IBM report: Outsourcing projects need new management model

The market for information technology outsourcing is becoming more mature, and managers in the public sector should use new models for managing major IT outsourcing projects, according to a report commissioned by the IBM Endowment for the Business of Government.

The report, "IT Outsourcing: A Primer for Public Managers," describes a phased process model and includes examples of best practices that can help public sector managers address the challenge of managing IT outsourcing projects.

The report includes recommendations on how to conduct large projects successfully from start to finish.

Factors in the growth of IT outsourcing in the government sector include the Bush administration's emphasis on e-government, the role IT plays in protecting homeland security and responding quickly to security threats, and the shortage of IT workers in government.

IT outsourcing programs offer several advantages over government in-house services, the report said, including providing managers with access to skilled personnel and state-of-the-art technology, quicker deployment of new systems, and financial savings by paying lower rates to vendors who can achieve economies of scale in both workforce and infrastructure.

But IT outsourcing has risks, including possible loss of control over service quality, possible compromise of critical data security or service disruption, and the complexity of transferring knowledge to vendors about existing systems and of managing the relationship with vendors.

The report recommends public sector managers deal with these challenges by no longer viewing IT outsourcing as a traditional procurement, instead considering it in terms of a service-based relationship management, where the government leases services instead of buying goods.

"[T]o fully realize the potential of an IT outsourcing arrangement requires a different perspective," the report said. "It is no longer the IT equipment but the service that is the center of management. As a result the new direction should be on a relationship management that secures the quality and level of services provided by the vendor."

The phased model recommended in the report includes these steps: