OUTSOURCING:%20The%20Good,%20The%20Bad%20and%20The%20Ugly

1
OUTSOURCINGThe Good, The Bad and The Ugly

• GOVERNMENT TECHNOLOGY MAGAZINE
• CTO SUMMIT 2006
• La Jolla, California
• Rita Pollock, Arapahoe County Government

2
TOPICS OF DISCUSSION

• Outsource vs. Offshore What Are The Issues?
• The Arapahoe County Story
• Potential Benefits and Pitfalls
• Best Practices
• Whats Right For You?

3
Remember Any of These?

• "I think there is a world market for maybe five
  computers."
• Thomas Watson, Chairman of IBM, 1943
• "Computers in the future may weigh no more than
  1.5 tons."
• Popular Mechanics, forecasting the relentless
  march of science,1949
• "I have traveled the length and breadth of this
  country and talked with the best people, and I
  can assure you that data processing is a fad that
  won't last out the year.
• The editor in charge of business books for
  Prentice Hall, 1957
• "There is no reason anyone would want a computer
  in their home.
• Ken Olson, President, Chairman and founder of
  Digital Equipment Corp., 1977
• "640K ought to be enough for anybody."
• Bill Gates, 1981

4
Outsource Versus Off-Shore

• Offshore - located or operating at some distance
  from the shore
• Outsource - to buy labor or parts from a source
  outside a company or business rather than using
  the companys staff or plant
• Random House Dictionary, Unabridged Edition
  1973
• Encarta Dictionary, 2004

5
Offshoring Not For Everyone

• The Good
• High Quality of Output
• Lower Cost of Living Lower Cost of Skill Sets
• Operational Flexibility, 24 Hour Clock
• The Bad
• Communication Challenges
• Requires New Skills Sets For Offshorer

6
Offshoring continued

• The Ugly
• Political backlash Bad for the economy
• Unemployed Bad for personal prospects
• Failed attempts
• Ooh! Ahh! That's how it always starts. Then
  later there's running and screaming.
• Jeff Goldblum, The Lost World Jurassic Park

7
OK What About Outsourcing Then?

• Cultural Hurdles
• Its new
• We already do it the best
• Job impact
• How do we do it?
• They couldn't hit an elephant at this distance
  (ughh) . . . .
• last words of Gen. John Sedgwick, killed in
  battle during the Civil War

8
Its New..Or Is It?

• Do You Build Your Own Furniture?
• Run Your Own Cafeteria?
• Have External Custodial Assistance?
• Program All Your Own Software?
• Ever Use A Consultant Or Contract Help.?

9
We Already Do It The BestReally?

• What Metrics Are In Use?
• What Comparisons Have Been Done?
• How Recently Have You Checked?

10
Job Impact.Or Skill Change?

• Loss Of Specific, Targeted Functions
• Addition Of New Needed Skills

11
How Do We Do It.Do We Do It?

• Determine Goals and Objectives
• Identify Candidate Function(s)
• Perform a Thorough Cost/Benefit Analysis
• Engage Internal Customers and Stake Holders
• Appeal to the WIFM Factor (whats in it for me)
• Its a Business Decision, Not a Technology One

12
The Arapahoe County Story
13
Arapahoe County

• Population 520,000, approx. 900 square miles
• Annual Budget - 250 million
• Employees approx. 1,700
• Elected Commissioners 5 Districts
• Other Elected Officials Sheriff, County Clerk,
  Treasurer, Assessor, Coroner
• 12 Appointed Department Directors
• 14 Incorporated Cities

14
Goals and Challenges

• Approaching End of Mainframe Applications
• Loss of Economy of Scale
• Aging Workforce and Shrinking Skill Set Market
• Inability to Fund Disaster Recovery
• Strategic Direction To Migrate Assessment
  Taxation Application to Newer Platform
• Need to Locate New Money for New Application

15
Our Process

• Internal Strategic Planning Meetings
• Identified and Quantified Current State
• Preliminary Assessment (External Assistance)
• RFP To Select Consultant
• RFP To Select Outsourcer
• Internal Meetings with Stakeholders
• Negotiation With Two Finalists

16
Pre-RFP Challenges

• Internal Customer Resistance
• Internal Staff Resistance
• Unpopularity of First IT RIF
• Skill Set of Team Members and Project Lead
• Other External Factors Timing Priorities

17
Post-RFP Challenges

• Successful Negotiation With Finalists
• Flawless Contract
• Problem Free Migration
• Achievement of Highly Acceptable Operations
• Realized Savings

18
Outcomes

• Near perfect transition to outsourcer
• Immediate noticeable response time improvement
• Faster batch processing
• Realized savings of 450k annually on a 1.2m
  budget for that function
• Acquired successfully tested DR services
• Able to successfully place 2 of 3 affected staff

19
Unexpected Outcome

• The success of this endeavor seemed to make
  outsourcing a new silver bullet solution.
• External forces began suggesting that outsourcing
  be explored for all sorts of operational ills.
• Risk of developing a culture of compulsive
  outsourcing abandoning the careful evaluation,
  benchmarking and consideration of future impact.

20
Potential Benefits and Pitfalls

• The Good
• Cost reduction
• Budget predictability
• Improved service levels
• Additional functionality
• Ability to focus on higher, more valuable
  priorities
• Opportunity to develop newer skills

21
Potential Benefits/Pitfallscontinued

• The Bad
• Its not a quick fix
• Investment of time, money and resources is
  required
• Requires a paradigm shift
• Generally entails some short term unpleasant side
  effects (reductions in work force or skills
  change-out)
• May involve some head banging to get there
• May create an unexpected monster
• Give me six hours to chop down a tree and Ill
  spend the first four sharpening the axe
• Abraham Lincoln

22
Potential Benefits/Pitfallscontinued

• The Ugly, If Its Not Done Right
• Service degradation
• Cost saving not realized
• Lack Of Service Penalties
• Twice The Time at Half the Rate Does Not Save
  Money
• Hidden Expenses
• IT credibility loss
• Bad media press!!
• High cost to recover (in-source)

23
A Few Good Outsourcing Principles

• Seek quality service at a fair, competitive price
• Create long term relationships with short term
  contracts
• Get detailed service descriptions with adequate
  metrics for each activity
• Make supplier fully accountable for delivering
  services with penalties when service levels are
  missed
• Manage, monitor and review suppliers performance
  with clear delineation of responsibility
  boundaries
• Those are my principles, and if you don't like
  them... well, I have others. - Groucho Marx

24
Whats Right For You?

• Develop Your Goals
• Recognize Your True Core Competencies
• Identify Outsourcing Candidates
• Know Your Culture and How To Work Within It
• Understand Organizations Fiscal State
• Seek Out and Analyze Your Alternatives
• Use Professional Assistance

25
In Summary

• Avoid The Ugly
• Handle The Bad
• Experience The Good
• Dont Be Afraid
• And Bask In Your Success!