Should Johnny Outsource

Should Johnny Outsource

There will probably always be disagreements over government outsourcing, just as there will probably always be disputes over what the role of government should be in our pluralistic society. The danger of the current debate over federal government outsourcing of IT is that many proponents seem to be running on ideology, without having adequately examined the pro's and con's.

Why outsource government IT? The usual reasons include gaining better access to the latest technologies and to highly skilled people, the desire to exit non-core activities, and as a way to boost the Australian IT industry. But the chief justification given for outsourcing the complete federal government IT infrastructure is that it is a way to achieve massive cost savings. The trouble is that such savings are not as easily come by as advocates like to believe.

Graeme Hodge, an RMIT lecturer who has written a book surveying international experiences in contracting out government services, concludes that, on average, governments save perhaps 6 or so per cent. (South Australia's bold move with whole-of-government IT outsourcing has reportedly produced savings of 1 per cent). Hodge found savings vary for different services. Some services show no savings when outsourced, while the best results have come when outsourcing simple things like cleaning and garbage collection.

Gartner Group vice-president Bob Hayward told ComputerWorld in May that it was "debatable whether the best [outsourcing company] can compete with a well-run internal IS organisation" on cost. According to Hodge's data, too, outsourcing to an internal group can be just as cost-effective as outsourcing externally.

That would seem to be validated by Defence's recent decision to award a $121 million contract to an in-house bid team. It also begs the question: why not make judicious use of selective outsourcing to keep both teams honest - the outsourcing firms and the government IT folks? To make sensible decisions about outsourcing services, one first needs to be able to accurately define and quantify them. But according to Jonathan Farrell, principal of consultancy Farrell & Associates, most IT customers lack the ability to do this. Farrell says the average IT department provides anywhere from 40 to 70 specific IT services, but would be hard pressed to spell them out. He urges IT managers to break down what services they actually provide, profile how these consume available resources, and derive a cost per hour of doing them. It's good advice for private industry, and it's good advice for government.

As it happens, the estimates of achievable cost savings that were furnished by the Office of Government Information Technology (OGIT) to the government have been widely criticised, by Treasury among others. Some cynics even pointed out that OGIT, which has been the chief promoter of outsourcing, won a generous boost to its funding in the May budget - an extra $13 million over two years.

Did the government reward OGIT for telling it what it wanted to hear? It is necessary to remember that outsourcing government IT is not all upside.

There are risks, too. One danger is to the security of personal information if it is put into corporate hands. (Of course, given the current illicit sale of such information, perhaps this danger is exaggerated.) Another danger is the cloud of secrecy that always descends on outsourcing deals: the phrase "commercial in confidence" can be used to make a mockery of open government, as well as to cloak ministerial blunders.

The bottom line seems to me to be that the cost savings of wholesale outsourcing are by no means certain, and the risks have not been sufficiently discussed.

All of which has not deterred Finance Minister John Fahey from wanting to press ahead regardless. He told his department that Finance's own IT will probably be outsourced to ISSC, and he made no mention of going to tender. Of course Fahey is most famous for leaping into the air and shouting. What the big outsourcing decisions really need are people with their feet well and truly on the ground.

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