Outsourcing: A tale of two strategies

With the focus of this issue of CIO Governments’ Review on outsourcing, it is an opportune moment to examine the contrasting strategies of two local governments in San Diego, as well as the lessons that may be drawn from their efforts.

On the one hand, San Diego County (the upper-tier, regional authority) has the largest and most complete municipal outsourcing initiative in the United States. Several years ago, officials selected a group of companies who collaborated and bid jointly as the Pennant Alliance to assume, upgrade, maintain and manage every aspect of the county’s IT architecture.

Conversely, the City of San Diego (the largest municipal entity encompassing the urban centre) has evolved along a very different path – essentially insourcing technology operations through a semi-autonomous but city-owned agency, the San Diego Data Processing Corporation (SDDPC).

Who’s right and who’s wrong? Such black and white depictions of success and failure are elusive – perhaps pointing to the first lesson to be drawn concerning e-government and strategic outsourcing: there is no panacea for all.

The County experience has drawn attention both locally and nationally. One article in a reputable pro-industry technology publication in the U.S. famously proclaimed its view with a bold headline, “You Can’t Outsource City Hall.” Another profile of the partnership revealed the bumps encountered in the early days of the seven-year venture, when initial transitions proved painful.

Yet, notwithstanding the very real challenges that emerged, there is a high degree of satisfaction with the experience to date, and a higher level of determination to proceed. The county CIO recently joined from the industry side of the partnership and there is a sentiment across employees and local observers that the government is further ahead today than it ever could have been on its own.

The reason for such optimism, however, also stems less from stunning successes and more from the dire conditions in the mid-1990s, before the outsourcing move. This degradation took place as strong economic and demographic growth, and a referendum-driven freeze of property taxes, combined to severely strain local governments.

In this sense, the county is somewhat unique, revealing the dynamic and evolving landscape of public-private partnerships over the past decade. With Y2K and the emerging focus on online services, governments are now more likely to recognize the importance of technology. As such, large-scale outsourcing may be less attractive than building capacities from within.

So how is the City of San Diego faring with such an inward approach? The most common assessment from employees, elected officials and other stakeholders is that technology has proved more than sufficient to keep up with efforts to foster e-government.

SDDPC feels confident in its capacity to enable a continual extension into cyberspace, while underpinning efficient and functional governance within city hall.

In fact, despite the differing approaches locally, there is little public attention to questions of who owns and operates IT. The lesson here is that good government matters more than who does what – and performance and need should matter more than ideological boundaries.

Another important lesson stems from what these governments are planning next. Interestingly, there appears to be some convergence between both municipal strategies – as the county may look to partly revive some segments of its internal IT organization and the city turns to outsourcing on a limited scale.

From the county perspective, there is a sense that e-government is here to stay – and its importance will grow. The extent to which any government should rely fully and completely on the private sector in such an era is a highly strategic question. At the same time, the city feels that it can upgrade capacities and innovate through selective partnering, and is now exploring the basis for doing so.

The lesson, then, is that an increasingly digital world will result in a mixed technology portfolio of tools and people – partly internal and at times external. Finding and sustaining the optimal mix through strong relational capacities lies at the heart of the managerial imperative that will shape e-government and determine its performance.

Jeffrey Roy ( roy@management.uottawa.ca) is a Senior Research Fellow of the Centre on Governance at the University of Ottawa and a Visiting Scholar at San Diego State University.