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Report: Agencies May ‘Shy Away’ From Outsourcing

Report: Agencies May ‘Shy Away’ From Outsourcing

A new report from Accenture forecasts Australian Government agencies may shy away from the chance to make aggressive use of outsourcing in the future after being burnt by failings in the flawed whole-of-government program.

The Government Executive Series report Outsourcing in Government: Pathways to Value sets out Accenture’s detailed examination of the ingredients in successful outsourcing, and compares outsourcing experiences across the world’s governments.

It finds national government’s pursuits of value through outsourcing are taking one of two significantly different trajectories according to their unique priorities: the efficiency trajectory and the transformational trajectory. Countries on the efficiency trajectory view technology infrastructure and business applications outsourcing as a way to trim costs and redirect capital to more mission-critical functions, and have often gained so much from their approach they have little interest in other forms of outsourcing. Those on the transformational trajectory, characterised by bold objectives with potentially higher value, typically approach outsourcing as a tool to achieve an aggressive strategic agenda in an accelerated time frame. “They are using higher value-added business process outsourcing much more extensively to achieve these aims.”

The report notes Australia, with tremendous experience in many aspects of outsourcing, has undergone a radical change in the way it approaches IT infrastructure outsourcing that might shift its trajectory, after the mandated “whole-of-government” approach comprehensively failed to deliver expected benefits.

“Now the central government is pulling back to implement what it calls “second generation outsourcing.” Fallout from this initial experience and new levels of autonomy in IT outsourcing decisions may slow the central government’s progress toward more extensive use of outsourcing,” the report says

Accenture points out that transformational trajectory is driven by bold objectives with high potential value. “Countries on this trajectory typically approach outsourcing as a tool to achieve a bold strategic agenda — often driven by a pressing need to reform due to citizen dissatisfaction or severe budget deficits — in an accelerated time frame,” the report says.

But it notes while the Institute for Social Service in Mexico has used outsourcing to dramatically improve the delivery of health care to government workers; the United Kingdom has broad and deep experience of outsourcing and has demonstrated its effectiveness in handling challenging issues like workforce transfer and negative media exposure; and Canada and the United States also demonstrated sophistication in these areas, Australia “posed an interesting case.”

“In the mid-1990s, Australia pioneered “whole-of-government” IT outsourcing through parliamentary decree. Agencies were clustered together and required to pursue IT infrastructure outsourcing as a group.

“This bold move could have launched them on a transformational trajectory. However, as the clusters outsourced, the benefits of the policy mandate failed to materialize. Individual agencies resisted the enforced outsourcing, the clusters were unwieldy, and the approach stopped short of the standardization required to tap economies of scale. Its original architect, now retired from government, has acknowledged that it did not work as he had expected.”

“In the midst of the program to outsource all federal IT infrastructure, the mandate was withdrawn. Agencies are still encouraged to pursue outsourcing, but the individual agencies have more autonomy to implement this revised policy as they see fit. As a result, Australia may reset its trajectory toward more efficiency-oriented goals. It remains to be seen whether individual agencies will use outsourcing aggressively in the future or will shy away from the opportunity, as their experience in the IT outsourcing arena may have tainted their perceptions of its potential.”

And the report hints at one of the major reasons for the original program failings: that the outsourcing agenda was pursued by the Howard Government primarily to save money. (Then Finance Minister John Fahey was aiming for a $1 billion worth of savings.) Pursuing outsourcing mainly in the interests of saving money is unlikely to be successful, Accenture warns.

“Only 50 percent of the survey respondents who counted cost reduction as a top outsourcing driver reported that they were largely or fully meeting their objective,” Accenture finds. “In contrast, those who targeted more value-adding objectives reported more success.”

It says executives intending to “gain access to new technology” and “centralize and/or standardize operations” reported the highest percentages of success; while even focusing on the most radical outsourcing objective, “transform the agency or department,” achieved their goal more frequently than those pursuing cost reductions.

“The logical conclusion is that government executives who have wanted to use outsourcing as a way to add value to their organization have been more successful in meeting their objectives than those who had a more single-dimensional focus such as cutting costs,” Accenture concludes.

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