GovTech.com has released an article titled 5 Tips for Outsourcing or Sharing IT Resources. For all the advocating of technology, GovTech has no way to comment on any article. So, here we go.
The first sentence should be a warning to any reader that this isn’t journalism, but a biased view. It reads “Sharing or outsourcing IT resources can be a tough job-no matter how sensible or cost-effective the concepts may seem.” The word “seem” is the key word here as sharing or outsourcing IT services usually results in increased costs. Let’s take a look at why this happens as with most things thinking is the problem.
We are treated in this article to a long list of CIOs and consultants (from the big firms) as experts in IT outsourcing and sharing services. It is a shame that with all that experience that there is so little knowledge. It is as W. Edwards Deming said, “Experience by itself teaches nothing.”
The “tips” are as follows:
- Assess the Need
- Measure Total Cost of Ownership
- Carefully Craft the Contract
- Get Everyone on Board
- Win Approval from the Top
These all appear logical enough which makes most of what I am about to say a management paradox. Most of the argument is predicated on the cost cutting and efficiency mindset. We (my 95 Partners and I) have long found that a focus on cutting costs always increases them. To focus on costs is to miss the causes of costs.
1. Assess the Need. Nowhere in assessing the need does anyone talk about the functional separation of work and that optimizing each piece leads to sub-optimization. Or that IT is a supporting service that supports the actual work and can not be viewed separate from the work. Doing so leads the actual work to fail while IT “saves money.”
It would be difficult to say that the State of Pennsylvania didn’t save $316 million in IT, but they can’t show me that by sharing services that they didn’t increase the end-to-end costs by $500 million by provisioning services with a shared or outsourced service center. These are the results found by my colleagues in the UK when assessing such moves.
If we are going to assess needs there should be a review of the services that are being provisioned. In many cases we have already designed in waste with front and back offices. This by itself begs the question of whether we even need IT, if a better work design can be found (and it usually can). By studying customer demand and purpose (or called performing “check“) government services can be designed more optimally, lessening the demand for IT.
In assessing needs there is another faulty assumption around economies of scale. A management paradox is that costs are not in the scale, but in the flow (economies of flow). If or when government management understands this we can get on with saving money . . . on a large scale!
2. Measure Total Cost of Ownership. Sounds reasonable until I read the article and realized they were talking about IT and not the end-to-end system. The focus on costs again doesn’t account for the end-to-end service delivery (system).
The article discusses the IT costs like labor, overhead, benefits, office space, etc. but think about the cost of a contract, monitoring the contract, all things that are typically not done well by States. Waste begets waste so government management will hire the inspectors/monitors/auditors too. Good segway to . . .
3. Carefully Craft the Contract. Having SLAs is a huge waste in government (please read: SLA: Stupid Limiting Agreement) not only the crafting, but once crafted they are like chasing jell-o across the table. You seem to have one nailed and something else always slips through your fingers.
Targets for times are always a bad idea . . . targets in general are a bad idea. The example of answering calls in under 60 seconds at a 95% service level is an example of the ignorance perpetuated. I outline why in my article Call Center AHT-Wrong Measure, Wrong Solution. The prescribed measure of service level is settling and adding costs to IT.
A good measure of understanding is to track failure demand (demand caused by a failure to do something or do something right for a customer). This runs between 40-90% in government and offers a huge opportunity to improve. Outsourcing or sharing services without knowing this number is to lock in waste.
4. Get Everyone OnBoard. When workers know a bad deal and the disruption to their work they object. Seeing that Outsourcing and Shared Services is done command and control style (top-down) is a huge failing of these projects. Performing “check” means understanding the work that delivers the service (and that is not IT).
It was AP Sloan that separated the decision-making from the work in 1930s GM, government management must start putting decision-making back with the work. This means they need to understand the work, not use a report, vendor or anecdotal liaison. To fail at this is to increase costs and worsen service.
The whole benchmarking of processes is another gigantic waste. Every state, federal agency, city or local government is a unique system. To draw conclusions about processes through benchmarking is ridiculous and wasteful. Each government entity has different demands, work design, structure, people, management, etc. and to benchmark is to lead to copying. Everything you need to improve your system is contained within it.
5. Win Approval from the Top. I agree here, but not the way one might think. The “top” must get knowledge by performing “check” on the organization, not by a command and control dictate using assumptions about the work. The input for this article is all about keeping in line. This approach is costly and damaging.
So, that is it. A better way to approach outsourcing and shared services requires knowledge and thinking. Before any shared services or IT outsourcing strategy takes place we need to understand current service performance. This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes. We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared service or outsourcing opportunities.
To learn more click on shared services strategy or IT outsourcing strategy from my blog or go to www.thesystemsthinkingreview.com
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Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public). His organization helps executives find a better way to make the work work. Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected]. Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.
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95 partners and you can witness the improvements yourself by going to 
Shared services fares no better, the idea is to achieve economies of scale and reduce transaction costs. The problem is that costs are reduced by economies of flow (not scale). We typically get the double-whammy of shared services and outsourcing where we are allowing our government to contract out our waste and add to it in many cases. Most of the waste in shared services is because government management has separated the work into front office-back office or skilled – simple (functional or transactional). A better way is to design against demand where the variety produced by service can be absorbed.
to meet the schedule improvements were always by-passed. No one redesigned anything, there was no time. No time for collaboration, no time for learning the “what and why” of performance . . . the schedule was what determined success or failure.