The demise of IT Outsourcing

Outsourcing is out – partnering may be in. Such is the complex lesson facing technology companies in search of opportunity in the public sector, and the shifts are more profound than mere word play.

Though defined in many ways, outsourcing implies a transfer of assets from one organization to an external provider – a specialist – and it is an important strategic option for fledging e-governments for a variety of reasons. As the public sector seeks to build and upgrade online capacities, leveraging the competencies of an external expert can be enticing in both human and technical terms.

Some government agencies are succeeding in doing so. Most prevalent in the United Kingdom, Australia and some American states, strategic outsourcing initiatives have underpinned a variety of reforms in both administration and service delivery. So, given that IT spending and outsourcing activities are expected to rise in all sectors for years, how can this be the time to suggest a decline?

In public sector circles, the significant flaw of outsourcing is rooted in its origins — a time when governments wanted to do less. In fact, many of today’s largest outsourcing deals began during the 1990s, just prior to the birth of e-government.

Today, industry is not exactly in vogue – particularly companies espousing the promise of the Internet. Yet, much more importantly, the rise of e-government means that the transfer of assets implied by outsourcing is both far less accepted and far more contentious for the public sector. For the executive branch, the discussion becomes: can we become an effective e-government leader relying solely or even predominantly on the private sector?

A few political leaders will always respond in the affirmative. Yet, an important counter movement is gathering force. In a post-Sept. 11 world, with an emerging online citizenry and the credibility and volatility challenges of the marketplace, few governments will agree to “transfer” control of their most strategic performance levers on any significant scale.

Paradoxically, governments may well deliver more services through market and community-based models while bolstering their own decision-making systems to limit dependence and ensure strong oversight. Global networks between governments are also a growing influence, as the developing world, in particular, is riddled with horror stories of outsourcing mishaps.

Nonetheless, the news is only bleak as long as companies continue to cling to outsourcing’s outdated message: “Let us do it for you and we will do it better.” As the era of large-scale outsourcing draws to a premature close, the dawn of partnerships appears – and here lies the future of e-government with a tremendous need for public-private collaboration.

So while opportunities remain plentiful, they are not assured. At the heart of the emerging partnership-driven era is a quandary of ownership. In an inter-connected and networked world, what must the state own and what must it manage itself in order to effectively fulfill its mission?

This quandary begins with the portal – which, many governments would argue, should remain in-house. Some governments, however, have outsourced portal design as an element of a more integrated reorganization of online activity. Furthermore, the Gartner Group now predicts that many public sector portals may soon become obsolete as people access public services through alternative online channels – channels made possible only by alliances joining public and private authorities.

The quandary continues with people. In an era of knowledge workers, it is conceptually debatable whether anyone really owns highly skilled workers. But the practical human resource challenge facing governments is to find the most effective mix of internal and external competencies to ensure organizational resilience in a turbulent environment.

Finally, this quandary is inherently political, as governments will respond to questions of ownership and control in different ways. As more and more politicians become immersed in the realm of e-democracy, however, we are likely to see more interest in a strong government presence online – not less.

Jeffrey Roy is Managing Director of the Centre on Governance at the University of Ottawa. He may be reached at [email protected] Please visit the Centre at

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