Barriers to Outsourcing for Public Institutions

1
Barriers to Outsourcing for Public Institutions

• Dr. José-Marie Griffiths
• Chief Information Officer
• University of Michigan
• March 16, 1999

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Obstacles Overview

• Mission conflict of public vs.private
• Politics
• Legal requirements purchasing processes
• Size and decentralization
• Quality

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Mission Conflict Public versus Private

• Public institutions maintain their existence by
  providing service, businesses maintain their
  existence by making money.

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Mission Conflict Public versus Private

• Commitment of employees to the success of the
  mission of the public institution rather than the
  profits of the private.
• Commitment of the public institution to its
  employees, including long-term, lower level
  employees.

5
Mission Conflict Public versus Private

• Universities tend to favor a more open and
  accessible IT environment than business. Focus
  on making information accessible, not to secure
  it behind firewalls.

6
Mission Conflict Public versus Private

• The intangible is, to what extent do history,
  knowledge, culture and emotion enter into the
  equation?
• Gary A. Ransdell, Clemson Vice-President for
  Administration and Advancement

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Politics

• A public institution has an accepted obligation
  to the community that funds it, especially its
  local and state communities.
• Public institution leadership is elected, and the
  institutions employees are a large sector of the
  vote.

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Politics

• Image public institutions have strong pressure
  to avoid the image of being run like a business
  want to avoid looking like a cut-throat business
  generating massive layoffs.
• Pressure to provide work for students typically
  entry-level functions that in a business
  organization might make sense to outsource.

9
Politics

• Michigan is a strong union state, typically all
  of our unions negotiate job protection into the
  contract.
• Easier to outsource if the work can be done
  somewhere other than on campus.
• Strong pressure to use Michigan-based companies
  for outsourced contracts.

10
Legal requirements purchasing processes

• Public institutions receiving state and federal
  funds legal requirement that at all times its
  purchasing processes are open and competitive,
  prices are fair and reasonable.
• Is especially applicable to long-term
  relationships like outsourced contracts.

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Legal requirements purchasing processes

• Limitations of institutional budget and planning
  mechanisms processes and structures work
• best for stable purchases,
• poorly for volatile and rapidly changing products
  and services with short product life cycles
  typical of IT

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Legal requirements purchasing processes

• Public institutions are reluctant to commit to
  stable, year-to-year financing for IT
  outsourcing.
• Especially true if rising expenses are
  anticipated.
• Complicated by lack of established mechanism for
  charge-back or cost recovery (like a student IT
  fee).

13
Legal requirements purchasing processes

• Institutions lose the infrastructure, managers,
  staffing, etc. when they outsource a service
  institutions are often loathe to throw away
  that investment in order to outsource total
  cost of the new contract must include the loss of
  that investment.

14
Size and Decentralization

• Large Public Institutions
• Often struggle with a lack of consensus on where
  to be spending funds generally. For example,
  only 10 of public universities have a plan for
  investing IT dollars. (Greenes Campus Computing
  Survey)

15
Size and Decentralization

• Large Public Institutions
• Often have access to economies of scale that an
  outsourcing company cannot match.
• Large public universities often have a commitment
  to a diverse IT environment that makes it
  difficult to outsource any service to one company.

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Size and Decentralization

• In a decentralized environment
• Difficult to identify IT expenses.
• No central funding to easily apply to an
  outsourced contract.
• Difficult to get consensus on contract
  specifications, service levels and quality for
  service performance, etc.

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Size and Decentralization

• In a decentralized environment
• Poor internal communication and poor
  understanding of institutional processes IT
  staff dont know what could be outsourced, who to
  involve from the University, nor how to
  communicate what they need to key constituencies

18
Finding Quality Providers

• In a large urban area, private sector may be able
  to pull in resources that a public institution
  cannot. However, in Ann Arbor the U-M is
  generally in a better position to recruit staff
  itself.
• Universities have a large pool of student help.
  More than 70 of U.S. higher ed institutions use
  student help to control costs.

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Finding Quality Providers

• Includes issues of
• Loss of internal expertise and control
• Level of performance to be maintained,
  reliability, ability of outsourced organization
  to deliver
• Price stability
• Compatibility with existing infrastructure
• Corporate marketing pressure

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Finding Quality Providers

• Includes issues of
• Need for ongoing contract management in the
  public institution often difficult to keep good
  staff in a role that has a lot of responsibility
  with little actual authority.
• Penalties/problems in canceling outsourcing
  agreements once the contract is signed often
  the public institution has little clout left.

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What makes outsourcing work for public
institutions?

• Create a partnership model where risks and
  benefits are equally shared by the public
  institution AND the contracted outsourcing
  company.

22
What makes outsourcing work for public
institutions?

• Outsource those services that are the most
  stable, easily defined, where expectations of
  service level, etc. have been established and
  agreed on.
• New areas before the institution has been able to
  build or acquire in-house expertise and yet needs
  to move quickly.

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What makes outsourcing work for public
institutions?

• Universal standards, such as IMS
• Projects to assist higher education institutions
  understand the true costs of providing IT
  products and services
• Industry collaborations on key solutions such as
  security, authentication, collaborative
  technologies, etc.

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What makes sense for public institutions to
outsource in IT?
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• José-Marie Griffiths
• University of Michigan Chief Information Officer
• Executive Director, Information Technology
  Division
• Professor, School of Information
• Email jmgriff_at_umich.edu
• Web site http//www.cioweb.umich.edu