Outsourcing ICT carries many risks for local authorities and can come at a heavy price says new briefing from Socitm Insight
Published Wednesday 4th May 11
This view, recently expressed in Socitm's evidence to the House of Commons' Public Administration Select Committee, is developed in Costs of outsourcing - uncovering the real risks, the latest monthly briefing from Socitm Insight, research arm of the local public services IT and information professionals' association.
The briefing agrees that there are good reasons for outsourcing, especially for smaller organisations that may lack scope for economies of scale and the capacity to keep abreast of relevant developments in the complex and rapidly developing worlds of information and technology. Outsourcing infrastructure can also be a good way to reduce risk exposure as technology changes.
However, outsourcing a major component of the ICT service, or even the whole service, is a major commitment and fraught with risk. Costs of outsourcing also points out that Socitm's Benchmarking the ICT service, which has compared costs and user satisfaction over a decade, shows that, when comparing the costs for any service, most elements will be more expensive if outsourced.
The risks associated with benchmarking begin at the tender stage when suppliers will benefit from being experts at the process of negotiating contract terms, in contrast with the local authority that will go to market only rarely for a major outsourcing.
The briefing also counsels public services to avoid the mistake of outsourcing their information assets alongside their technology. As Socitm has explained elsewhere, the ability to exploit information assets is a key source of efficiency savings, and even well-known advocates of outsourcing advise against letting third parties have access to such 'core competencies'.
Another pitfall of outsourcing is that, in practice, many organisations choose to outsource their ICT to solve a problem. But, if they cannot manage an in-house operation effectively, the likelihood is that they will not be any better at managing a contract. In addition, they may end up handing over to the supplier economies and efficiency savings they ought to be capable of making themselves.
An associated issue is loss of in-house expertise, leaving the organisation unable to check, or even challenge, the view of the supplier. It is equivalent to the naïve householder faced with a plumber who takes a sharp intake of breath, asks 'Who did this?' and then presents a large bill. In these circumstances, urgent jobs may be done only at an excessive margin, as the supplier seeks to recoup profits lost through the typically hard-fought and costly competitive tender process.
Writing an outsourcing specification that meets today's requirements that will also be relevant in ten years' time is also a significant challenge. And yet long term contracts tend to be favored by contractors because of high costs of the procurement process and by clients because of the upheaval involved.
Costs of outsourcing sets out ways that an organisation that has resolved to outsource its ICT can protect itself against the risks, including:
- identifying the potential savings to be expected from an outsourcing deal by benchmarking in advance the cost and satisfaction with the existing service against the best performing ICT services and writing the difference into the specification
- getting professional advice around framing and negotiating the contact
- adopting 'strategic outsourcing'- as recommended by Socitm - in which the organisation identifies components of the entire ICT operation, and offers them to the market individually rather than as a bundle
- retaining an in-house team as a source of expertise and competitive capability
Costs of outsourcing - uncovering the real risks: published at the end of April, is available free of charge to Socitm Insight subscribers, and can be downloaded from www.socitm.net
Socitm Press Office
Programme manager, Socitm Insight