Local governments who outsource their IT operations should consider switching back to in-house employees. Coming from a long-time proponent of outsourcing, these words might sound like heresy. For certain CUPE national reps, this suggestion might come as a cool breeze on a sweltering August day.
Outsourcing in local government is a little like Modern Jazz, Expressionism or the Honda Element… you either get it or you don’t.
The organizations that have an affinity for outsourcing are probably already doing it. Some have been outsourcing their IT for up to 10 years. The local governments that aren’t outsourcing probably aren’t doing it because they simply don’t have the corporate culture required to support it. These organizations will likely require some irresistible external force to change their thinking. In local government this implies a change in political climate and/or a change in the senior management.
Organizations that have implemented and become successful at outsourcing IT have likely by now become a little complacent. One of the nice things about having outsourced an entire IT operation is that you no longer have to listen to suggestions about how you might save money by outsourcing. Further, you never hear anyone suggest that you investigate switching back to the use of employees. Most organizations that use outsourcing tend to consider an outsourced function to be a completed project and thus they tend to focus their attentions on the feasibility of outsourcing other functions.
Outsourcing contracts should, however, be periodically re-evaluated — in fact, every time the contract comes up for renewal. Reasons for outsourcing vary from one local government to the next. The most common assumption is that cost savings are the primary objective. This is sometimes true, but it is very rare that outsourcing will result in a cost savings upon initial evaluation. The more experienced users of outsourcing have found that its greatest advantage is the surety of obtaining usable results for the money spent. Savvy outsourcing contract negotiators seek to obtain clauses that tie payments to the delivery of certain results or penalties to failure to achieve results.
Whatever the reason for outsourcing, it is important to keep in mind that those reasons are likely to change over time. This is why the mature users of outsourced resources go through the process of re-evaluating the business case for outsourcing on a periodic basis. The disadvantages of outsourcing are many. Outsource contractors tend to have much higher employee turnover than local government. The contractor’s employees always seem to leave just as they reach their peak productivity. The contractor’s employees also tend to have less interest in long-term solutions and community values. They are also less likely to live in the community and therefore need more time to respond to after-hours emergencies.
The advantages of outsourcing include greater certainty of value received for money spent, provided that such guarantees can be successfully negotiated. It also allows organizations to respond easily to changes in labour requirements or to obtain labour resources with specific skills when the market is such that union scale is insufficient to compete with the private sector. For smaller local governments, outsourcing can also provide greater access to an inventory of specialized skills that might otherwise be unavailable if they couldn’t justify establishing a full-time position.
The only way to determine if outsourcing makes sense in the future is to do a detailed and honest cost comparison. In the end, the answer will be obvious, but it’s as likely to be due to the non-financial considerations as the financial ones. In Chilliwack’s case, a recent evaluation demonstrated that outsourcing saves us about $40,000 per year. This amount would not likely be enough to convince us to outsource if we did not already believe in the value of the non-financial benefits.
Rob Carnegie is the director of corporate services at the City of Chilliwack, B.C. [email protected] or www.geocities.com/SunsetStrip/Garage/5882