Outsourcing shines amid budget woes
- By William Welsh
- Aug 14, 2003
"As the budget crunch continues to bite, we're going to see more of a focus on outsourcing" at the local level, said Graham Stuart (right) with Getronics Inc. Getronics has an IT outsourcing contract with Prince William County, Va. , potentially worth $28 million if all options are exercised over a 10-year period, said Masood Noorbakhsh, the county's chief information officer (left).
Industry ready to grab new opportunities
"The [IT outsourcing] decision is one that takes some study. It's not something you decide to do like you decide to buy a PC." ? Michael Flaherty, Affiliated Computer Services Inc.
Local governments that wouldn't have entertained the notion of outsourcing their technology infrastructures as recently as two years ago are warming to the idea because of the poor economy.
The change of heart by city and county officials is creating an opportunity for established outsourcing companies.
"The combination of intense budget pressures and the so-called graying of the work force is creating the right conditions for [IT] outsourcing," said Everett Dyer, vice president and general manager of global infrastructure services North America with Unisys Corp., Blue Bell, Pa.
Local governments will spend $5 billion to $8 billion next year on information technology outsourcing, according to market research firm Input Inc., Reston, Va.
About 50 to 75 cities and counties are in the midst of large-scale IT outsourcing projects, and as many as two dozen additional local governments are expected to tap the private sector to manage their IT infrastructures in the next 12 months, according to analysts and industry sources. When those cities and counties decide to go forward with IT outsourcing later this year "you will see RFP activity at a higher rate than ever before," Dyer said.
"As the budget crunch continues to bite, we're going to see more of a focus on outsourcing" at the local level, said Graham Stuart, vice president of state and local government with Getronics Inc., Billerica, Mass.
Local government IT outsourcing has morphed in recent years from basic hardware and software maintenance into a sophisticated approach to managing the technology infrastructure needs of customers. It includes providing services for both centralized infrastructure, such as data centers, and distributed infrastructure, such as desktops, servers and mobile systems. Depending on the project size, local government IT outsourcing jobs range from $1 million to $25 million annually.
"What you saw in the past was traditional IT outsourcing where companies were babysitting systems, but now [customers] want full-service providers," said Michael Flaherty, vice president and chief operating officer of information management solutions at Affiliated Computer Services Inc., Dallas.
Severe budget shortfalls frequently lead local governments to rethink their business strategy and re-evaluate what they deem core competencies, said John Kost, managing vice president of worldwide public-sector research for Gartner Inc. of Stamford, Conn.
"The first condition is a fundamental re-evaluation of the core competency of the government or what business it is in," he said. "This will often lead governments to conclude they are trying to do too much and not doing very much of it well, especially in a budget crisis."
For an outsourcing strategy to succeed, governments must be willing to devote a significant amount of time to the effort and develop the competency to effectively purchase and manage external service providers, he said.
Flaherty agreed. "The [IT outsourcing] decision is one that takes some study. It's not something you decide to do like you decide to buy a PC," he said.
[IMGCAP(2)]ACS has active contracts with 33 cities and counties, Flaherty said. One of the company's most significant outsourcing deals is a 10-year, $260 million contract with Orange County, Calif. Another significant job is a seven-year, $61 million deal with Indianapolis/Marion County, Ind. ACS provides the city and county with a broad range of services, from data center and IT infrastructure management to e-gov applications and help-desk services.
Unisys has large-scale outsourcing projects with Chicago and Minneapolis. The company's three-year contract with Chicago, which was renewed in March, could be worth upward of $56 million if the customer exercises two additional one-year options. The Minneapolis deal, awarded in January, also is worth $56 million.
Unisys plans to meet with as many as 50 prospective customers over the next 12 months and hopes to land some new deals from that effort, Dyer said.
Getronics has an IT outsourcing contract with Prince William County, Va., potentially worth $28 million if all options are exercised over a 10-year period, said Masood Noorbakhsh, the county's chief information officer. Under the contract, the company provides services and support for the county's 3,000 desktops.
The different groups of stakeholders in government are attracted to outsourcing for different reasons, Flaherty said. Budget officials like the flexibility, which allows a private company to finance a project; agency officials like the way a private company can provide experts in service areas; and politicians like that they can hold a company to a high standard of service delivery.
Local government CIOs said the main reason they have outsourced their technology infrastructure is not to save money, but to improve services to end users.
While governments that outsource will gain efficiencies over the life of the contract that will result in decreased costs, it generally isn't the primary motivation for outsourcing, said Chris O'Brien, Chicago's CIO.
"For government organizations that are looking to cut costs, they're not necessarily going to hit a home run with outsourcing," he said.
While cost may not be the primary motivation, it is still a key part of the equation, government and industry officials said. One of the 13 service levels built into Getronics' outsourcing contract with Prince William County requires the company to reduce the total cost of infrastructure support and operations by three percent each year, Noorbakhsh said.
When done properly, IT outsourcing allows the client to focus its energy on initiatives that are more important to politicians and the electorate they serve, O'Brien said. For Chicago, IT outsourcing has meant that the Department of Business and Information has been able to roll out a 311 system, enterprise resource planning modules and a new portal, he said.
"We're doing a million things at once that we never would have been able to do if we were busy shoring up our hardware and network platforms," O'Brien said. "[Outsourcing] has allowed us to focus on the things that are important to the mayor."
Staff writer William Welsh can be reached at email@example.com.
William Welsh is a freelance writer covering IT and defense technology.