Governments put new emphasis on outsourcing efforts

While hardware and software vendors continue to see declining demand for their products, the IT services industry has managed to report some growth over the last two years. One of the reasons for IT services companies’ relative success is a slow but steady government market that is continually expanding its reliance on outsourcing services.

According to a study published earlier this month by outsourcing giant Accenture, government agencies inside and outside the U.S. are depending more heavily than ever on outsourcing services. In a survey of more than 150 executives in 23 governments in Asia, Europe, North America and South America, Accenture found that nearly 90% of governments outsource activities that are “important or absolutely critical” to their mission of citizen service delivery. Only 2% of government executives surveyed said that outsourcing is “relatively unimportant to the mission” of delivering services to citizens.

Among the activities and services most outsourced by governments are information technology applications and infrastructure support; finance and accounting; human resources and supply chain operations; and staff training and education. Not surprisingly, Accenture focused most of its survey questions on the IT outsourcing aspect of government behavior.

In the study, governments were generally satisfied with outsourcing providers’ ability to deliver new skills or technology to their IT environments, but not with their ability to affect the bottom line. Out of the executives who say they outsourced, 71% said the reason was to access new technology, with the same percentage saying it enabled them to centralize or standardize operations. A full 70% of executives said outsourcing helped them gain access to expertise and that these objectives were “mostly or fully met.” By contrast, only 50% of executives said they outsourced primarily to reduce costs and only 24% who outsourced to increase revenue said their objectives were “mostly or fully met.”

The Accenture study also found that governments that used outsourcing to change the way they operate were more inclined to engage in business process outsourcing than were governments that primarily used outsourcing to reduce costs. More than two-thirds of the executives who said they used outsourcing to transform their agencies indicated that they achieved change by outsourcing business processes.

What does all of this data mean for outsourcing in the private sector? In a nutshell, it means that government agencies worldwide are proving the old rule: outsourcing is much more effective as a means of improving efficiency than as a means of cutting costs. Although budgets are often a primary reason for evaluating third-party IT service providers in the first place, the most effective outsourcing projects are those that are designed to create real change in technology and processes.

In the Accenture study, for example, the Institute for Social Service in Mexico outsourced the management of doctor appointments at clinics, and as a result, was able to shorten the time from hours to minutes that the nation’s 10 million government workers must wait to see a doctor when they go to the clinic. Such process reorientation may not save money in the short term, and may even require additional up-front effort. But the longer-term effect is to improve the efficiency of a process, making workers more effective. Viewed on a cost basis alone, these projects may seem to provide little benefit; but when viewed on the broader levels of productivity and speed, they may have a major impact on the bottom line.

It’s clear that domestic and foreign governments, like private sector enterprises, are finding new potential in outsourced services. As with the private sector, however, the key to successful outsourcing is defining realistic objectives for the project – those that see outsourcing primarily as a cost-cutting measure will likely be disappointed.