisit IT outsourcing and privatization options. The article quotes former San Diego County CIO Michael Moore, who states, “I think the budget crisis is causing people to look at outsourcing in a very, very different way than they did four or five years ago. There are probably 20 municipalities right now that are looking at [outsourcing] in some form or fashion as a way to deal with budget crunch.”

Rich goes on to write:

But the question remains: What makes one outsourcing deal thrive while another fails? Moore said governance is a key factor for successful outsourcing deals. And he speaks from experience, having overseen San Diego County’s large-scale and successful transition to outsourcing in 2002. “Governance is a big portion of why outsourcing deals work or don’t work,” he said, especially at the state level where decisions like these tend to become political between executive and legislative government branches. Local governments have an advantage because their decision-making groups, usually a county board or city council, are smaller and typically more politically aligned. Governance at that level is usually more direct than in a state environment, said Moore, who is now a client executive for outsourcing consultancy firm EquaTerra.

“[Outsourcing deals] are difficult under the best of circumstances,” said Moore. “The more aligned you are politically and the more straightforward your government structure is, the better chance you’ll have of them being executable.”

The story behind the 20 years of IT outsourcing success Santa Clara, Calif. shows outsourcing is isn’t fix and forget. As a client, the city has to stay involved, communicating its needs and expectations as they change.

To [Santa Clara, Calif., CIO Gaurav] Garg, however, choosing Unisys meant more than just satisfying the RFP’s terms — the firm was to help Santa Clara carry out a vision of change. The internal strategy determined what the new IT organization should look like and how services would be delivered, asking questions such as: What do we want this new IT organization to look like? How will we interact? How will we deliver services?

“And that’s what our RFP contained,” Garg said. “So when we went to the market, it was, ‘Here is what we want to achieve. Help us get there.’ So we didn’t spell out the solution; we spelled out the outcome we wanted. It was a vision, and it was really an end state.”

Instead of using a conventional RFP, Garg asked the outsourcing providers to find the answers that would achieve his vision of IT 2.0. The city then went through an aggressive 90-day transition to its new vendor. Garg said the switch to Unisys felt similar to a SWAT team descending on the IT department, but the approach has garnered success for the city.