Handing over the Reins

Outsourcing your states network management is a complex and risky proposition. Given previous debacles, is it still worth consideration?

by / October 1, 2001
Government may represent the ultimate school of hard knocks, at least when it comes to IT outsourcing. What is often accomplished with relative ease in the private sector turns into a political and financial minefield in the government arena, even for some of the largest and most experienced IT vendors.

Connecticut proved that a couple of years ago. The states ambitious $1.35 billion plan to completely outsource all its computer systems to services giant EDS unraveled less than a year after it was announced.

When first promoting the initiative, Connecticut Gov. John Rowlands repeated the often-heard mantra, "Were in the business of government. Were not in the business of information technology."

The trouble is, IT vendors almost have to be in the business of government to pull off an outsourcing project of that magnitude. Apart from the financial and administrative barriers in Connecticut, the political problems surrounding the deal would probably have been enough to sink it. It lacked essential support in the legislature and met with firm opposition from the state employees union. Combined with bureaucratic resistance to losing key IT staff in some of the agencies, this was ultimately enough to shatter confidence in the project. There were simply too many risks involved for both the vendor and government for the deal to carry forward, according to Connecticut CIO Rock Regan.

All that might now be ancient history, given the speed at which the IT world moves, save for the fact that the Connecticut experience has become something both governments and vendors have learned from. Big outsourcing projects, especially those involving a significant part or all of an IT network, are today approached with more caution and forethought.

Economics 101
"Outsourcing is one of those pendulum things," explained Mark Czarnecki, president of the International Government Benchmarking Association. "A couple of years ago the pendulum was all over on the side of outsourcing everything. The pendulum is starting to come back to where there is some better rationalization of where outsourcing makes sense."

IT doesnt change the laws of economics, and outsourcing is no exception. "What doesnt work is trying to outsource some of the low-end, commoditized-type services, where you are hiring at the low end of the pay scale," added Czarnecki. "You are in essence competing against someone who is trying to under-hire you.

"Say you are paying $10 a hour for someone to put a computer in place. To competitively outsource that, a vendor has to pay someone less than you are paying for the job. That leads to a meltdown because the vendor ultimately winds up settling for a person with skill sets below what you would be able to hire yourself. So they cant meet your service level requirements and everything goes to hell. More and more of our studies are turning up that sort of thing: disasters which occur because vendors are trying to do things more cheaply than you are trying to do it."

On the other hand, said Czarnecki, outsourcing is advantageous where economies of scale allow governments to obtain better IT talent than they would otherwise be able to hire.

Noteworthy successes in outsourcing either a significant portion or all of a network are now starting to emerge, in part as a result of better assessments of the economic realities on both sides of the bargaining table.

"First and foremost, outsourcing is viewed as a way of cutting costs," explained Alan Aptheker, director of communications for global outsourcing at Unisys. "But it really goes deeper than that, which is why we try to add more value. Typically, what governments are looking for is faster acquisition of technology. Thats one driver. Another for the public sector is the notion of business recovery, or disaster recovery - being able to recover quickly so that citizens dont miss a beat when accessing government services electronically or in receiving services like welfare checks or food stamps."

Pennsylvanias Pet Project
Adding value was an important component in a $527 million outsourcing project in Pennsylvania, according to Aptheker. There, a consortium of 10 companies, led by Unisys, has established a new state-of-the-art facility that has taken over the complete data processing needs of 14 state agencies, replacing 17 separate state-run data centers. This makes Pennsylvania one of the first states to consolidate and outsource data centers across all state agencies.

Pennsylvania Gov. Tom Ridge, in announcing the opening of the new center recently, said it would save taxpayers more than $110 million, allowing more investment in other key technology projects to streamline government operations, enhance public safety and improve customer service.

The project, so far on time and on budget, was not without its challenges, however. "I can safely say that the extent to which you have to work with the human component and you have to navigate the minefield of politics and technology -- well, I dont think anybody could have foreseen the [labor] that was needed for that to work," said Aptheker. "But this wasnt a complete surprise or an insurmountable problem. We knew it would happen because this contract came on the heels of Connecticuts failure to outsource their IT infrastructure. So we sort of saw that happening outside our window as we were driving along."

Aptheker credits the success in Pennsylvania to carefully working with existing people and the IT management right up through the governors office to ensure that there were no huge layoffs. The key word was retraining. "We were able to take almost every employee who was made redundant because of the consolidation of the data centers and retrain them to do more critical things like networks and desktops," he said.

Curt Haines, project manager for consolidated data center, agrees that careful attention to the human element was one of the key reasons the project is succeeding. "We were not looking to fire people, but to retrain and redeploy them," he said. "The union leadership knew that early on, and when we proved to them that we were indeed retraining people, they did come a little bit to our side. In Connecticuts case, it was getting rid of the people, and the unions were against it right out of the gate. So that definitely was a big part of our success."

Haines also emphasized that an outsourcing project has to be a true business partnership. "There are issues every single day that come up," said Haines. "Its constant negotiating, constant give and take."

"Networks are probably the most critical component of IT these days and I dont think you want to go with anybody but a company that has a proven track record," he added. "You have to be comfortable that they will keep your network up, and they will supply appropriate redundancy if your network is that critical."

A Bold Move
It is important to note that Pennsylvania has not outsourced its actual network, just the operation of the new data center. And as it stands currently, there are no plans to extend that outsourcing. "Outsourcing the data center - was a strategic move to free up resources that could then be redeployed to such things as delivery of e-government services," Haines said.

However, one outsourcing initiative that is being watched very closely by other governments both at the local and state level is San Diego County, where their entire IT infrastructure is being outsourced to Computer Sciences Corp. and its partners -- a $644 million contract over seven years.

As the project stands, it is on budget and on time, generally meeting or exceeding the stringent performance, financial and customer satisfaction requirements that were spelled out in great detail in the contract. To date, the countys entire phone system has been replaced, all major sites have been converted to the new WAN, and all sites will be online by November.

"It clearly was a bold and unique thing that we did," said Ron Lane, assistant CTO of the county. "We were kind of blazing the trail, but we had solid support from our board of supervisors who were willing to take the risk and the heat to make this happen. There were definitely enough people along the way pointing out why it wouldnt work."

"One of the things that the vendor is learning," Lane added, "is that local government is very different than the private sector. Everything they do affects the public. So little problems that would be just little problems in a regular private-sector contract all of a sudden show up in the papers in this kind of project. The level of scrutiny in local government is tremendous. This adds a different dimension to outsourcing and a higher level of complexity in order to meet the demands."
Blake Harris Contributing Editor