OUTSOURCING: The Good, The Bad and The Ugly

1. OUTSOURCING:The Good, The Bad and The Ugly GOVERNMENT TECHNOLOGY MAGAZINE CTO SUMMIT 2006 La Jolla, California Rita Pollock, Arapahoe County Government

2. TOPICS OF DISCUSSION • Outsource vs. Offshore: What Are The Issues? • The Arapahoe County Story • Potential Benefits and Pitfalls • Best Practices • What’s Right For You? CTO Summit 2006

3. Remember Any of These? "I think there is a world market for maybe five computers." Thomas Watson, Chairman of IBM, 1943 "Computers in the future may weigh no more than 1.5 tons." Popular Mechanics, forecasting the relentless march of science,1949 "I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year.“ The editor in charge of business books for Prentice Hall, 1957 "There is no reason anyone would want a computer in their home.“ Ken Olson, President, Chairman and founder of Digital Equipment Corp., 1977 "640K ought to be enough for anybody." Bill Gates, 1981 CTO Summit 2006

4. Outsource Versus Off-Shore • Offshore - located or operating at some distance from the shore* • Outsource -to buy labor or parts from a source outside a company or business rather than using the company’s staff or plant** * Random House Dictionary, Unabridged Edition 1973 ** Encarta Dictionary, 2004 CTO Summit 2006

5. Offshoring: Not For Everyone • The Good: • High Quality of Output • Lower Cost of Living = Lower Cost of Skill Sets • Operational Flexibility, 24 Hour Clock • The Bad: • Communication Challenges • Requires New Skills Sets For ‘Offshorer’ CTO Summit 2006

6. Offshoring: continued… • The Ugly: • Political backlash: Bad for the economy • Unemployed: Bad for personal prospects • Failed attempts “Ooh! Ahh! That's how it always starts. Then later there's running and screaming.” Jeff Goldblum, The Lost World: Jurassic Park CTO Summit 2006

7. OK – What About Outsourcing Then? • Cultural Hurdles: • It’s new • We already do it the best • Job impact • How do we do it? “They couldn't hit an elephant at this distance (ughh) . . . .” last words of Gen. John Sedgwick, killed in battle during the Civil War CTO Summit 2006

8. It’s New…..Or Is It? • Do You Build Your Own Furniture? • Run Your Own Cafeteria? • Have External Custodial Assistance? • Program All Your Own Software? • Ever Use A Consultant Or Contract Help….? CTO Summit 2006

9. We Already Do It The Best……Really? • What Metrics Are In Use? • What Comparisons Have Been Done? • How Recently Have You Checked? CTO Summit 2006

10. Job Impact…….Or Skill Change? • Loss Of Specific, Targeted Functions • Addition Of New Needed Skills CTO Summit 2006

11. How Do We Do It….Do We Do It? • Determine Goals and Objectives • Identify Candidate Function(s) • Perform a Thorough Cost/Benefit Analysis • Engage Internal Customers and Stake Holders • Appeal to the WIFM Factor (what’s in it for me) • It’s a Business Decision, Not a Technology One CTO Summit 2006

12. The Arapahoe County Story CTO Summit 2006

13. Arapahoe County • Population 520,000, approx. 900 square miles • Annual Budget - $250 million • Employees – approx. 1,700 • Elected Commissioners – 5 Districts • Other Elected Officials – Sheriff, County Clerk, Treasurer, Assessor, Coroner • 12 Appointed Department Directors • 14 Incorporated Cities CTO Summit 2006

14. Goals and Challenges • Approaching End of Mainframe Applications • Loss of Economy of Scale • Aging Workforce and Shrinking Skill Set Market • Inability to Fund Disaster Recovery • Strategic Direction To Migrate Assessment & Taxation Application to Newer Platform • Need to Locate New Money for New Application CTO Summit 2006

15. Our Process • Internal Strategic Planning Meetings • Identified and Quantified Current State • Preliminary Assessment (External Assistance) • RFP To Select Consultant • RFP To Select Outsourcer • Internal Meetings with Stakeholders • Negotiation With Two Finalists CTO Summit 2006

16. Pre-RFP Challenges • Internal Customer Resistance • Internal Staff Resistance • Unpopularity of First IT ‘RIF’ • Skill Set of Team Members and Project Lead • Other External Factors – Timing & Priorities CTO Summit 2006

17. Post-RFP Challenges • Successful Negotiation With Finalists • ‘Flawless’ Contract • Problem Free Migration • Achievement of Highly Acceptable Operations • Realized Savings CTO Summit 2006

18. Outcomes • Near perfect transition to outsourcer • Immediate noticeable response time improvement • Faster batch processing • Realized savings of $450k annually on a $1.2m budget for that function • Acquired & successfully tested DR services • Able to successfully place 2 of 3 affected staff CTO Summit 2006

19. Unexpected Outcome • The success of this endeavor seemed to make outsourcing a new ‘silver bullet’ solution. • External forces began suggesting that outsourcing be explored for all sorts of operational ills. • Risk of developing a culture of ‘compulsive outsourcing’: abandoning the careful evaluation, benchmarking and consideration of future impact. CTO Summit 2006

20. Potential Benefits and Pitfalls • The Good: • Cost reduction • Budget predictability • Improved service levels • Additional functionality • Ability to focus on higher, more valuable priorities • Opportunity to develop newer skills CTO Summit 2006

21. Potential Benefits/Pitfalls…continued • The Bad: • It’s not a quick fix • Investment of time, money and resources is required • Requires a paradigm shift • Generally entails some short term unpleasant side effects (reductions in work force or skills change-out) • May involve some ‘head banging’ to get there • May create an unexpected ‘monster’ “Give me six hours to chop down a tree and I’ll spend the first four sharpening the axe” Abraham Lincoln CTO Summit 2006

22. Potential Benefits/Pitfalls…continued • The Ugly, If It’s Not Done Right: • Service degradation • Cost saving not realized: • Lack Of Service Penalties • Twice The Time at Half the Rate Does Not Save Money • Hidden Expenses • IT credibility loss • Bad media press!! • High cost to recover (in-source) CTO Summit 2006

23. A Few Good Outsourcing Principles • Seek quality service at a fair, competitive price • Create long term relationships with short term contracts • Get detailed service descriptions with adequate metrics for each activity • Make supplier fully accountable for delivering services with penalties when service levels are missed • Manage, monitor and review supplier’s performance with clear delineation of responsibility boundaries Those are my principles, and if you don't like them... well, I have others.“ -Groucho Marx CTO Summit 2006

24. What’s Right For You? • Develop Your Goals • Recognize Your True Core Competencies • Identify Outsourcing Candidates • Know Your Culture and How To Work Within It • Understand Organization’s Fiscal State • Seek Out and Analyze Your Alternatives • Use Professional Assistance CTO Summit 2006

25. In Summary • Avoid ‘The Ugly’ • Handle ‘The Bad’ • Experience ‘The Good’ • Don’t Be Afraid • And Bask In Your Success! CTO Summit 2006