May 17, 2009    /    by

How Insourcing Jobs Can Save Dollars

There have been quite a few articles about insourcing over the past few months. As expected, this buzz has sparked another debate about ...

There have been quite a few articles about insourcing over the past few months. As expected, this buzz has sparked another debate about our new President's plans to insource federal government jobs.  The basic issue surrounds the simple question: should governments insource or outsource jobs - especially in technology?  

According to 2010 budget documents, the White House plans to convert contractor positions into federal positions.  Of course, insourcing is not new. The Bush Administration even did some insourcing and saved millions of dollars in some cases.   One note: I am not addressing the practice of sending jobs offshore or overseas, just whether governments use the private sector or government staff to perform various functions.

A year ago, the Washington Post described some of the competiton for jobs between federal workers and the private sector performed under the Bush Adminstration. They were originally looking to outsource more jobs to the private sector. What did they find?

"Private contractors have grown increasingly reluctant to participate in the competitions, which federal employees have won 83 percent of the time."

At the same time, big savings were proclaimed through the competition program.

"... competitions completed thus far have generated projected savings of more than $7 billion."

Meanwhile, many state governments such as Virginia and Georgia have outsourced IT work to save money and for other reasons. Texas also outsourced a large part of their technology work to IBM, but their efforts hit a snag last year. 

So which one is it? Does outsourcing or insourcing save money? The answer is that it depends. There is no simple answer to this question, in my opinion.

Many believe that cloud computing and new trends in virtualization will eventually lead to IT functions in government becoming an outsourced commodity for the majority over the next decade. However, I think this debate, which goes back many decades, will rage on for years to come with new stories emerging as evidence for either side.

But from a short-term, pragmatic perspective, how can insourcing jobs save you dollars right now during this economic downturn?

In Michigan, we started "contractor conversions" in our Department of Information Technology back in 2004. Looking to save money but maintain quality staff, we used a few basic parameters to decide what jobs/roles to bring back in-house. Here are a few of the guidelines we used that may help you sort through your decision matrix.    

1) Ask: what contractors have been with you for a long periods of time (probably years) doing maintenance or other ongoing IT work? We found dozens of long-term contractors making much more than state staff, and we targeted those roles for contractor conversions. These conversions continue to save us millions of dollars a year today.

2) Ask: what skillsets do we need in-house over the long-term and which skills do we need to acquire from the private sector. Timing is important, so you need to regularly relook at your situation. For example, integrating an ERP system is a rare skill that perhaps should be contracted for via a competitive bid, while help desk skills were deemed to be best done by state staff.     

3) Ask: what short-term staff augmentation efforts have gone on for too long? We found that contractors often offered us short-term flexibility to adjust our staff levels up and down in times of need, but contractors sometimes stayed longer than originally expected. We believe that a good mix of state staff and vendor staff is healthy, especially for projects where specific deliverables are spelled-out in fixed price contracts. In those cases, if the vendor has delivered a system to other states or governments, they bring in a wealth of unique experience for integration efforts.

Finally, I don't believe in a one-size-fits-all approach. Despite the perception that Michigan is an "insource state," we still outsource select services.  We also maintain great relationships with our vendor partners - whom we value greatly. For example, our  portal is actually hosted by IBM in Boulder, Colorado. We also outsource specific applications such as credit card processing - where it makes business sense.

Bottom line, I believe that many state and local governments can save money now by looking at insourcing select IT jobs. When the proper management is in place, this "contractor conversion" approach has proven to be effective. In our experience, many individuals will happily join government service, especially in these tough times when staff are looking for job security and perhaps other benefits.   

What are your thoughts? What criteria do you use to determine the right mix of contractor versus government technology staff?