Evaluation of Information Systems Outsourcing in Governmental Entities - Research Paper Example

Research paper on the Evaluation of Information systems outsourcing in Governmental entities Abstract This is a research paper that evaluates the adoption of Information Systems and technology outsourcing in governmental entities in the US. The research was conducted in four local government councils in the United States. The basic reason why this research was conducted is because outsourcing not only in IT but in other departments has become a significant issue in the restructuring of both private and public organizations but the fact is that there has not been enough research on the same. Both private and public sectors ought to have an understanding of what IT outsourcing is, how it takes place, its benefits and costs, as well as assess whether it is necessary to conduct one or you just do it internally in the respective organizations (Brehm &Scott Gates 1997, p 145). This paper focuses on the local government/ public sector or rather the governmental entities. This paper gives a comprehensive study and analysis on how outsourcing of Information Systems in government entities is conducted as well as assess on its success by making a comparison between the costs involved and the benefits that accrue. During the study, interviews were conducted with key senior officials in four government entities since such people had a lot of information on how the outsourcing has been conducted. Both qualitative and quantitative questions were used in the interviews. The interviews were used to evaluate the rationale for Information Systems outsourcing. The results from this study were documented and the compared with the current literature on the same so as to come up with the best practice of IT outsourcing. The best practice was documented and was ready to be distributed to other sectors ready for use and apply. After critical evaluations, it was found that most of these entities consider IT outsourcing rather than developing the IT systems internally simply because they want good quality and they consider external companies with a lot of expertise on the same to come up with the best information systems. It was found that those government entities that focus mostly on cost savings end up being inefficient and unsuccessful whereas those who focus on improved efficiency end up making us of IT outsourcing despite the high costs. From the interviews conducted and the analysis, it was asserted that government entities should consider IT outsourcing so as to make improved services rather than focusing on cist savings. Cost efficiency basically leads to more short term focus and this negatively affects the long term success of the entity (Brehm &Scott Gates 1997, p 175).The accompanying costs of outsourcing as well as it inflexibility was found to be one of the most difficult things for some government entities to consider long term goals. The conclusion of the study was that those entities that focused on contracting external companies so as to come up with information systems on their behalf were more successful than those who considered IT outsourcing as expensive and then opted for internal information systems. It was again discovered that developing continuous and long term partnerships with the Information Systems providers were more successful in the IT department and in all other departments since almost every other department has makes use of Information Technology. It is recommended that for any government entity to achieve greater success, and then they should come up with strong partnerships as well as focusing on best value and long term goals with the IT outsourcing company. Introduction Generally, outsourcing has gained popularity in the recent years as firms both in the private and public sectors so as to lower costs and also increase efficiency so as to hold competitive advantage over others due to the increased local and global competition. Currently, outsourcing in the government is growing at a rate of 20 per cent which is seen as a huge tempo and momentum in most sectors and this has been predicted to continue in the next five years as most governments are planning to outsource most of its processes and functions. The most outsourced process and function is the information systems function (Brehm &Scott Gates 1997, p 121). Child (2005, p. 179), describes outsourcing generally as the contracting out of activities, processes and functions that are undertaken on regular basis and are very crucial for the organization and which would otherwise be conducted within the organization. Information systems outsourcing has been defined as a decision taken by an organization, say in this case government entities, to sell the organizations information system assets, activities and people to a third party with experience and expertise on the same and who will in exchange provide and manage the organization’s IT components and aspect for monetary returns over an agreed period of time. Outsourcing is considered as one of the fastest growing and important activities and processes in business at the moment and is seen as significant aspect in the restructuring of organizations. From year to year, Information systems outsourcing in government entities has been widely spread from one year to another and more attention is paid to it very much. Basically, government entities tend to focus on outsourcing so as to cut on extra costs, add value to services offered, as well as saving time so as to focus on other primary functions. There are very crucial success factors for IT outsourcing by government entities and these include well structured strategic outsourcing plans, site visits to the outsourced partner, coming up with a clear scope of outsourcing and inventory, maintaining the knowledge of the business, strong communication plan, employee training and creating and maintaining good relationships with the vendor. Outsourcing has various advantages but still there is also adequate evidence that outsourcing fails in most of the times. The benefits that can be brought by a successful Information Systems outsourcing include saving on costs, efficiency in business and operations, improved flexibility, availability of world class experience and expertise as well as focusing on core competencies. The risks posed by outsourcing should be managed effectively so as to ensure that the process of outsourcing is successful. For many government entities, they have continued to use outsourcing to increase efficiency and effectiveness so as to increase competitive advantage. Outsourcing exists in two ways which are outsourcing the core value operations as well as outsourcing of other support activities. The core value operations include the supply chain areas such as distribution whereas the support activities include the human resource as well as the facilities management. As far as Information systems is concerned, many entities consider outsourcing IT as a non-core activity but in reality, Information systems has become very critical to the service delivery and due to its complex nature and its impact on the entire organization, it has become very important for IT to be outsourced. Experts in the IT filed believe that IT changes rapidly and this renders it very expensive to switch from one technology to the other. These experts assert that IT outsourcing is very much unique in comparison with other activities. This always has a lot of consequences on how Information systems are conducted and managed. Literature Review After reviewing the available literature on Information Systems, it was found that most of the literature available focuses on IT outsourcing in general rather than focusing on government entities/ the public sector. It was noted that outsourcing in the government has not been researched much and this calls for substantial research activities to be undertaken. Marco-Simó et al 2007, p.52) asserts that outsourcing in the public sector has not shown much interest that can be compared to its economic benefits and that why most researchers in this area tend to ignore it. This has caused a lot of interest on Information Systems outsourcing in government entities since people have started wondering how outsourcing is conducted and whether those who have already conducted it have found it successful or not. The lack of literature on IT outsourcing in the public sector can be a real problem when making comparisons. However, this provided a good opportunity to explore the gap in the literature and help understand as well as evaluate how outsourcing is conducted in government owned entities. Both private and public sectors have similarities and differences in that they are both divided in terms of ideologies and operations. Both have similar values such as accountability and integrity. However, the major difference between the two is that whilst the private sector is primarily motivated by performance in terms of money, the public sector considers efficiency much than the financial performance. The public sector may consider attributes such as honesty and accountability when conducting or planning for information systems outsourcing while at the same time, the private sector will focus much on cost savings. Another major difference between the two is that public and government agencies are required by the law to outsource all activities and processes that can be done cheaply by external contractors provided that they meet the minimum requirements as set by the law. On the other hand, the private sector has its choices on whether to outsource or not, who to outsource, the cost of outsourcing among other requirements. They can also conduct the process of outsourcing more strategically and at the same time approach the suppliers they consider the best. Past theorists and researchers have asserted that IT outsourcing in both sectors poses significant challenges and should not be considered as a simple activity that requires simple solutions. Lacity and Willcocks (1997, p.106) conducted an investigating on two case studies in the two public service entities in the US. Before the case studies, they indicated that outsourcing in the US had serious problems whose results were not good in the eyes of many people. In their case studies, they suggested that most government entities conducted outsourcing simply because the politicians who make laws believed that outsourcing would save money but in real sense, the process of outsourcing used to fail miserably and did not show any actual benefits. In another case study conducted by Frederick (1994), it was contended that most of the IT outsourcing projects by government entities were successful and most of the led to increased efficiency and savings in terms of cost and time. Maughan (2003) asserts that government entities are better placed when it comes to outsourcing of information systems since they devote most of their member of staff on managing positive and long term relationships with the outsourcing partners, whereas the private sector ignores employing more staff to conduct the same and this creates lack of focus on their part. Maughan (2003) also asserts most well run and managed government entities have clear and lengthy procurement processes which invites numerous tender, from which they can select the best tender. All this is imposed by the legislation and they are supposed to follow such guidelines before they select the final contractor. All this is not found in the private sector. The public sector gives the various entities legislation and guidelines which are mandatory and must be followed during the process of outsourcing. However, sometimes many incompetent and corrupt officials tend to choose the lowest cost bidder so as to pocket the rest of the money allocated no bothering about the quality of the outsourced partner. That is why the aspects of integrity and accountability are critical in the public sector outsourcing (Currie, 1996, p. 230) Organizations that focus much on outsourcing alone may end not being successful, instead they should balance on the reasons why they outsource. Potential benefits of outsourcing The available literature above indicates that are various potential benefits that a firm, both in the private and public sectors can obtain from the process of outsourcing in general. This research will conduct interviews and come up with findings to determine if these findings apply in government entities. Cost savings and quality improvement Outsourcing is considered to offer immediate savings on cost. This can be seen from the 2004 outsourcing world summit which indicated that 50 percent of the executives who attended cited cost savings as the number one reason why government conduct the process of outsourcing. There is sufficient evidence which shows that governments have saved money as a result of outsourcing especially in information technology. However, (Kremic, 2006, p.468) indicates that cost reduction in outsourcing can only be achieved if the person or company providing the services enjoys economies of scale or as the ability to obtain greater efficiency through the process of specialization. Conversely, Hart, Shleifer, and Vishny (1997, p.1127) states that organizations that focus on cost saving when conducting the process of outsourcing often lead to poor quality work at the end of the outsourcing period. This is due to the fact that people cannot specify quality within the outsourcing contracts and thus they tend to focus on cost reduction. Focus on competence Consider a government entity, for instance, the ministry of lands which focuses on giving legal title deeds to the right owners of the land. If such an entity focused much on developing the information systems of the ministry, they will end up losing the main focus. Outsourcing allows an organization, whether in the private or public sector to avoid routine processes and activities and focus on what they do best. Government entities should outsource non-core activities so as to give them adequate time and focus on the core business of the entity so as to continue offering efficient services and maintain the public image and reputation as well as providing competitive advantage. The public sector should focus on planning and monitoring of services offered rather than focusing on how to manage information systems. Flexibility The chairman of the National Outsourcing Association urges governments to consider outsourcing most of its activities and processes so as to allow such process and activities to be adaptable and respond to changes. For instance, information technology changes from one time to another and from one organization to another and this means that the process needs an individual or a company that focuses on IT so as to respond well to any changes. Access to experience and expertise Outsourcing will enable an organization to compare and select the best firm that has the required experience and expertise rather than relying on internal members of staff who9 may not have the required experience and expertise in the industry. For the public sector, they have no other option other than outsourcing since in terms of offering the best wages, the private sector wins it. This means that they cannot get the best talents required to undertake the processes and activities. Methodology This research is conducted in the form of case studies conducted in four different government entities. A case study is a bounded entity which is studied comprehensively through the use various methods over a period of time. Various real cases/case studies need to be conducted before the findings are generalized and documented. For instance, before we generalize on the situation of information systems outsourcing in government entities, we need to conduct various case studies before we document any findings. The case study provided below is basically an in-depth examination of Information Systems outsourcing in government entities so as to enhance understanding on the subject area and again develop an area for further research in the future. Case studies give much greater understanding on the subject matter and are considered to be more comprehensive than surveys since they represent a real organization setting. Case studies may be single or multiple. Single case studies are used when the subject matter is under-research and require a lot of research whereas multiple case studies are used where comparisons are required. Case studies represent a reliable method of analyzing an issue since it makes use of multiple data collection methods. Case studies conducted The case studies were conducted on four government entities in the US. The Reason why these entities were preferred is because they were similar in terms of size as well as the activities undertaken and again these entities represented many other local government entities. Another reason is that these entities were convenient in terms of distance between them and that the participants of the research were willing to travel from one entity to another. The case studies were as follows: Government entity 1 The first government entity studied was a district council that served approximately 200,000 people. In this entity, Information Systems (IS) supports this council in day to day operations and thus is crucial for the performance of the council as well as service delivery. In this entity, Information Systems is one of the processes outsourced by. In 2009, it was revealed that IT services were the most expensive contract at the council with a budget of £700,000 per year. At this entity, their main object is to improve efficiency as well as make services available to all. In 2006, the entity entered into a contract with their service provider which cost £2.5 million and the service provider was to manage all Information Systems such as servers, desktops and applications. Government Entity 2 Government entity 2 serves a population of approximately 300,000 people. This entity entered into a 10 year contract with one supplier who was to offer all Information systems services to the entity. The main reasons why this entity chose only one partner were that they wanted to ensure that there was integration and useful relationships between the entity and the IT provider and again reduce on costs that would be more if various partners were considered. Thy entered into a long term contract so as to allow adequate time for the provider to be able to recover the costs incurred. Government entity 3 Government entity 3 serves around 150,000 people and it entered into a one year IT outsourcing contract. It outsourced its entire information systems department and the service provider provided services such as network development, procurement, servers, among other support services. They also offered 24hr, 7 days helpdesk and monitoring. Government Entity 4 This serves a population of 200,000 people and do not outsource its information system processes. Methods of Data collection Semi-structured interview method of data collection was used at the four government entities. The respondents were heads of information systems at the entities. The responses were as follows: Government entity 1 referred to recruitment issues as the main reason why the considered outsourcing of the IT services because initially they found the process of obtaining talent and retaining it as almost impossible. Other reasons behind outsourcing were savings on cost, improved quality as well as increasing the entity’s responsiveness to the public. For the government entity 2, they primarily outsourced so as to improve quality and at the same time gain the much required investments. The second reason was the issue of cost and the other reason was to ensure that they focused on their sole strategy. Government entity 3 outsourced as a result of issue in recruitment, followed by quality improvements and the third reason was to ensure that they enjoyed expertise by their service provider. Cost savings were not very much important. They also outsourced so as to support strategy and that is why they decided to enter into a partnership agreement. Government entity 3 did not undertake any form of IT outsourcing at all (Currie, 1996, p. 229) In conclusion, the reasons given for Information systems outsourcing were; cost savings, improve quality, and focus on core business, increased flexibility, external expertise and issue to do with recruitment. Each government entity ranked the reasons in order of their importance as discussed above. Discussion Cost savings and improved quality services It is very clear from the case studies conducted that quality improvements as well as savings on cost are the number one reasons why government entities outsource information systems instead of using internal staff members to develop and maintain the entity’s IT services. Despite the fact that savings on cost were the common reason for outsourcing information systems, service quality improvements took centre stage thus meaning that savings on cost could not be instant and often took time. Governmental entities that focused much on cost savings alone meant that they tend to forget other areas such as innovation, creativity as well supporting the entities strategically and this meant that they had a negative long term impact. It is very clear that cost savings are crucial, however, governmental entities should come up with a balanced approach to the process of outsourcing so as to achieve value proposition but not just cost alone. In conclusion, those entities that focus on cost savings alone while outsourcing IT are less successful than those who focus on adding value. Expertise From the research conducted, it was observed that access to external experience and expertise was considered as another as another reason behind outsourcing of information systems in the governmental entities in the US and UK in general. In overall, it was considered as the third most important reason for IT outsourcing. Information systems require a number of skills most of which cannot be found internally and in addition, IT is changing day by day and this calls for concentration and expertise. IT contractors can specialize in IT only and this means that they can employ a larger pool of skilled and talented workers. Issues to do with recruitment Almost 10 years ago, recruitment issues were considered as the most important reason why governmental entities conducted outsourcing of information systems. This can be evident in entity 1 and 3 who found out that they had to outsource information systems basically due to the fact they could not afford and attract skilled staff basically because higher wages given by the private sector. Again those times, there was an acute shortage of skilled IT staff. At the moment, recruitment issues are not as important as during those times. Focusing on core business As seen from the research conducted, the governmental entities outsourced so as to transfer the responsibility of coming up with the information systems of the entity and instead focus on the strategy and the core business of the entity in question. More time and energy could now be transferred to the core business of the governmental entity. From the data collected, all government entities termed this as an important factor why they considered outsourcing. Information systems are more complicated than any other support function of any entity and this call for its outsourcing (Currie, 1996, p. 226). Most of the governmental entities are increasingly becoming more reliant on information systems and thus view it as one of the key services for transforming service delivery to the public. Many private organizations may consider information systems as merely a support function; IT at governmental entities is very crucial foe the service delivery to the public. The government entities thus considered outsourcing of information systems so as to support the main strategy and goals of the entity. For example, governmental entity 2 put into paper a long term contract with their service provider who was supposed to create and maintain strong relationship between each other for the success of both parties. The government entity was to benefit from improved quality of services as well as excellent service delivery whereas the provider was to benefit from excess proceeds from the long term contract. Council still outsourced so as to support strategy besides other reasons such as reduced costs and improved quality. Entity 1 noted that lack of strategies and other forms of support was one of the reasons why outsourcing did not meet the demands of the people. The application of information systems outsourcing in support of key strategies helps explain why there has been a lot of signed long term agreements between government entities and information systems service providers. In these agreements, governmental entities come together and have a pool of resources such as common data centers so as to bring about higher degrees of efficiency and effectiveness in normal operations. All these factors gives the entities greater leverage when it comes to outsourcing since they can recruit managers from the private sector who have experience and expertise and again allow them to shift focus to strategy. Conclusion As seen in the literature review, companies in the private sector focus much on cost savings when outsourcing its information systems components whereas for the governmental entities, cost savings still remain to be a major reason behind outsourcing because of budget constraints. Nevertheless, Child (2005, p. 187) puts it very clear that IT outsourcing offers the cost savings benefit but as seen from the three governmental entities that were involved in IT outsourcing, this was not the case. Government bodies are now having a major focus on achieving and maintaining value for the entities and again improve the quality of services offered to the general public. During the evaluations, it was concluded that those governmental entities that focus much on cost saving are not as successful as those who focus on activities and processes that add value to the business. Hart et al (1997, p.1128) argues that reductions on cost are always considered as primary reasons behind outsourcing due to the fact that quality is not easy to specify but as seen in the case study, the three entities that outsourced its IT components were able to achieve value as well as service quality improvements. The Available literature showed that although most of the public sector organizations that outsourced did not meet the expectations of the public, the three entities confirmed that outsourcing really improves quality and has a positive impact on cost savings if conducted as per the law and by competent partners. Although many private companies focus much on strategic reasons when outsourcing its IT components, this research has proved that quality improvements and cots savings are the most important reasons to outsource information systems at governmental agencies. The governmental entities still outsourced IT so as to take advantage of external expertise since IT has become more complex and has been changing from time to time and most of the entities lack the necessary skills and qualifications. The service providers are considered simply because they specialize in Information systems and have the ability to look for the required skills. However, some governmental entities still have some few skilled internal IT experts who are involved in ensuring that new skills are developed, support strategy and again to avoid depending solely on the external experts only. Recruitment is not seen as important when outsourcing IT in the modern government agencies. Although the public sector does not pay as much as the public sector, nowadays they are recognizing that IT is a very crucial part of the organization and are willing to offer better wages so as to attract the best employees. Lastly, it was very clear that adequate time and effort should be given somas to manage the process of outsourcing before, during and after IT has been outsourced and this make the entities to be much responsive to overall changes in the respective sectors. The basic functions that governmental entities choose to outsource most are information systems as well as business processes. 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Whitfield, D. 2008. PPP DATABASE: Strategic Service-Delivery Partnerships for local authority ICT, corporate and technical services in Britain. Read More