Eye on the States: Conditions right for business process outsourcing

Thomas Davies

Now and then, market forces in state and local government align such that significant new business opportunities emerge seemingly overnight. On these all-too-infrequent occasions, there is a near ideal match between the needs of government buyers and what the information technology industry is selling.

Such an alignment is taking shape with business process outsourcing, or BPO. Companies are taking on more responsibility for day-to-day government operations and for delivering improved performance. And as with previous market storms, this one is as much about the business of government and the way it works as it is about technology.

Many state and local government officials have become frustrated with the inadequate return they are realizing from technology. After years of unprecedented capital investment in new technology, including aggressive efforts to move services to the Web, state and local governments still aren't ready to eliminate significant operating costs, at least not without seriously jeopardizing the quality of government services and increasing citizen dissatisfaction.

A strong case could be made in some areas that the overall cost of running government has increased, not decreased, as a result of e-government. Case in point: Virginia. Even after all the investment in modernizing and Web-enabling motor vehicle services, Virginia still shut down local service centers, reduced operating hours and cut back services.

It's no surprise, therefore, to find citizens -- who have heard elected officials tout the benefits of the Internet and the e-gov revolution -- have become confused and distrustful as they see basic government services decline.

This dilemma is playing itself out in state and local governments across the country. As a result, many of these governments now are quietly working with the IT industry to identify BPO arrangements, such as providing motor vehicle licensing and registration services, that could result in better services at lower costs. After all, no elected official who wants to be re-elected would shut down or reduce services if he or she didn't have to.

This is why BPO has grown in popularity in state and local government over the past decade. Today, governments use BPO to collect parking fines and delinquent child support payments, process health care claims, deliver children's medical services and provide licensing services. You would be hard-pressed to find one area of state and local services where BPO has not yet established a promising foothold.

Although the industry is not completely ready to step up and deliver, some state and local BPO leaders, such as Affiliated Computer Systems Inc. and Maximus Inc., are well-positioned. Others, such as Accenture Ltd. and Unisys Corp., have been maneuvering to get into a competitive position. And new entrants, such as Convergys Corp., are just now entering the state and local market.

BPO is an industry whose time may have arrived. The impact on the IT industry will be as profound as Dell Computer Corp.'s success has been on the PC industry. It will shift the basis of competition away from technology and toward the business model that can best deliver the highest performance for the least cost. And this may just be what state and local governments are ready for. *

Thomas Davies is senior vice president at Current Analysis Inc. in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

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