What is the future of information technology outsourcing in state and local government? According to recent interviews with over 200 state and local officials, outsourcing is not only here to stay, it is accelerating. Sixty-six percent of the officials interviewed indicated they are outsourcing all or part of their information technology today. When asked about the future of outsourcing in their jurisdiction, 58 percent believed the trend toward outsourcing will gain momentum over the next few years. Only six percent believed it will drop off.
This view of the future of outsourcing is held by officials from all levels of government -- states, counties and cities -- as well as CIOs, policy officials, information technology leaders and senior agency executives.
State and county officials indicated the momentum toward outsourcing was strongest in their governments. Sixty percent of all state officials, and 56 percent of all county officials believed outsourcing of information technology was gaining momentum in their government. This is in contrast to over 45 percent of all city officials who believed outsourcing was gaining momentum.
Policy officials and agency executives were the strongest believers in the movement toward outsourcing. Sixty-seven percent of all policy respondents, and 71 percent of all agency executives believed outsourcing was gaining momentum. But even among CIOs and information technology leaders, there is a strong perception that outsourcing is gaining strength. Fifty-nine percent of all CIOs and 50 percent of all information technology leaders saw outsourcing gaining momentum over the next few years.
NEW SKILLS AND TECHNOLOGY
One explanation for the shift to outsourcing is the widely shared belief that outsourcing is delivering tangible benefits, especially access to new technology and skills. Eighty-eight percent of all officials responding believed outsourcing provides state and local government with access to skills, and 84 percent believed outsourcing delivers access to new technology.
Just as significantly, this widespread belief in the advantages of outsourcing is held by all groups interviewed. Eighty-seven percent of all state officials, 95 percent of all city officials, and 90 percent of all county officials interviewed believed outsourcing provides access to skills. Similarly, 83 percent of state officials, 82 percent of city officials, and 88 percent of all county officials interviewed believed outsourcing leads to improved access to new technologies.
FOCUS ON BUSINESS
Outsourcing is allowing state and local officials to focus on their primary business. CIOs especially believe outsourcing is allowing government to focus on its primary business. Eighty-six percent of the CIOs interviewed indicated there are significant benefits in this area from outsourcing. State government officials were slightly more likely than their city and county counterparts to believe that outsourcing was allowing them to focus on their primary business.
COSTS AND CUSTOMER SERVICE
While some cost savings are occurring, surprisingly only 48 percent of all respondents believed there are significant cost-savings benefits to be realized from outsourcing. County officials were more attuned to cost savings, with 54 percent believing there are significant cost-savings benefits from outsourcing.
City officials were more likely to cite the customer service advantages of outsourcing, with 76 percent indicating that there are significant benefits to be gained in this area. In contrast, only 61 percent of state officials and 63 percent of county officials believed there were customer service improvements from outsourcing. Policy officials and agency executives were much more likely to believe in the improvements in customer service to be gained from outsourcing. Eighty-three percent of all policy officials and 77 percent of all agency executives indicated they believed outsourcing led to direct improvements in customer service. On the other hand, only 52 percent of CIOs and 54 percent of information technology leaders believed in benefits in this area.
State and local government officials are seeing many intangible benefits, including different perspectives on how business should be conducted, greater flexibility to meet peak demands, and reduced system development time. Other intangible benefits frequently cited included learning, new creative ideas, speedier services and ease of management.
While they see many benefits, state and local government officials do not believe outsourcing is a panacea. There are still apprehensions over a perceived loss of control, and they are generally unwilling to outsource their enterprisewide information technology infrastructure. However, a majority of those interviewed -- 54 percent -- believe the advantages of outsourcing outweigh the disadvantages.
Agency executives were most inclined to feel positive about the trend toward outsourcing, followed by CIOs, policy officials and information technology leaders. Sixty-nine percent of all agency executives believed the advantages of outsourcing outweighed the disadvantages. Even among information technology leaders, 45 percent believed the advantages outweighed the disadvantages.
The shift toward outsourcing is resulting in a large number of anticipated outsourcing projects in this marketplace. Fifty-one percent of the respondents indicated they expected their organization to initiate an outsourcing project in the next year. These projects included feasibility studies, data center outsourcing, applications development, desktop support, telecommunications and business process outsourcing.
Depending upon events that unfold during the next few years, the trend toward outsourcing could gain even more momentum according to these officials. The increasing gap between available resources and increased workload is causing government officials to consider new outsourcing initiatives. This resource gap, along with changes in technology, a more receptive and demanding political climate, and concrete successes, will continue to accelerate the movement toward outsourcing across state and local government.
DEVELOPING A CASE
One very important challenge on the minds of many officials is the need to develop compelling business cases for outsourcing. They are looking for factual, cost-benefit analyses to help guide their decision making. Some respondents indicated they were in the process of launching enterprisewide reviews of their information technology operations to determine where outsourcing could make a contribution. Thirty-eight percent said they had already conducted a formal evaluation of the feasibility and benefits of outsourcing. Yet only 19 percent indicated their government has a formal outsourcing policy.
Who is responsible for initiating the outsourcing projects in most state and local governments? Most respondents indicated it was a shared responsibility among elected officials, CIOs and agency heads, with the latter being cited most often. Forty-three percent of those interviewed pointed to the agency head when asked who had primary responsibility for initiating an evaluation of whether or not to outsource.
A "CONVERGENCE OF FORCES"
While the outsourcing of information technology has been somewhat slow to take hold in state and local government, by all indications this situation is changing in significant ways. A convergence of forces -- from devolution, to rapid changes in technology, to a shift in political climate -- are descending on state and local governments. New approaches to the management and use of information technology are becoming the norm.
Expectations about outsourcing -- once considered a policy and management choice of last resort -- are clearly changing. Outsourcing is becoming part of the mainstream thinking of state and local government officials, and will become an important part of everyone's future.
Tom Davies, Ph.D., is vice president, Consulting, with Federal Sources Inc., based in McLean, Va., and was previously with the state of Florida.