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Is IT outsourcing right for you? For one government, the common decision about whether or not to outsource information technology services led to uncommon improvements in IT operations.

Technology outsourcing has been a topic of great interest to a number of organizations over the last few years, and has even been a hot topic in the popular media lately. Given this level of interest, many governments are evaluating how they might use outsourcing to deliver better information technology services to both internal and external customers. However, outsourcing is not a decision to be made lightly, as it has important implications for labor relations, service levels, and cost structure. Confronting this very decision, one county government in Texas engaged GFOA to assist with the analysis.

One of the first decisions made by the county and GFOA was to approach the project as an overall IT evaluation, rather than strictly as an outsourcing/in-sourcing decision. This ensured that the project team would consider a more comprehensive set of information and solutions than just outsourcing.

The project team gathered data from a number of sources, including the following:

* Interviews and surveys of IT staff

* End user satisfaction survey

* Department head satisfaction survey and focus groups

* Interviews with elected officials

* Surveys and interviews with comparable Texas governments

The project team's most significant finding was that end users were not dissatisfied with the technology services at the county; in fact, they recognized some important strengths of the in-house services. There was relatively little support for wide-scale outsourcing among county staff, department heads, and elected officials. However, the project team quickly realized that there were other important opportunities for improving IT services at the county. Based on its research, the project team concluded that the county should commit to a "right-sourcing" strategy and that it needed to establish an IT governance process. Both of these issues are explained below.


GFOA and the project team agreed that the county should commit to a strategy of selectively evaluating potential IT outsourcing opportunities on a case-by-case basis. Put another way, the project team did not recommend a total outsourcing strategy. This recommendation was based on several specific reasons:

* The county was undertaking a number of high-profile and costly technology projects that could be disrupted by total outsourcing.

* County users were reasonably satisfied with most areas of IT performance. As such, there was a strong case for trying to improve the county's in-house services before incurring the substantial transaction costs and risks associated with total outsourcing.

The county's information technology services have an internal management orientation. An entirely different set of competencies is needed to manage a contractual organization, including contract monitoring, vendor relationship management, and architecture planning. The county would have to develop these skills before committing to total outsourcing.

The county was able to immediately identify some right-sourcing opportunities. For instance, one of the most common complaints expressed in the end user satisfaction survey was that the IT department did not set up personal computers in a timely manner. While this was a legitimate complaint, there was also a good explanation for it. The county orders new PCs immediately following the adoption of each year's budget, and this equipment arrives all at once. The county's IT staff is not large enough to handle this spike in activity, resulting in significant delays for some users. In response, the county contracted with a vendor to install the PCs, thereby satisfying user demand while holding constant the headcount in the IT department.


An IT governance process is a mechanism for improving the return on technology investments by encouraging participation of IT staff and end users in decision making, establishing an agreed-upon plan for evaluating technology investments, and aligning technology initiatives with organizational priorities. Absent an effective IT governance model, the county faced a number of potential risks, including inadequate prioritization of projects, lack of teamwork among departments (particularly between IT and the business departments), and insufficient attention to organization-wide technology issues.

The county and GFOA designed a governance structure whereby an executive steering committee composed of the county administrator, IT director, budget director, and key elected officials provides policy-level guidance on IT issues, including prioritization of projects for funding. The steering committee is assisted by business analysts who work with the departments to develop salient analysis of potential technology investments. The steering committee may also form ad hoc work groups composed of IT and department personnel to provide assistance on particularly complex issues.


A number of other recommendations flowed from these two central recommendations, including the following:

* Performance Measurement. The only benefit of total outsourcing identified by department heads was that it would improve the accountability of the IT department. The project team recommended improving the accountability of the IT department through the use of performance measures, which the department is now using.

* IT Strategic Planning. An IT strategic plan provides the framework for project prioritization and enables the steering committee to perform its role more effectively. It also provides guidance on which IT services would be most appropriate for outsourcing.

* Right-Sourcing Application Development. Like many organizations, the county's IT department had a bias toward internal development of application software. The project team recommended that the county adopt a formal framework for evaluating whether or not an application should be built in-house or procured from an outside vendor.

* Tactical Improvements. The project team identified a number of opportunities for tactical improvements to the county's IT operations. Examples include redesigning help desk procedures, improving project management capabilities, coordinating security requirements across the various divisions of the IT department, and leveraging the county's new iSeries hardware for server consolidation and other advanced features. The county has already begun work on some of these areas, most notably at the help desk, where it has instituted performance measurement and new policies for responsiveness.

This project shows that an outsourcing evaluation does not have to be a punitive measure for IT staff. To the contrary, this type of analysis can result in substantial improvements to IT operations if all project team members go in with a positive attitude and a willingness to consider multiple options.

SHAYNE KAVANAGH is a manager in GFOA's Research and Consulting Center in Chicago.
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Title Annotation:Solutions; Information Technology
Author:Kavanagh, Shayne
Publication:Government Finance Review
Geographic Code:1USA
Date:Aug 1, 2004
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