Government outsourcing grows fastest of all sectors

Government outsourcing grows fastest of all sectors<@VM>Lockheed leads the pack

Thomas Healy, managing partner of Accenture's government outsourcing practice, said the firm sees business process outsourcing as the next big wave.

The global market for outsourcing of government services is growing faster than outsourcing in any commercial segment, and is likely to more than double over the next five years, according to a new study by Accenture Ltd.

This optimistic forecast is echoed by other systems integrators and market analysts. Input Inc., an information technology research and marketing firm in Chantilly, Va., estimated that the U.S. federal sector for outsourcing will grow almost 16 percent per year between fiscal 2001 and 2006, reaching $13.2 billion and becoming "the fastest-growing segment in the overall federal IT market."

At Accenture, outsourcing is about 20 percent of the company's business globally and is growing twice as fast as its consulting business, said David Hunter, global managing partner with the Hamilton, Bermuda-based company.

"Our direction is for outsourcing to be 30-plus percent of our practice globally" across all markets, he said.

The Accenture study, "Outsourcing in Government: A Path to Transformation," said that governments would benefit most from outsourcing if they use it to help transform operations. Thomas Healy, managing partner of Accenture's government outsourcing practice, said the firm sees business process outsourcing as the next big wave.

"There's big potential in human resources, finance [and] call centers," Healy said. As examples, he said, the postal service in the United Kingdom, now known as Consignia, is looking into human resource outsourcing, while the German state of Hessen is evaluating outsourcing its finance operations.

The study, released in February, was based on interviews with 61 senior government executives and advisers in eight countries. Outsourcing growth figures for the study were taken from a report by International Data Corp. of Boston.

Electronic Data Systems Corp. may be most visible in the U.S. outsourcing market for its $6.9 billion Navy-Marine Corps Intranet project, but it also does business with many governments around the world, said Doug Frederick, president of the company's information solutions group.

Outsourcing projects with the U.K. government generate about $1.5 billion annually for EDS, while such projects generate a little more than that in the United States, Frederick said. In addition, EDS has outsourcing projects with governments in Canada, New Zealand, Hong Kong, Belgium and other countries.

EDS officials see a number of outsourcing opportunities on the horizon, including the $4 billion HUD Information Technology Services program for the Department of Housing and Urban Development and the $2 billion converged communications outsourcing project for the state of Georgia.

IBM Corp. provides outsourcing services globally and is a key player in agency modernization programs. It is the prime contractor for the Customs Service's $5 billion project to overhaul its business practices, use of technologies and customs processes, including the processing and tracking of imported products.

Tom Burlin, vice president for IBM global services-federal government, said regarding outsourcing: "We believe this particular part of the market is going to continue to grow at a very healthy pace, a double-digit kind of growth."

Burlin said the Army Enterprise Info-structure Transformation project, in some ways comparable to the NMCI contract, is tackling the outsourcing challenge in a different way than its sister service.

"It's a knowledge-based approach, more of what I'd call an e-government sort of play," Burlin said.

Todd Ramsey, IBM's general manager of global government industry, cautioned that sweeping outsourcing projects, such as NMCI or the Australian government's wholesale outsourcing of functions, are not as likely in the future, and that projects now in the works will carve off smaller portions of work.

"What's happened so far is some countries have swung the pendulum far to the right, where they outsource everything: the U.K., Australia, New Zealand," Ramsey said. "Most other countries have done some, but not nearly to [that] level."

Part of the cautious approach can be attributed to resistance within the organizations, including chief information officers. The heads of companies and countries want to outsource IT services, but often the CIOs do not, Ramsey said.

What will push governments to embrace more outsourcing is the brain drain, he said, as it becomes harder for governments to hold on to skilled employees who can manage the complexities of government IT.

Defense agencies around the world already are looking at outsourcing, Ramsey said; NMCI and the Army's project are two examples. Input's forecast shows defense expenditures on outsourcing growing 23 percent from 2001 to 2006, from $1.48 billion to $3.03 billion.

Accenture's Hunter said there is another way to tell the global market for outsourcing of government services still has a long way to go.

"Another study we do shows there are about 165 services governments deliver, and only about 20 percent are electronically delivered," he said. "Eighty percent are quite [ready] for ... completely reconstituting the service, not just stripping out the cost."

Staff Writer Patience Wait can be reached at

Top outsourcing vendors in fiscal 2000
VendorEst. market share
Lockheed Martin Corp.*30%
Raytheon Co.4%
Northrop Grumman3%
Unisys Corp.2%
*Includes 4% from OAO Corp.
Source: INPUT Inc.

Reader Comments

Wed, Jul 27, 2011 Mike Bowers Dayton Ohio

Very interesting article. Since it's almost 10 years old, is there any updated statistics as to government outsourcing? Has the government done a 180 degree turn, or have they proven that outsourcing works? Thanks Mike

Fri, Feb 6, 2009 Mdu RSA

This is interesting! has any one done a study about what services are possible for government outsourcing in South Africa?Is there information available that one can refer to? Thanking you in advance

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