Nov 232009
 

Outsourcing big is not always beautiful. Indeed, sometimes outsourcing big can be a blunder. For example, on Friday, Information Age reported a tally of the UK government’s project management track record, and found that IT projects count among its worst failures. Why? “Government needs to stop thinking that when it comes to procuring IT systems, big is always beautiful,” says shadow chancellor George Osborne. “We need to move in the direction of what are known as ‘open standards’ – in effect, creating a common language for government IT,” he said, which would mean “big projects can be split into smaller elements, which can be delivered by different suppliers and then bolted together”.

Even in Texas, big isn’t always beautiful. Texas was an early advocate of large scale outsourcing of government work, with lawmakers in 2005 ordering agencies to outsource their data storage, security and disaster recovery services. The state contracted for IBM to take over IT and procurement services for 27 state government agencies. Years later Texas is still stumbling. A highly critical report released, ironically on Friday the 13th, by the Texas Department of Information Resources in essence states that both Texas and IBM are at fault in the on-going fiasco and was caused by the same disease: abject naivety and excessive optimism about what could be accomplished and how to go about it. Does it really make practical sense to consolidate all IT functions for so many agencies? Unfortunately, the vendor community seems continually able to convince decision-makers that this is a good thing, based on savings that tend to prove hard to ever realize. Not that I am against outsourcing, but it hardly seems like any single organization is the best solution for all situations.

Not many other states have outsourcing initiatives of this magnitude, though Virginia last year launched a similarly ambitious program. Virginia approved the centralization of information technology services for all state agencies after an audit determined that Virginia was wasting over $100 million annually on IT project cost overruns and on unsuccessful efforts to get the different state departments’ heterogeneous and outdated IT systems to communicate with one another. The Joint Legislative Audit and Review Commission released an audit report that essentially said that the outsourcing contract’s significant risks had turned into significant problems, and that there would be no savings to the state through the initial 10-year term of the its $2 billion agreement with Northrop Grumman.

With revenues dwindling in an economic downturn, governments are likely to face increasing pressure to get outsourcing right. These cases should come as a warning to those now considering the outsourcing of IT and other operations, with questions of how much outsourcing is too much, especially to a single vendor. Big is not always beautiful, and as my mother, your mother, everyone’s mother says—be careful for what you ask for, you may get it.

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Scott Stribrny

Scott Stribrny is a Senior Consultant with Cutter Consortium's Business Technology Strategies practice and a leading figure in the world of process improvement. He is currently advising on techniques for effective product requirement specification and risk management.

Discussion

  6 Responses to “Big is Not Always Beautiful”

  1. […] Big is Not Always Beautiful by Scott Stribrny on The Cutter Blog | Debate Online […]

  2. I wonder if the root of the problem is “project size” or the inability of organizations to manage in an increasingly distributed world. We continue to see companies pursue consolidation projects (on a system level) and M&A (on an enterprise level), which are justified as ways to reduce duplication, costs, and differentiation. Unfortunately, the scope for many of these efforts often overreach, which ends up reducing the opportunity for innovation, agility, and flexibility. I would guess these are going to be pretty important capabilities for organizations & institutions as they try to drive top-line revenue and growth in the future. So, is the problem one of project size or the inability of current management to embrace increasingly decentralized business models and market realities.

  3. avatar

    I suspect the problem comes down to communication. Communication paths increase by the square of the number of participants. A project with twice as many people has four times as many communication paths.

    If systems are outsourced because their day-to-day operation does not seem critical, the people running those systems probably draw heavily on experience to do their job and may not understand all the implications of changes. The designers of the system are long gone and preserving the status quo is handled by “muscle memory” of the organization. Trying to hand it off, or worse re-engineering it, by a completely new group places even more stress on the need for good communications.

  4. For an interesting update on this topic, see “IT Outsourcing: Multi-Billion-Dollar Mega Deals End in Break Up” http://bit.ly/bAGk9R

  5. See “Texas Outsourcing Contract To IBM Once More in Jeopardy” http://bit.ly/cAjRLc

  6. Also see “Northrop to pay $4.8M for Virginia government network outage” http://bit.ly/m6W3FD

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