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State IT Outsourcing: Future Directions

Explore the possible future directions for state IT outsourcing market and alternatives to traditional in-house operations. Learn about selective sourcing, business process outsourcing, and acquiring business functionality as a service.

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State IT Outsourcing: Future Directions

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  1. State IT Outsourcing:Future Directions August 17, 1999

  2. Objective and Agenda • Briefing Agenda • The IT Initiative’s Cancellation • Where The Road Leads from Here • Return to Doing Everything Inhouse (Unlikely) • Other Approaches to Acquiring Needed Capability Objective -- to address possible future direction forthe State IT outsourcing market, in the wake of theConnecticut IT Initiative’s cancellation.

  3. The IT Initiative’s Cancellation: June 22, 1999 State of Connecticut Cancels IT Initiative • Connecticut had spent 2 1/2 years defining and implementing an ambitious, comprehensive IT outsourcing effort • Other States were looking at Connecticut’s approach as a possible model for state-wide IT outsourcing • Effort was politically polarizing, strongly opposed by public service unions and opposition political party • State had been conducting negotiations with selected vendor (EDS) since January • Governor Rowland cited cost, risk issues in canceling the effort “Cancellation of the Connecticut IT Initiative will be astake in the heart to future State-wide, comprehensiveIT outsourcing efforts” The Wall Street Journal

  4. Return to Doing Everything Inhouse:Why This is Unlikely • Definition: a return to inhouse systemdevelopment, implementation, operation, and maintenance • Difficulties: • Public sector will lack necessaryreservoirs of needed technicalskills -- especially in e-commerce and web-based • technologies • Business of government is not necessarily • to own the new systems needed to extendgovernment services • Competing uses for large, upfront fundingthat would be needed for systems, infrastructuredevelopment

  5. Other Approaches to AcquiringNeeded Capabilities Selective Sourcing Business Process Outsourcing Buying Business Functionality as a Service • Unifying themes: • Use of both inhouse and external service providers • Greater oversight and integration complexity • Greater need for oversight management • Use of the value-added chain as a sourcing decision tool

  6. Characteristics Focus is on securing best-of-breed, niche vendors for very specific needs Use of both vendors and inhouse service providers Contracts tend to be shorter and smaller thanwith comprehensive efforts Advantages Flexibility Best-of-breed vendors Challenges Service integration Accountability for end-to-end service delivery Selective Sourcing (The “Boutique” Approach) • Success Requirements: • Precisely identify needs • Get all service providers working as a team • Ensure single user POC for end-to-end service delivery • Measure and incentivize service delivery quality

  7. Characteristics Outsourcing of business processes along with their IT systems and applications IT is not separated from business process Vendor selection based on business process expertise (e.g., logistics), not just IT expertise Advantages Focus is on business value Best-of-breed vendors Challenges Must define business processes to be outsourced Achieving enterprise-integration Measuring and incentivizing process outcomes Business Process Outsourcing(BPO) • Success Requirements: • Identify and isolate the business process to be outsourced • Achieve enterprise IT interoperability • Measure and incentivize business process outputs

  8. Characteristics Agency defines functionality needs as business functionality Vendor delivers required functionality to specific IP addresses over the web Agency billed on a “pay as you go” basis Advantages Avoidance of large, upfront development costs Reduction in development time and risks Challenges This is still an immature facet of the IT industry Accountability for end-to-end service delivery (application vendors do not own telecom infrastructure) Acquiring Business Functionality as a Service • Success Requirements: • Fully understand this new business practice • Integrate vendor’s services with agency’s business model • Achieve trans-organizational integration and interoperability

  9. Conclusions • The Success Factors for the Future will include • Using the value-added chain as a sourcing tool • Applying oversight management expertise to achieve service integration, provider teamwork • Understanding and leveraging the application-as-a-service practice • The market for state-wide, comprehensive IT outsourcing efforts has shrunk • A return to traditional “do everything yourself” is unlikely • States will use a variety of other approaches to meet their sourcing needs AppliedResearch ProcessDesign Distri- bution Manufac- turing QualityControl MarketResearch Plant Engineering Ware-housing Adver- tising ProductDesign Sales Marketing Repair Service Logistics • MITRE’s Ongoing Research: • Public Sector Application of the Value-Added Chain • Buying Business Functionality as a Service • Deepening our Oversight Management Expertise

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