[LINK] Outsourcing Whitewash Announced

[Bill D'Arcy]

Kerry wrote:
>and didn't this IT Outsourcing start when Ms Lundy's lot were in power?

Fahey <http://www.brw.com.au/frame.asp?page=/stories/20001103/7713.htm >
denies that ideology has inspired the outsourcing program, and that some of
the problems with implementation referred to in the auditor-general's
report were the result of the Government initially proceeding with too much
haste. "Well, the program was started by Labor," he says. Fahey says the
former chief information officer of the Office of Government Information
Technology (which was rolled into OASITO) was appointed by Kim Beazley when
he was Minister for Finance and was brought from Canada with the intention
of developing the outsourcing program. Fahey says he is unsure whether
Labor intended to adopt the whole-of-government approach employed by the
coalition.

BRW also reports:

Outsourcing authority Professor Leslie Willcocks, of Templeton College,
Oxford University, in England, says outsourcing is a far more complex
process than most businesses and governments realise. One thing that is
rarely acknowledged is the very high level of post-implementation
management costs, which average 4-8% of the value of the outsourcing
contract.

Willcocks says that all the public sector programs he has studied put far
too much faith in savings from outsourcing. "It is voodoo economics," he
says. "These programs never achieve the projected cost savings. There is
just too much focus on savings. There are other reasons for outsourcing,
such as increasing flexibility and gaining new capabilities."

Given the length of government outsourcing contracts in a dynamic area such
as IT, Willcocks says it is almost inevitable that events overtake the
contract and push it in other directions. He says the danger in the worst
contracts is that outsourcers can maximise profits by cutting back on the
level of service. "There is a limit to how much smarter they can work and
beyond that there is a cost/service trade-off.

"The dangers with a poor contract is that it can delay the introduction of
new technology and can downplay the importance of IT within an
organisation, confining it to the role of a support service or, even worse,
a necessary evil," he says. "For a lot of organisations, (IT is) a core
activity and (a poor outsourcing contract) can depress the ability to use
IT to leverage better outcomes."

Letting politicians run outsourcing programs is not a good idea, Willcocks
says. They focus too heavily on "front-end" savings to be achieved by
contracts and tend to prefer contracting with a single supplier because on
the surface these contracts deliver the highest savings.

In his book Global IT Outsourcing: Search for Business Advantage, which is
being released this month in Britain, Willcocks reviews 114 outsourcing
decisions and finds that the most successful have involved a selective
approach involving discrete sections of a business and multiple providers.
He says this enables the preparation of highly detailed contracts with very
specific outcomes. He also argues that contracts should run for a
relatively limited time.

Willcocks claims that the "cluster" system (favored by the Howard
Government) - in which different departments are bundled together to be
serviced by a single supplier - has problems. He says there needs to be a
great deal of commonality between the IT needs of the organisations for it
to work effectively. "The response of the contractor will be to consolidate
and standardise and, as a result, service levels can deteriorate," he says.
"The other approach is to customise, in which case there are fewer savings
or lower margins for the contractor."

Suppliers are often prepared to put in low bids for government contracts,
Willcocks says, because they know that, with changing government priorities
and needs, they will be required to undertake new work, on which they will
be able to achieve far higher margins. "The savings are guaranteed on a
business-as-usual basis but there is really no such thing," he says.
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Bill D'Arcy