a strategic guide for local government on: outsourcing · pdf filea strategic guide for local...

A STRATEGIC GUIDE WITH INSIGHT FROM

A Strategic Guide for Local Government On:

OUTSOURCING

A Strategic Guide for Local Government On:Outsourcing

ABOUT THE GUIDE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

OUTSOURCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

What is Information Technology (IT) Outsourcing? . . . . . . . . . . . . . .4Outsourcing Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Key Reasons Why Jurisdictions Outsource . . . . . . . . . . . . . . . . . . . . .6Managing Government Concerns About Outsourcing . . . . . . . . . . .8What Functions Should Not be Outsourced . . . . . . . . . . . . . . . . . . . .9

PHASES OF IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10• Investigating Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11• Creating Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12• Developing a Communication Plan . . . . . . . . . . . . . . . . . . . . . . . . . .13• Creating a Project Management Plan . . . . . . . . . . . . . . . . . . . . . . . . .14• Analyzing the System Environment . . . . . . . . . . . . . . . . . . . . . . . . . .14• RFP and Vendor Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Mobilization Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16• Developing the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16• Creating Service Level Agreements . . . . . . . . . . . . . . . . . . . . . . . . . .16• Formulating the Statement of Work . . . . . . . . . . . . . . . . . . . . . . . . . .18

Implementation Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18• Enabling Knowledge Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19• Managing the Vendor Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . .19• Managing Customer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 • Operations and Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

CRITICAL SUCCESS FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Table of Contents

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ABOUT THE GUIDEABOUT THE GUIDE

This Guide is written for local government officials interested in learning about technologyoutsourcing and the key steps for evaluation and implementation. It captures the collective knowledge and lessons learned of progressive cities and counties that havebeen using technology outsourcing to enhance their capabilities and control costs.

The experiences are intended to help other local governments to understand the drivers behind outsourcing, implementation considerations, and important steps to take.Whether the reader is a city manager, elected official or chief information officer (CIO),this Guide provides information on how to make the outsourcing decision.

The Guide’s structure reflects the strategic process that smart government executiveshave used when embarking on a new initiative. The first half is a primer on outsourcingthat offers an overview of outsourcing in the public arena and the factors that drivepublic organizations to outsource IT services.

The second half identifies the broad phases that jurisdictions employ for outsourcing,from evaluating what IT functions to outsource, and to creating a communication plan,to managing an effective vendor relationship and evaluating customer satisfaction. The Guide strives to provide lessons learned from those who have current experience.Although each government has its own unique situation; however, these basic phasesenable local government officials to follow the road successfully paved by others.

We would also like to thank the Guide’s underwriter, IBM for all of their efforts to helpcreate the material herein.

A Strategic Guide with insight fromTHE CENTER FOR DIGITAL GOVERNMENT


OUTSOURCING

What is IT Outsourcing

Over the next five years, local governmentswill face unprecedented pressure to providebetter services while maintaining or reducingcosts. Outsourcing is one way to address thischallenge. Governments outsource when theyhave decided that the best way to increase effi-ciency, improve performance and reduce costis to privatize parts of the organization that arenot inherently governmental responsibilities.

Information technology outsourcing (ITO)occurs when government entities hire externalvendors to manage, maintain and/or run someportion or all of their IT infrastructure and/orapplications portfolio. Business process out-sourcing (BPO) is another form of outsourcing

in which a jurisdiction hands over the execu-tion of a business process such as accounting,waste management, procurement, or humanresources.

ITO allows government entities to focus ontheir core mission, which is to serve citizensinstead of managing technology. By outsourcingcomponents of a business process to an outsidevendor, management spends more time on itsprimary mission instead of managing the ITinfrastructure.

Traditional outsourcing objectives include reduc-ing operational costs, improving IT flexibility,focusing on core competencies, and increasingoperational efficiency. By leveraging the ven-dor’s specialized capabilities, the governmentorganization gains access to state-of-the-arttechnologies without investing directly in thedevelopment or exposing itself to more riskthan is necessary. Leaders who identify theneed for outsourcing tend to be elected offi-cials, city managers or financial officials. CIOsfocused on transformation and modernizationmay also be interested in the opportunity.

The most commonly outsourced IT functionsfor government entities include help desk sup-port, desktop support, wide area network(WAN)/local area network (LAN) support, dataoperations and maintenance of servers, applica-tion services and development, and training.

The city of Minneapolis, Minn., chose to out-source its IT infrastructure because it wanted tofocus on improved service delivery, not oninstalling and maintaining computer hardware,software and networks. IT now focuses onapplying technology to business needs insteadof asset management. In addition, by outsourc-ing to a third-party vendor, the city gained datadisaster protection and 24-hour service it previ-ously lacked. Now the CIO can focus on newapplication areas that drive better constituentservices, increase use of the Internet and lever-age IT capabilities to better serve the city.

OUTSOURCING DEFINED

Outsourcing defies a simple definition. Itis used in a variety of different waysdepending on the organization and thefunctions outsourced. The following defi-nitions are commonly used:

Purchasing an item or a service from anoutside vendor to replace perform-ance of the task with an organization’sinternal operations. The transfer ofcomponents or large segments of anorganization’s internal IT infrastructure,staff, processes or application to anexternal resource.

The transference to third parties, theperformance of functions once admin-istered in house. Outsourcing is reallytwo types of services:

•ITO: IT outsourcing, which involves a third party who is con-tracted to manage a particular application, including all related servers, networks and software upgrades.

•BPO: Business process outsourc-ing, which features a third party that manages the entire business process, such as accounting, pro-curement or human resources.

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Outsourcing relationships have evolved into fourtypical models:

• Single Provider ITO: Outsourcing IT services to one off-site provider;

• Multiple Provider ITO: Outsourcing IT services to multiple off-site providers;

• BPO: Outsourcing business processes to an off-site provider; and

• Business Transformational Outsourcing (BTO): Transforming the organization through the outsourcer.

The first outsourcing model, Single ProviderITO provides government organizations theopportunity to outsource a component of theiroperations, such as help desk support, so thatthe organization can focus on its core compe-tency: serving the citizens.

As technology has become more specialized,organizations have gained the opportunity to outsource multiple operations using the second model, Multiple Provider ITO.Organizations gain access to specialized ITservices and can be selective in the servicesthey choose from each vendor. For example,outsourcing to multiple providers reduces theproblem of having an outsourcer that providesexcellent desktop support, but below-averageapplication development services. However,organizations must consider the tradeoffs of specialized service with the additional complexity of managing multiple vendors andintegrating their activities. Larger vendors typicallyperform all of those services or subcontract ifappropriate.

Minneapolis turned to the Multiple ProviderITO model when it outsourced its help desksupport, application management and datacenter network support to take advantage ofdifferent providers offering specialized services.In fact, the city divided the Request forProposal (RFP) into three parts – each part for

the specialized service needed. Dissatisfactionprompted the move. Users were satisfied withdesktop support from the previous ITO, butnot with its application development services.

As government becomes more results oriented,process outsourcing is likely to becomeincreasingly prevalent. Some of the more feasi-ble candidates for BPO in the governmentinclude fleet management, payroll, bill collec-tion, and check processing.

And, finally, beyond the BPO model is theBTO model, which focuses on organizationaltransformation. The BTO model is gaining sig-

nificant traction in the private sector. The trans-formational approach involves taking differentdepartments, such as the finance or humanresources groups, and using IT to transformand reengineer related business processes.With more stakeholders involved, change ismore rapid and effective throughout the enter-prise.

Outsourcing Models

IT Outsourcing

Third Party

Application• Servers• Networks• Software

IT Organization

Business Process Outsourcing

Third Party

Business Process• Accounting• Procurement• Human Resources

IT Organization

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A confluence of events is driving local govern-ments to consider new ways of managing andadministering technology. Faced with budgetchallenges, an aging workforce, skills shortages,and a dated technology infrastructure, govern-ments are increasingly considering technologyoutsourcing as a vehicle to address theseissues.

Governments have used outsourcing for years.From recycling to garbage waste collection toIT services, well-managed outsourcing pro-grams help government reduce costs andincrease effectiveness. Today, governmentorganizations are outsourcing IT services for amultitude of reasons, including:

• Increasing focus on core competencies;• Containing costs/saving money;• Increasing specialized skills to improve IT

flexibility;• Obtaining predictability/reliability;• Improving service and operational

efficiency; and• Eliminating out-of-control functions or

unnecessary resources.

Focus on Core CompetenciesOutsourcing allows government organizationsto focus on their core mission. After interview-ing city and county officials across the nation,outsourcing played a significant and positiverole in enabling organizations to focus on mis-sion-critical activities for their constituents anddeliver higher overall value and service levels.By outsourcing IT services, the agency focuseson its core mission – improving service to itscitizens, not worrying about the LAN or staffinga help desk.

Minneapolis expects outsourcing to save thecity $20 million over seven years, the length ofthe outsourcing contract. The contract centerson infrastructure management, includingservers housed at the vendor’s data center. However, the city focused on strategic rea-

sons, not just cost reasons, for outsourcing. Byoutsourcing, the city is able to improve IT serv-ices, increase backup and reliability of systems,and the IT organization is able to focus atten-tion on using technology to improve servicesrather than the technology itself.

Containing CostsAlong with enabling governments to concen-trate focus on their core competencies, outsourcing helps organizations contain costs.In fact, government leaders cite cost contain-ment (particularly during periods of increasingdemand for IT services), as opposed to costreduction, to be a key driver. Most leadersrealize that savings is a long-term result andunderstand that outsourcing limits the costs toa set amount, so jurisdictions gain control overoperating costs.

In some cases, governments are in need ofaggressive modernization of hardware, soft-ware and mission-critical applications. This canoften lead to short-term needs to significantlyincrease investment in IT. The expertise ofhigh-quality firms will help organizations investefficiently and target spending where it willhave the greatest impact and the strongestbusiness case.

The city of Fort Wayne, Ind., moved to outsourcing to gain control over costs. Its outsourcer provides a fixed-cost to run theequipment on site allowing the city to disposeof managing IT functions and better focus onthe real issue at hand – improving customerservice to its citizens.

Increasing Specialized Skills Top-quality vendors provide access to a widerand deeper set of skills and services.Governments can also reduce overall IT risk byusing suppliers with a reputation for deliveringfirst-rate services and capabilities.

The most common IT specialized skills andservices that local governments need include:

• Help Desk Support• Desktop Support• Maintenance/Repair• Data Operations (Servers)• Server Maintenance• WAN/LAN Services• Training• Application Services and Development• Consulting and Reengineering

The city of Minneapolis looked for an out-sourcer who could provide a data center tohouse its servers in the state. The vendor hasa nearby data center with back-up capabilitiesand redundancy – technology components thecity lacked. In addition, the vendor housesother clients’ data, which proved to the citythat the vendor had the specialized skills andexperience required for housing the city’s serv-er environment.

Montgomery County, Md., generally managesits own operations and infrastructure, but relieson vendors for specialized skills and expertise.

Obtaining Predictability/ReliabilityPredictability of cost and service is anotherdriver. Many contracts use a fixed-price con-tract in which the outsourcer provides negoti-ated-levels of service for a fixed price. Risk ofout-of-control costs or unforeseen chargesbecause of technology changes are reduced.

Reliability is crucial for local governments toensure that citizens and public servants receivethe services they need. By outsourcing specificfunctions, local governments gain access tohigh-performing infrastructures. For example,by outsourcing application development, localgovernment entities can work with a vendor toprioritize appropriate technology investments.

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Key Reasons Why Jurisdictions Outsource

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In some cases, outsourcers bear the risk ofensuring that the technology itself is reliable.For example, the city of Minneapolis sold itsassets to the vendor. The outsourcer nowowns all of the PCs and is responsible forupgrading the Microsoft software and refresh-ing systems to maintain reliability. None of therisk of upgrading the PCs and ensuring reliabil-ity falls on the city anymore, since the out-sourcer owns all of the assets.

The city of Chicago, Ill., on the other hand,continues to own the assets. The city bears theburden and risk of upgrading equipment whilethe vendor manages the assets. Half of the PCsstill run on Windows 98 because the hardwaredoes not support newer operating systems.The burden of improving the technology fallson the city to obtain more reliable systems.

Improving Service by IncreasingOperational EfficiencyOver the next five years, local governmentswill face unprecedented pressures to providebetter services while maintaining or reducingcosts. Improving service to the end users isanother driver of organizations consideringoutsourcing. For example, outsourcing helpdesk functions to a vendor who specializes inhelp desk support can improve the quality ofservices to the end user. Having specialized inthat industry, the outsourcer uses industry bestpractices to ensure call waiting is minimizedand issues are resolved quickly.

An outsourcer may bring leading-edge tech-nology to allow for quick look-up features,storage and retrieval of data, and top-of-the-line customer relations management. Thisexpertise provides the government with theopportunity to provide the total positive cus-tomer experience.

A byproduct of outsourcing to improve service

is improved business. All local government partic-ipants in a recent meeting to discuss outsourcing,indicated that they had used their outsourcingengagements to standardize business processesand technology, which increases efficiency. Forexample, prior to outsourcing, the IT environ-ment in the city of Minneapolis was decentral-ized. Outsourcing helped centralize its IT infra-structure. For example, the CIO consolidatedoperating systems by standardizing onMicrosoft.

For San Diego County, Calif., outsourcingbrought consolidation and standardization. Thedeputy CIO said that outsourcing providedupgraded technology, a reliable infrastructureand a dependable support team.

Eliminating Out-of-ControlServices or Unnecessary ResourcesOutsourcing can be used to impose disciplineon “out-of-control” functions. However, themanager is still responsible for the outsourcedfunction. But, if the function is difficult to man-age because of inefficient processes or misun-derstood requirements, outsourcing the ineffi-cient process will most likely not fix it. Theorganization needs to understand its ownprocesses in order to communicate them tothe outsourcer. In many cases, a quality-out-sourcing firm brings expertise to bear on thisproblem as well.

While local governments are realizing the ben-efits of outsourcing, important considerationskeep organizations from quickly opting in.Worry over eliminating jobs, the desire toavoid costly moves and the fear of losing con-trol of data are all frequently cited concerns. Asdiscussed below, government organizationsthat have outsourced have had to addressthese same considerations.

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

To ensure employees’ jobs are not eliminatedwhen outsourcing, the organization can requirethe outsourcer to hire government employeesas part of the contract. The city of Minneapolisrequired the outsourcer to hire its governmentemployees for three years with full salary, bene-fits and tenure when the city outsourced its ITinfrastructure. For the employees not transi-tioned to the vendor, the city reallocated themto other government areas.

The Fear of Incurring High CostsFear of high costs keeps some organizationsfrom moving to outsourcing. The opposite isgenerally the reality. Investing the time to ana-lyze the business and technical environmentand build a case for change provides insightinto whether outsourcing may or may not bethe best alternative for the organization. TheCIO in the city of Minneapolis had to demon-strate cost savings in its business case to the citycouncil and mayor. The outsourced services

could not increase costs over performing theservices in house.

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

The Concern of Losing Control of DataAnother reason jurisdictions avoid outsourcingis because they don’t want to move the publicinformation and data off site. Visiting other citieshelps in finding out what other cities are out-sourcing. In addition, a clear understanding oflaws and regulations helps to make informeddecisions about data management.

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

Other governments are comfortable with thesecure and reliable environments of high-qual-ity vendors. As a result, they take advantage ofcost 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 assuredata security, including the use of offshoreresources used by themselves or their subcon-tractors.

The city of Minneapolis would only outsourceits data to a vendor located in the same state.While the city lost some ability to “touch” thedata, the vendor provided back-up capabilitiesand redundancy – capabilities that did not existbefore and significantly increased data integrityand public safety.

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Managing Government Concerns about Outsourcing


Not all IT functions should be outsourced.Early adopters of outsourcing indicate that certainfunctions need to remain in house to maintaincontrol of the knowledge, such as project management and business knowledge.

Project management is a crucial operationalfunction that evaluates risk, change manage-ment issues and schedules that drive the costand success of projects. The governmentagency needs to be in control to ensure endusers are satisfied and results are achieved.

Business knowledge needs to remain in houseas well. Business knowledge includes strategicplanning, architecture and standards. Allowingthe vendor to hold this information leaves thegovernment agency vulnerable to not beingable to manage the IT operations in the futurebecause the knowledge goes with the vendor.

The county of San Diego uses its CountyTechnology Office (CTO) to manage thestrategic planning of IT with the individualdepartments. The CTO is also responsible formanaging the contractor performance. Since allIT services have been outsourced in SanDiego, the county utilizes the project manage-ment office concept to manage large develop-mental projects with the vendor teams per-forming the work.

What Functions Should Not Be Outsourced

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In the Launch phase, leaders should conduct afeasibility study to ensure outsourcing is rightfor the organization. Organizations examineinternal operations to see what functionsshould be turned over to an outside vendor.Usually the functions or processes to out-source are areas where the organization cancut or contain costs, gain increased skills orknowledge, supplement core competencies,find predictability or better reliability, improveservice to citizens, or eliminate functions orresources that are hard to manage.

If the analysis shows that outsourcing providesbenefits, the goal of this phase is to build func-tional teams, develop a communication andproject management plan, analyze the systemenvironment to prepare for outsourcing, anddevelop and distribute an RFP to find the rightoutsourcing vendors.

LAUNCH

PHASES OF IMPLEMENTATION

Given that organizations vary in size, functionaldepartments, business processes, organiza-tional hierarchies, systems architecture, andapplications and more, the following phasesprovide leaders with a roadmap to a successfuloutsourcing implementation.

Implementation consists of four key stages,Launch, Mobilization, Implementation/Transition,and Operations.

The Launch phase focuses on evaluatingwhether an organization should outsource. Ifthe organization decides to move forward, thisphase also includes building the right teams,creating communication and project manage-ment plans, analyzing the system environment,and developing and distributing an RFP.

The second phase, Mobilization, is when theteams develop the contract scope, servicelevel agreements (SLAs), and the statement ofwork (SOW) to guide the project to achievestated goals and results.

In the Implementation/Transition phase, organizations transition the operations to the outsourcer while focusing on knowledgetransfer, managing the vendor relationship andmanaging the project to customer satisfaction.

Finally, the last phase, Operations, sets the stagefor maintenance and support to ensure out-sourcing will be sustained in the future throughdisaster recovery and disentanglement. Thisphase also looks at how to evaluate theprocess to ensure the end user is satisfied withthe results.

Throughout all phases, both public- and private-sector leaders who participated in the recentoutsourcing meeting found that building andmaintaining a collaborative environmentbetween the government and vendor was thelargest factor for long-term success.

LAUNCH

MOBILIZATION

OPERATIONS

IMPLEMENTATION/TRANSITION

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Throughout all phases, both

public- and private-sectors leaders

who participated in the recent

outsourcing meeting found that

building and maintaining a

collaborative environment

between the government and

vendor was the largest factor

for long-term success.

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The first step in investigating whether out-sourcing is the answer to the organization’sneeds is to evaluate the tasks and processesthat are being performed within an organiza-tion to analyze the costs and value propositionof those tasks. Cost reduction is usually whatconvinces elected officials and local govern-ment executives to outsource. A business caseenables government leaders to compare thecosts of outsourcing with the costs of perform-ing the services in house. The business caseshould also include an evaluation of the risksand benefits of moving forward with one alter-native over another.

One recommendation is to visit other govern-ments using outsourcing, which helps to visualizethe results. Seeing how other organizations haveimplemented outsourcing helps leaders under-stand the impact within their own jurisdictionsand how it can help to increase efficiency andemployee and constituent satisfaction.

Building a Business CaseA thorough business case outlining costs, ben-efits and risks must be made for outsourcing.The first step in evaluating whether outsourcingis the right decision is to complete a cost analysis. The total cost of performing the activityin house should be compared to the projectedcost of outsourcing the activity. The businesscase should include both quantitative and qualitative benefits and their impact.

Full-time employee costs are usually the great-est cost factor of performing the activity inhouse. Other significant in-house costs to con-sider include software and equipment acquisi-tion, maintenance and modernization, applica-tion design development and implementation,and backup and recovery. Management time,training, recruitment, turnover, and facility andsupply costs may also be significant bottom-linecontributors.

Outsourcing costs include time for putting theoutsourcing proposal together, annual out-sourcing fees – including anticipated futurepricing adjustments, training of the outsourceron business processes of the organization, andany additional ongoing costs, such as projectmanagement time to manage the relationshipbetween the outsourcer and the organization.

After completing the cost analysis, the businesscase examines the benefits. This step is thevalue proposition. The business case comparesalternative courses of action. The negativeimpact of not outsourcing should be consid-ered. For instance, the risk of not moving for-ward could lead to lost data from failed back-ups or reduced productivity because of usingolder technology.

The major consideration in developing a needsanalysis is that the results need to satisfy fourobjectives, at a minimum:

• Show how outsourcing reduces costs.• Demonstrate how outsourcing adds value. • Educate elected officials on the

performance impact. • Provide enough evidence to gain support

and buy-in.

Outsourcing benefits include access to top-of-the-line technology and resources that canimprove delivery of mission-critical issues.Other key benefits include controlled costs,reduced risk of system downtime and overallincreased efficiency.

In Minneapolis, IT outsourcing is expected tocut operating costs by $20 million over sevenyears. Two million dollars of that is related toavoiding lease space for the data center.Another major area of savings is in technologyrefreshment. The city was spending 60 percentof its budget and management time just oninfrastructure operations, including its laptops,

desktops, databases, servers, and networks.Outsourcing drove savings in all of these areasin addition to providing 24-hour help desk anda back-up system that the city previouslylacked.

Many local governments use a consultant tolend expertise to the analysis. Local govern-ments who obtained buy-in from elected offi-cials and other city or county executives foundthat consultants help to provide both project-level experience and credibility to convince theleaders to move forward.

Investigating Feasibility

As the organization moves forward with out-sourcing, the next step is to create the planningand implementation teams. This step differs for jurisdictions depending on the number offunctions to outsource, they might include:procurement, employee relations, and otherbusiness functional areas.

Effective team dynamics play a large role in thesuccess of any large initiative. Not only is man-aging the teams important, but managing theflow of communication between the teams isequally as important. Team members shouldinclude:

• Champion: An elected official or execu-tive who galvanizes and evangelizes theproject. The champion provides leader-ship and advocacy for the project.

• Steering Committee: Policy stakehold-er group that helps resolve issues andrisks. The steering committee varies foreach jurisdiction, but usually includessponsorship from the functional businessexecutives, such as human resources,finance and IT. The team meets monthlywith the project manager (PM) and pro-vides updates and decisions. This groupshould review high-level progress andcritical risks, and help resolve any issues.

• CIO: The executive most focused on howtechnology can meet business needs. TheCIO acts more like a contracting managerand relationship builder. In this role, theCIO looks at outsourcing as a business function that adds value to the operations.(See “Role of the CIO” sidebar.)

• PM: Assists the CIO in managing the outsourcing contract, change control,SLAs, and the relationship with the outsourcing vendor. The PM coordinatesagency resources and work involved withthe outsourcer, focusing on project activities, issues, risks, quality, budget, andits team members.

• Outsourcer’s PM: Assists the organiza-tion’s PM and CIO in managing the contract relationship and out-of-scopechanges, along with its team members.

Generally, organizations should have an RFPteam that includes a technologist to determinethe requirements, human resources to coverlabor relations concerns, and finance and busi-ness leaders for fiscal concerns. Following thedevelopment and distribution of the RFP, theRFP team may become the evaluation team toappraise the vendors’ qualifications beforeselecting the final company.

Union involvement is a critical element to con-sider. It is critical to obtain the support of anyemployee relations organization or unions. It isadvised that employee relations be involvedfrom the beginning. In this way, they can bestunderstand the impact to their members andbe allowed to provide input to the RFP andvendor negotiations.

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Creating Teams

The role of the CIO is very

important in outsourcing arrange-

ments. Half of CIOs come from

a technical background; the other

half sport non-technical creden-

tials. With reference to outsourc-

ing, the role of the CIO is seen

more as a business function than

a technology function. Using the

assistance of their technology

managers, the CIOs need to be

able to manage in a matrixed

environment, articulate the gov-

ernment’s business challenges

and issues and understand the

solution strategy that the vendor

is proposing. In addition, the

CIO needs to be able to manage

to business results and sell

changes to diverse stakeholders,

from citizens and employees to

elected officials.

ROLE OF THE CIO


A communication plan, both internal andexternal, is vital for success and should be usedand updated throughout the process.Communication must begin at the onset and isa three-way line of extension; the lines of com-munication should extend all the way down tothe employees, all the way up to the electedofficials and executive members, and all theway out to the citizens. (See “CommunicationVehicles to Use” sidebar.)

Topics to discuss include:• People: Outsourcing is often a people

issue. Rumors and informal communica-tions will begin as soon as the project isinitiated. Employees will have significantconcern about their careers and employ-ment and should be told that retainingjobs is a top priority. Union concerns needto be met, as well, since they view out-sourcing as a reduction in resources.Once the transition to outsourcing begins,it is important for managers to communi-cate the vision and business goals to edu-cate and evangelize benefits to the organ-ization.

• Outreach: Public hearings should beheld so that the citizens are aware of theoutsourcing project and its opportunityand value to the community. This willallow leaders to address concerns.Minneapolis’ CIO focused on educating asmany stakeholders as possible to gainacceptance for outsourcing. The CIOdeveloped a communication plan, heldpublic hearings, educated the councilmembers, and built a business case to sellthe idea successfully.

• Government – Vendor Communications:Throughout all phases, the organizationand vendor should build a positive relationship. Both should share their viewson the scope of the contract and howperformance will be measured. The cityof Chicago’s CIO looked at the vendor-government relationship as a marriage.

Both the vendor and government entityneeded to view the relationship as a long-term partnership.

• Implementation: Outsourcing is aboutchange and the way the organizationsmanage change. Communication isrequired to introduce new processes andprocedures. The organization’s and theoutsourcer’s employees should be educated on how the outsourcing activitywill proceed and how the relationship will have a positive impact on their area of responsibility.

• Expectations: As expectations for services, transition and managementprocesses are established, these should becommunicated to employees, executivesand citizens. For example, outsourcedhelp-desk functions bring efficiency to endusers, increased customer service andextended hours of service.

Developing a Communication Plan

Communication is important forbuy-in and managing expectations.Communication should begin at theonset of the outsourcing project andcontinue throughout the life of thecontract for maximum effect. Somecommunication vehicles for informa-tion dissemination include:

• End-user surveys to citizens and city/county officials to seehow satisfied they are with the services.

• Newsletters to provide a consistent message to the organization’s and vendor’semployees to promote team-work, describe department’sbusiness operations or answerquestions.

• E-mail blasts to discuss benefitsof the outsourced services andmore.

• Monthly or quarterly reviewswith the vendor to look at levelof performance.

• Web site to publish dashboardon performance metrics.

• Brown-bag lunches to facilitateinformation discussions aboutthe outsourcing relationship.

COMMUNICATION VEHICLES TO USE

13

The next step and a key element of the projectmanagement plan is to analyze the systemenvironment to prepare for transitioning thefunctions and processes to the outsourcer. Thebusiness processes that will be outsourcedshould be analyzed to assure the processes areefficient or to identify efficiencies to be gained.

In addition, along with streamlining theprocesses, the inventory of assets involved inthe outsourcing agreement should be com-pleted. The contract, SOW and SLAs reflectan accurate account of the system environ-ment and project scope. Minneapolis’ CIObelieves in allowing enough time for due dili-gence to develop an accurate inventory,improve the RFP process and allow the ven-dors to develop a greater understanding of thescope of the project.

Outsourcing requires an examination of inter-nal processes, which usually leads to improvingprocesses. The true value that outsourcingbrings is the opportunity for an organization tobecome more efficient and effective, andreduce or maintain costs. It forces organiza-tions to answer difficult questions, such as:

• What are the primary objectives of the department or organization?

• What processes are in place to support those objectives?

• Who is involved in implementing these processes?

• Are there multiple functions involved in the process?

• How can performance be improved in the process?

By finding the answers, organizations docu-ment the current processes, find areas thatneed improvement and enable the out-sourcers to focus on the new improvedprocesses.

Project management begins early and shouldbe retained in house because it’s the functionthat oversees resources, schedules, risk man-agement, and budget control in the interest ofthe organization.

The city of Chicago retains the project man-agement of the outsourcing arrangement. ThePM drives innovation, flexibility with contractissues, and most importantly, the relationshipbetween the organization and the vendor. Thedeputy director of the city of Indianapolis andMarion County believes that strong projectmanagement should remain in house so thatthe knowledge is retained in the event of termination of the contract.

The plan should address the issues of roles,responsibilities, processes, issue, and risk esca-lation, conflict resolution, maintenance, sched-ules, scope management, and change andresource management. The plan should focuson vendor relationship management. Mutualtrust is key, and recognition of the importanceof communication through regularly scheduledmeetings and meaningful reporting mecha-nisms.

14


Creating a Project Management Plan

Analyzing the System Environment

15


The RFP should be tailored to each organiza-tion’s unique business processes and system’senvironment. A third-party consultant can helpto develop the RFP, assist in evaluation ofresponses, select the vendor, and negotiate thefinal contract. Since a strong working relation-ship between the government and vendor isrequired, cities should avoid over-reliance onthird-party advisors.

One way to streamline the RFP process andimprove vendor selection is to provide asmuch information as possible concerning thescope and expectation of the project. The bet-ter those vendors understand the environ-ment, the less risk is assumed. Vendors gener-ally build cost for risk into their proposals.Therefore, a thorough understanding by thevendor will ultimately reduce cost. Three ofthe most important points to cover in the RFPinclude:

• Detailed SOW that is required anddescription of IT system environment;

• Service levels expected and performancemeasurements that will be incorporated; and

• Proposed terms and conditions expectedto be met.

The Indianapolis/Marion County RFP includedthe organization’s vision and strategy; IT strategicinitiatives; an overview of the agency; theagency’s outsourcing goals and scope; andSOWs for all of the business groups (data center, network, help desk, distributed computing, and application services), includingtheir related service environments, servicerequirements, roles and responsibilities, andservice level expectations.

Considerations during this step include:

• Hiring a consultant to help analyze systemenvironments and business processes.

• Talking to vendors to see if there is inter-est in responding to the RFP.

• Holding a vendor conference to answerquestions.

• Inspecting references and qualifications. Afinancial background check will help toensure that the company is viable over thelong run. Both the county of San Diegoand the city of Minneapolis evaluated thefinancial background of the companies to verify their long-term stability. Previouslocal government experience is a positivesign that the vendor will bring value to the project.

• Focusing on the quality of the vendorsbefore reviewing the costs to keep thechoices subjective. The city of Minneapolisnarrowed the choice down to two ven-dors and then capped the cost of the proj-ect at a specific amount so that cost wasremoved from the issue. The two ven-dors then compromised on certain areaswithin their proposals to meet therequirement.

• After narrowing the choice down to aselect number of vendors, visiting the ven-dors’ sites to view facilities and experiencethe culture. The city of Minneapolis’ CIOvisited the vendors in their locations andlooked at their facilities before negotia-tions began.

RFP and Vendor Selection

SLAs outline specific quality expectations theoutsourcer must meet and range from overallsuccess criteria to day-to-day operations.Performance management ensures that thevendor is providing the service expectations setout in the agreement. By meeting the servicelevel performance metrics, the vendor is providing value to the organization. (See“Examples of Service Level Agreements” side-bar on p.17.)

The SLAs should be small in number and easyto understand, define which metrics should bemeasured, and identify who is responsible forquality. Governments should also consider thetrue service level requirements for various com-ponents of government to avoid unnecessarily

high costs. Indianapolis and Marion Countyreduced the number of SLAs from 60 to nine tosimplify and focus on key metrics and processes.

Minneapolis put SLAs and penalty arrange-ments in place for its contract; however, theCIO stresses that the contract is only the startingpoint in the outsourcing arrangement. The CIObelieves that it “all comes down to people.Working together is like a marriage.” The vendorhas to blend into the culture and understandhow the city operates and realize that if the ITsystems fail, the impact will be huge.

Using penalties versus rewards is a factororganizations struggle with when setting upcontracts with vendors. During our study on

outsourcing, several government organizationsfelt that penalties are required to keep the vendor performing; however, organizationsrarely enforce them. Organizations shouldcarefully balance the costs and benefits ofincluding harsh penalties in contracts. Overlystrict penalties will deter high-quality vendors –even as governments consider penalties to bea last resort.

The city of Chicago focuses on the relationshipas a long-term partnership. The city does notbelieve that the vendor should look at the smalldetails. If the vendor runs the outsourcing proj-ect right and it’s running well (as measuredthrough customer satisfaction), then the gov-ernment is satisfied with vendor performance.

The contract is a tool that can evolve throughthe negotiating process. The contract needs tooutline the agreement between the two par-ties on scope, performance and pricing. Thecontract references the SOW.

Public entities have historically preferred fixed-price arrangements for long-term outsourcingcontracts. More recently, government financeand IT organizations have been considering thebenefits of having part of the contract be vari-ably priced – where charges are based onusage. This may result in lower total cost andhas the benefit of providing greater flexibilitythan pure fixed-price contracts.

Other governments have utilized gain sharingin which the vendor has an incentive to deliversavings to the city and receive some of thebenefits. The city of Indianapolis and MarionCounty incorporated “gain sharing” into thecontract to motivate and reward vendor inno-vation. The contract states that “any change ini-tiated by provider resulting in the savings orimproved services benefiting city/county enti-tles provider to earn an account credit equal toa percentage, not to exceed 25 percent of theactual savings or demonstrated value inimproved services for a period of 12 months,after which all further savings or enhancedvalue shall be realized by city/county.”

The contract also needs to cover how to han-dle changes. The contract should be flexibleenough to allow for continuous improvementin technology and business processes. ForIndianapolis and Marion County, the outsourc-ing contract established almost a decade agohas 80 amendments, providing an example ofshowing how contracts are likely to evolveover time.

16


Developing the Contract

Creating Service Level Agreements

The Mobilization phase is where the organiza-tions assemble and prepare for the outsourcingto take place. With the vendor chosen, thecontract, SOWs and SLAs should be finalized

and communicated. All parties in the transac-tion have legitimate interests to protect; however, establishing an effective long-termrelationship is critical.

MOBILIZATION PHASE

17


The city also incorporates awards into the con-tract to help provide incentives for the vendorto exceed performance levels.

Indianapolis and Marion County analyze the SLAmonthly. If the vendor falls below the metricestablished in the contract for two consecutivemonths, the vendor is penalized. This processenables the vendor and organization to moni-tor performance and right the problems beforethey become an issue.

Governments use rewards are useful incentivesto provide long-term benefits. In the privatesector, businesses reward their employees whoare managing the outsourcing contract. Toolssuch as goal-aligned bonus packages, rewardthem for company success and partner success.In addition, a bonus is provided for effectivelyresponding to change.

Indianapolis and Marion County incorporated“gain sharing” into their contract to motivateand reward vendor innovation. The contractstates that “any change initiated by providerresulting in the savings or improved servicesbenefiting city/county entitles provider to earnan account credit equal to a percentage, not toexceed 25 percent of the actual savings ordemonstrated value in improved services for aperiod of 12 months, after which all furthersavings or enhanced value shall be realized bycity/county.”

Online TransactionResponse Time

TransactionResponse Time

EXAMPLES OF SERVICE LEVEL AGREEMENTS

BackupCompletion

SystemAvailability

Percentage of time thesystems are availablefor use during sched-uled uptime

Monthly 99.9%

Percentage of time that backups must becompleted successfully.Backups must be verified and re-run if not successful

Monthly 99%

Length of time host sys-tems and networkstransmit and processrequest and return datato end-user’s screen

Monthly 95% within 5 seconds99% within 10 seconds

Length of time for callerto reach a live humanvoice


Length of time foronline systems toprocess request andreturn data to end-user’s screen


NAME OF SLA DEFINITIONMEASUREMENTPERIOD

PERFORMANCETARGET

Data Center Services:

Local Area Network:

Help Desk:

Call Waiting

All calls resolved duringinitial call to CustomerSupport Services

Monthly 49%First CallResolution

Length of time betweenpassword reset requestand completion


PasswordResets

Once the vendor has been selected and thecontract, SLAs and SOW are complete, theImplementation or Transition phase begins. Atthis point, operations of various IT services willbe transitioned to the vendor. While the busi-ness relationship is established during RFP andcontract negotiation, this is the phase where atrue partnership needs to be built between theoutsourcer and the government agency.

Important issues to consider during thisphase include enabling knowledge transferthrough training, establishing relationshipsand managing the outsourcing process tocustomer satisfaction.

18


Formulating the Statement of Work

IMPLEMENTATION PHASE

Part of the overall contract, along with SLAs, isthe SOW. The SOW details the work to beperformed and describes the scope of theproject. Organizations participating in a recentoutsourcing study indicated that the SOWshould clearly articulate which services are inor out of the scope of the contract and howchanges will be made to those services. TheSOW provides a baseline in which to managethe project. SOWs will vary considerablyacross projects, but should at a minimum contain:

• Complete listing of services and tasks• Service levels• Deliverables • Other key expectations

19


Active relationship management is critical toensuring that government objectives are met.According to the CIO of Minneapolis, theworking relationship between the governmententity and the vendor is like a marriage andmanagement is the key to success. Some orga-nizational leaders state they spend more than95 percent of their time on relationship building.

Although scope of work, service levels andpenalty arrangements are defined in the con-tract, participants in the study indicated that inreality the organization’s managers rarelyenforced the penalties. Further, changes inrequirements and technology are inevitable. Itis common when unexpected developmentsoccur for the vendor to look toward the SOWand the organization will focus on the SLAs. Bybeing flexible on both sides, the organizationand the vendor can deal with issues in an openand non-adversarial way. In fact, if the relation-

ship focuses purely on meeting SLAs, there’s aproblem in trust. If trust is lacking, the relation-ship will have trouble succeeding.

For the city of Minneapolis, vendor creativitywas a plus. For example, the vendor leveragedthe contract with the city when additionalmainframe capacity was required for new proj-ects. The vendor used the financing providedin the contract for a set number of servers tofund the acquisition of the mainframe. The citybelieves that the vendor should be able tomaximize its profit, as long as it works withinthe constraints of a price ceiling.

The vendor needs to understand the organiza-tion’s needs as they evolve in order to offernew technology or modifications to existingprocesses because the organization’s businessneeds are likely to change throughout the lifeof the contract. Organizations should be cau-

tious not to unreasonably constrain vendorprofits or the relationship will inherently sour.

The vendor and government customer mustlook at the relationship as a long-term partner-ship where the focus is on the outcome, notthe tasks. Building the relationship right fromthe start involves a process of continualimprovement that is bolstered by performancemeasures and end-user satisfaction metrics.

The contract, SLAs and SOWs help set projectexpectations and manage performance; how-ever, a transfer of knowledge between theorganization and the vendor is critical for theoutsourcing partnership to succeed.

The organization and vendor need to crosstrain each other; the organization’s employeesshould learn the outsourcing operations; andthe outsourcer’s employees should learn theorganization’s business processes. Cross train-ing enables team members to develop ideasfor innovation and change, identify risks, dis-cuss issues and help with the overall manage-ment of the outsourcing process. Minneapolis’CIO believes training is a must for outsourcedpersonnel in order to learn how the city runsits business.

Enabling Knowledge Transfer

Managing the Vendor Relationship

Most organizations outsource to increase serv-ices to their citizens, while enabling them tofocus on core competencies. The questionsoften asked are, “Is the outsourcing improvingcustomer satisfaction? Are we doing a goodjob? How do we capture it?”

The city of Chicago retooled its contract afterthe first year to better focus on customer satis-faction. A baseline survey showed that only 50percent of employees were satisfied with thecurrent services. After increasing focus on sat-isfaction, the percentage of satisfied employeesrose to nearly 70 percent.

The city uses its customer satisfaction-drivenSLAs to improve customer service. Weeklyprogram management meetings focus on thedissatisfaction factors articulated in the survey.By following up on the root cause for dissatis-faction, the city and vendor are able toimprove customer service.

Indianapolis and Marion County included verbiage in a new contract to ensure the ven-dor performs end-user satisfaction surveys at aminimum of once a year and within 180 daysafter the commencement date of the contract.The surveys must cover a representative andstatistically significant sample of end users alongwith a separate sample of senior city/countymanagement.

The city and county will help the vendor toidentify the appropriate sample of end users,distribute the surveys, and encourage participa-tion in order to obtain meaningful results. (See“End-User Surveys” sidebar.)


Managing Customer Satisfaction

For Indianapolis and Marion County, an end-user customer satisfaction survey wasconducted semi-annually. The outsourcer’s customers were the city and county’s employees who used the outsourcer’s services. The city and county outsourced an extensive list of IT services, including help-desk support, IT services,network support, and more. Using a rating scale from one to five, with five beingthe highest possible rating, the city and county used the survey to ensure that the vendor was providing its customer satisfactory services.

The survey asked the end-user to rate the outsourcer on help-desk support, ITservices, network and systems stability, and availability and usefulness of the govern-ment’s enterprise PC applications.

In addition, the survey provided the opportunity for the end user to rate the out-sourcer’s availability and average time to repair computing hardware and enterprisePC applications.

Other questions focused on rating the outsourcer’s:

• Understanding of the department’s technology needs, value of the services provided, and overall satisfaction in areas of communications and responsive-ness, commitments in meeting project deliverables, problem-solving, businessconsultant services, application development/maintenance and support services,network support services, and production services (reports, batch jobs, etc.).

• Attitude and demeanor, such as how respectful the outsourcer’s employees are,whether they deliver what they promise, and if they’re friendly and enjoyable towork with.

• General quality of services. For example, if the vendor maintains high standardsof quality services, successfully meets employee’s needs, provides a simpleprocess for employees to get information or help when needed, and has aneffective process for employees to make suggestions or escalate issues.

Finally, the survey asked open-ended questions, including:

• What do you consider to be the vendor’s strengths and/or weaknesses?• Have there been any services/technical support that your department has

requested, but was not provided? If so, please explain.• What additional services and/or technologies would you like the vendor to pro-

vide for your department?• What other comments would you like to make to the organization or vendor

about your IT needs?

END-USER SURVEYS

20

21


The final phase includes ongoing operationsand the contract. In addition, if an outsourcermust discontinue operations or a disasteroccurs, this phase looks at how to ensure gov-ernment operations continue.

Contract changes are a natural result of long-term business agreements. Governmentrequirements may change or evolve and theservices required of the vendor may expand.Contract changes should be a natural exten-sion of a well-managed relationship between agovernment and its outsourcing partner. Thecontract should address the process for projectchange, but good project management andcommunications will be critical for effectiveexecution of long-term contract change.

As discussed earlier, Indianapolis amended itscontract 80 times in 10 years. Outsourcingrelationships and IT requirements naturallyevolve over time, so flexibility is critical.

There may be unfortunate circumstanceswhen the jurisdiction must terminate the contractual relationship, such as when the out-sourcer consistently fails to maintain agreed-toservice levels or adequately support the func-tions being outsourced. Organizations shouldinclude a “Termination Clause” in the contract.

Indianapolis and Marion County added disentanglement obligations to their contractafter the last outsourcing engagement ended ina difficult and costly affair incurring unforeseentransition and legal expenses. Their contractnow requires the outsourcer to provide thefollowing disentanglement requirements:

• Complete transition of terminated servic-es to the government organization or to areplacement vendor designated by thegovernment organization without anyinterruption of services or impact on theservices.

• Full cooperation with the governmentorganization to complete the disentangle-ment.

• All information provided to the organiza-tion pertaining to the outsourced contract.For example, interface specifications anddata conversion.

• All work managed by the outsourcer,whether completed or partially completed,along with documentation of work inprocess and other measures to assure anorderly transition occurs.

• All disentanglement services provided forthe transition with costs specified.

• All asset transfers and other obligationsprovided to the satisfaction of the organi-zation for the vendor’s obligation to bedeemed completed.

Finally, contracts should address disaster recov-ery. Without an effective backup and recoveryplan, core city services may be at risk. Thecontract should consider disaster recovery situations and remediation plans to ensurecontinued support of operations. The plansshould include how the vendor will ensure:

• Continuing availability and integrity of theoutsourced services and/or systems;

• Regular testing and updating of a disaster-recovery plan.

• Availability of alternate site facilities.

In addition, the government and the vendorshould update and test all disaster-recoveryprocedures at least once a year.

Operations and Contract


22

What makes outsourcing a success? Whatmakes it fail? The following critical success fac-tors from those who have previously beeninvolved in outsourcing should provide insightinto how to successfully weave a little magicinto outsourcing programs.

Develop a Strategic Plan forOutsourcing: One of the first tasks to accom-plish when deciding to outsource is to workthrough the strategic planning process anddevelop a clear vision, goals and measurableperformance objectives. The vision statementsteers the project to the end expected result,and the goals define the expected objectives tobe accomplished to obtain the result.Performance objectives and measures providecity managers with the tools to both trackoverall effectiveness and demonstrate theresults of the initiative.

The vision and goals should provide a commit-ment to adopting best practices to be commu-nicated to policy makers, staff, citizens, and thevendor. It also assures buy-in to embrace theresulting strategies and action plan.

Conduct Site Visits to OtherEntities that Outsourced: The public sectoris different than the private sector in that the governments are willing to share information. Inthe private sector, information is viewed as acompetitive advantage. Site visits provide anopportunity to see firsthand how another city orcounty manages its outsourcing operation. Visitsalso offer the chance to hear lessons learned. Inaddition, if elected officials or executives areunsure as to whether outsourcing is the rightdirection to take, site visits help leaders visualizehow the process can be accomplished withintheir own jurisdiction, and how it can help theirorganization increase efficiency and customersatisfaction.

Identify Clear Scope and Inventory:Scope expansion, which happens when thereare out-of-scope tasks or uncounted inventory,should be avoided. Scope change is defined as

any activity that modifies the deliverables, costor schedule of a project. Change managementis clearly a vehicle to allow for managingchanges in the scope because of unforeseenissues or tasks, but it adds additional costs tothe pre-defined budget. If scope is clearlydefined in the beginning, costs can be main-tained. A detailed SOW can help identify thescope of the project. The SOW establishes abaseline of services to be delivered. It shouldbe sufficiently detailed to allow the organizationand vendor to assess if a change is an addition-al request not included in the originally definedscope.

Maintain Business Knowledge InHouse: Strategic, contract and project man-agement, and related business knowledgeshould remain with the government party sothat operations are controlled in the best inter-est of the citizens. Most importantly by main-taining business knowledge in house, theorganization protects itself if the vendor discon-tinues services. The agency can continue theservices or transition the services to anothervendor ensuring critical government systemscontinue to function. Retaining the manage-ment of the critical elements keeps the projectunder the organization's control.

Develop and Follow a Commu-nication Plan Throughout the Processof Outsourcing: The key phrase is “through-out the process.” Communicating at the enddoes not work. Informal communications willbegin as soon as the outsourcing plan is initiat-ed. The most important element in the com-munication plan should be people-focused toreduce resistance to change. Most employeeswill be worried about change and how thechange will affect their jobs. This can lowermorale and reduce productivity. A communica-tion plan is helpful to iron out the details aheadof time. Considerations should include: mes-sage, audience, schedule for communication,and communication vehicles to use. (See“Communication Vehicles to Use” sidebar on p.13.)

Create a Relationship with theVendor: Successful leaders of outsourcingengagements say over and over that the relationship between the vendor and the out-sourcer is one of the most important elementsin ensuring that the government achieves itsperformance objectives. Both parties need tobe flexible when changes occur in technologyand processes and both need to trust the otherfor maximum results. Although the two partieshave differing objectives, both need to look atthe relationship as long term. The vendor mustunderstand that the government’s needsevolve throughout the life of the contract, andthe vendor should be prepared to react quick-ly to those needs. The government, on theother hand, should realize the contract shouldbe flexible enough to allow the vendor to becreative in how it responds to necessarychanges.

Use SLAs, Penalties and Rewards:Usually government organizations include SLAsin contracts along with penalties to ensurequality service from the vendor; however,most organizations never refer to the SLAsonce the contract begins. If a vendor’s per-formance is continually lacking, invoking penal-ties may help to turn the performance around.However, most organizations stated that theyprefer to manage the vendor relationshipthrough a flexible arrangement of give andtake. As a result, in designing RFPs and con-tracts, governments must balance the desire tozealously protect their interests against thecosts of unnecessarily high service levels andthe risk of “scaring off” high-quality vendorswith overly difficult terms and conditions.Rewarding effective performance is a win-winsolution for both vendors and governments.

Cross-Train Employees: Training is crucial to ensuring smooth operations. Notonly does the organization need to learn theoutsourcer’s operations, but also the out-sourcer needs to understand the organization’sbusiness processes. The two parties will beworking together over a long period of time,

CRITICAL SUCCESS FACTORS


23

so both should be comfortable with the tech-nology and business operations involved forthe best results. In addition, by understandingeach other’s business operations, employeesfrom both sides can offer innovative ideas intechnological improvements and process efficiencies over the life of the contract.

Maintain Executive Support andCustomer Focus: For the project to succeed, support at all levels of the organiza-tion is critical. From the constitutional offices,the executive level, the employees and citi-zens, communicate what the project is about,who it will affect, how long it will take, andwhat benefits will be realized. Executive sup-port is critical to illustrate to stakeholders thatthe project will move forward with completesupport. In addition, the executives becomethe champions of the project evangelizing thebenefits that will be realized.

Deciding to move to outsourcing is a cus-tomer-focused move from the start. One wayto evaluate if the outsourcing is meeting theneeds of the customer is to conduct customersatisfaction evaluations, not only of the enduser, but also of the government leaders.Expectation management is important so asnot to over-promise early improvement astransition is under way.

LOCAL GOVERNMENT PARTICIPANTS AND SPONSORS:

Chris O’Brien, CIO, Chicago, Illinois

Karl Kaiser, CIO, Minneapolis, Minnesota

Mike Knuppel, CTO, Montgomery County, Maryland

James Haley, Associate Director, City Utilities, FortWayne, Indiana

Beverley Broome, Deputy CIO, San DiegoCounty, California

Nadeen Biddinger, Deputy Director,Indianapolis/Marion County, Indiana

Paul Dommel, Manager, Public Sector Strategy,IBM Global Services

Lisa Mattivi, Director of Strategy, Public Sector, IGS

Syd Dorsey, Marketing Manager, IBM Public SectorIndustries

CENTER FOR DIGITAL GOVERNMENT PROJECT TEAM

Cathilea RobinettExecutive Director, Executive Vice President,e.Republic

Susan BentonDirector, Strategic Initiatives

Marina LeightDirector, Center for Digital Education

Michelle Gamble-RisleyExecutive Editor

Caroline DrakeleyWriter

IBM is a recognized leader in the digital government evolution. We deliver value to local governments through services and technologies that meet the demands of results-oriented customers. In addition to managed operations and consulting,our solutions include health and human services, safety and security, parking, revenue and fiscal management, wireless, andcommunity networking.

About Center for Digital Government:

The Center for Digital Government is a national research and advisory institute on information technology policies and bestpractices in state and local government. Its advisory services, online resources and special reports provide public- and private-sector leaders with decision support, knowledge and opportunities to help them effectively incorporate new tech-nologies in the 21st century.

The Center's Strategy Papers provide two decades of experience and insight into the most critical IT topics governmentsare faced with today. The papers address important policy and management issues and offer strategic approaches for plan-ning and implementing technology, funding sources, and case studies from jurisdictions.

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