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A Strategic Guide for Local Government On: Outsourcing

Managing Government Concerns about Outsourcing

While local governments are realizing the ben- efits of outsourcing, important considerations keep organizations from quickly opting in. Worry over eliminating jobs, the desire to avoid costly moves and the fear of losing con- trol of data are all frequently cited concerns. As discussed below, government organizations that have outsourced have had to address these same considerations.

Worrying Over Eliminating Jobs One of the reasons organizations opt to out- source is to contain unwanted costs. One of the reasons not to outsource is the fear of eliminating jobs – positions that provide value to the organization. One way to retain jobs while transitioning to outsourcing is to re- deploy employees to other companies, trans- fer them to the outsourcer or free them up to focus on other needed functions within the organization.

To ensure employees’ jobs are not eliminated when outsourcing, the organization can require the outsourcer to hire government employees as part of the contract. The city of Minneapolis required the outsourcer to hire its government employees for three years with full salary, bene- fits and tenure when the city outsourced its IT infrastructure. For the employees not transi- tioned to the vendor, the city reallocated them to other government areas.

The Fear of Incurring High Costs Fear of high costs keeps some organizations from moving to outsourcing. The opposite is generally the reality. Investing the time to ana- lyze the business and technical environment and build a case for change provides insight into whether outsourcing may or may not be the best alternative for the organization. The CIO in the city of Minneapolis had to demon- strate cost savings in its business case to the city council and mayor. The outsourced services

could not increase costs over performing the services in house.

Many agencies have found that even if the cost is the same as running the function in house, the ability to fix future outlays has value. For the city of Indianapolis and Marion County, Ind., outsourcing is used to contain costs. Cost con- tainment stabilizes technology costs, which otherwise could spiral out of control. For example, if desktop management is out- sourced, the contract specifies a time period and a finite cost for the service. Outsourcing provided the city of Chicago’s CIO a fixed, pre- dictable cost over a period of five years. Predictability is welcome by CIOs, CFOs and other city or county executives.

The Concern of Losing Control of Data Another reason jurisdictions avoid outsourcing is because they don’t want to move the public information and data off site. Visiting other cities helps in finding out what other cities are out- sourcing. In addition, a clear understanding of laws and regulations helps to make informed decisions about data management.

Outsourcing firms are generally able to offer the best rates when they manage customer data at their city’s data centers. These centers may run the operations of hundreds of other customers and offer both economies of scale and leading-edge skills. Some cities are reluc- tant to give up control and prefer that an out- sourcer continue to manage operations in the cities’ facilities.

Other governments are comfortable with the secure and reliable environments of high-qual- ity vendors. As a result, they take advantage of cost savings by allowing their data to be man- aged at vendor facilities. In either case, ven- dors should be able to describe and demon-

strate the skills and processes used to assure data security, including the use of offshore resources used by themselves or their subcon- tractors.

The city of Minneapolis would only outsource its data to a vendor located in the same state. While the city lost some ability to “touch” the data, the vendor provided back-up capabilities and redundancy – capabilities that did not exist before and significantly increased data integrity and public safety.


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