Making a Federal case of IT

Making a Federal case of IT

Rumours abound of outsourcers losing money with particular clients. Have there been any success stories?

The federal government's IT outsourcing initiative sits under increasingly darkening skies. The tempest may be gathering, but there is one small patch of blue in the storm clouds according to one close observer Canberra in January is usually a rather sleepy place. Politicians are away and there are more public servants seen on the beaches around Batemans Bay than in the nation's capital.

However, early in January this year, the lights were burning late in the offices of the bureaucrats tasked with implementing the federal government's IT outsourcing initiative. Richard Humphry, CEO of the Australian Stock Exchange, had prepared a report on the outsourcing initiative which had been released to the Department of Finance and Administration (DOFA) and the Office of Asset Sales and IT Outsourcing (OASITO). The government response to the Humphry Review was being framed that night - and it spelled the end of OASITO's controversial role in forcing the pace of federal government IT outsourcing.

The signs of trouble for the outsourcing initiative had been there for some time. Kate Lundy, Labor's ACT Senator and spokesperson on information technology issues, had landed some punches during her relentless questioning of bureaucrats in the Senate Estimates process. More significantly, the September 2000 report by the Australian National Audit Office - despite using polite, bureaucratic language - was scathing of significant elements of implementing the IT outsourcing initiative.

When the Howard government in April 1997 launched the federal government's IT outsourcing initiative, its spruiker was Dr Andy Macdonald, the then chief government information officer. Macdonald was especially fond of the phrase "the devil is in the detail". He is now long gone but his prophetic words remain. It was a simple policy to put in place but devilishly difficult to make work.

In the four years since the Howard government launched the outsourcing initiative, business worth more than a billion dollars has been written with outsourcing companies. The leading beneficiaries are EDS, CSC and IBM GSA. Hundreds of IT jobs have been transferred from government agencies to the private sector. IT companies have changed the way they chase federal government business and some have closed their Canberra offices.

One of the keenest observers of the full saga of IT outsourcing in Canberra has been industry veteran Jack Radik. He has seen IT outsourcing from a variety of perspectives: as a lobbyist when the IT outsourcing policy was being formulated, as an executive in outsourcing companies and, most recently, as an outsourcing consultant to government agencies.

"I was consulting on government issues to the Australian Information Industry Association (AIIA) when John Howard came to power in March 1996," Radik says. "The coalition's public sector policy platform had included a saving of $985 million over three years by outsourcing government IT. Even in 1996 it was evident from overseas experience that IT outsourcing for savings was generally unsuccessful. On behalf of AIIA's IT industry member companies, I lobbied ministers, their advisers, as well as OASITO's predecessor, the Office of Government Information Technology (OGIT), in a futile attempt to deliver a message of Â'outsource for better outcomes rather than to save money'. The savings were a Â'core commitment', not open to debate."

Radik's next encounter with outsourcing was at CSC Australia where, as Canberra manager, he was closely involved with CSC's bid for Cluster 3, the first contract awarded under the IT outsourcing initiative. "Those were exciting times," he says. "It also graphically illustrated to me the impact of government policy on multinationals. Without the federal government's requirement for local industry involvement, CSC would not have brought IPEX into the Cluster 3 equation as a supplier of desktop equipment."

After CSC, Radik set up ValueSourcing, a small consultancy firm which focuses on IT strategies in general and sourcing strategies in particular. Over the past three years, he has helped a number of government agencies through the process of outsourcing their IT infrastructure: several smaller agencies and the Department of Health and Aged Care, which has some 4000 "seats". Because he helps evaluate bids, Radik cannot accept assignments from vendors, only from their clients: there is too much potential for a conflict of interest. He says: "I feel like I am swimming against the tide. IT outsourcing has taken many long-term public servants and put them into senior positions with the outsourcers - where many are doing very well, thank you. However, there is a delicious irony in listening to the sales pitches of the same people you were selling to a few years ago."

Nevertheless, Radik firmly believes that his years of private-sector management experience brings value to his clients. "I bring an outsourcer's perspective, but can be trusted because I'm working for the outsourcer's client. I think it helps achieve good business when each party can understand the pressures on the other. The pressures in government departments are radically different from those facing companies like outsourcers."

How does this close observer assess Canberra's IT outsourcing "experiment"?

Bad Groupings

"There is no doubt that the grouping or clustering of agencies was a mistake," he says. "OASITO's theory was to build . . . business from three or four agencies and derive economies of scale. However, each agency had different management structures and goals, and different technologies. This resulted in the inevitable committees seeking compromises between the divergent agency requirements. This took time and money. I think things will be simpler in the new regime when government departments individually will deal directly with outsourcers."

Nonetheless, Radik suggests that outsourcing probably wouldn't have progressed in Canberra without OASITO. "Look, I think that something like OASITO was needed to break through the roadblock of opposition to IT outsourcing that Canberra's powerful IT bureaucrats put in place. OASITO was given unprecedented power, backed by a strong minister as well as the Prime Minister, which they exercised with a certain relish. One of the things which intrigued me when I went across Â'to the other side' - that is, working on behalf of government departments - was that the agencies disliked OASITO. When working for outsourcers, where the name OASITO was bandied around like a swear word, I had thought that the agencies would love OASITO for their tough negotiation on behalf of the agencies."

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