Best Government Outsourcing Relationship
2000 Editor's Choice Award EDS/ Government of South Australia
From the Editor: Here is a superb example of how two organizations took an immense challenge and succeeded. The scope of EDS's assignment was broad and pervasive: to take over the IT and some BPO functions for the Government of South Australia. The ministers literally outsourced the entire government! The benefits were wide-ranging as well: cost savings, improved services and new job creation. The relationship is noteworthy because of its grand vision and its ability to deliver.
In 1994 the economy in South Australia wasn't doing well; in fact, the economy was so poor that the government-owned bank had all but fallen over. In an effort to reinvigorate the economy after a particularly bad period, the government of South Australia decided to outsource a range of processes, including all of the government's information technology (IT) functions, as well as other business processes.
When the IT outsourcing began, it was considered a unique move because it was across the board. The outsourced processes were not broken down into specific areas or by departments--it was literally the whole government. To some degree the outsourcing is still fairly unique, says Phil Eastick, IT ministerial liaison in the government of South Australia.
Grabbing the Opportunity
Eastick, who provides policy advice to two ministers, and forms a link between the ministers and the elected officials and bureaucrats, says the government saw outsourcing as more than a way to improve its efficiency and upgrade its systems. "We also thought we could gain a significant economic advantage," says Eastick.
The government of South Australia selected EDS as its "preferred strategic partner" in 1994 and began outsourcing in July 1996. The deal is contracted for nine years and is worth $565 million. It is one of the largest outsourcing deals ever signed in the Asia Pacific region. Under the terms of the agreement, the government outsources its data center operations, client/server functions, local area networks (LANs), and wide area networks (WANs) to EDS.
EDS began by providing services to 83 government departments in 1,000 locations, spanning such functions as health, treasury, police, courts, schools, and transportation. At that time, the government of South Australia had more than 140 distinct, separate agencies.
One of the benefits of outsourcing is that it has enabled the government to reduce its infrastructure. In the previous environment, each department and each agency within the departments had their own CIOs who used different applications. There was an enormous amount of inconsistency," says Eastick. Outsourcing made the consolidations easier to accomplish across a wide range of areas (from a very simple messaging system, to a very complex technology) Thus, it enabled the government to achieve a higher level of standardization.
In that process, the government also substantially reduced the number of agencies down to what are now referred to as "the ten super agencies." Each agency has offshoots that deal with certain areas of business. For instance, the agency where Eastick is employed is called the Department of Administrative and Information Services. It covers everything from building construction, project management for other arms of the government, running the government's printing business, and making provisions for IT policy.
Overcoming Preconceived Notions
Australia's citizens, however, were not excited by the prospect of outsourcing. The government was faced with a major challenge in overcoming its citizens' negative perception of outsourcing. It has been necessary to help them become comfortable with change at its base level, Eastick says. The outsourced functions have always been owned and operated by the government, and the people have been worried about the level of service when the government no longer performs those functions. "What we are trying to get across to the people," explains Eastick, "is that we can regulate certain processes, even though we don't run them. We are not running them because we (and governments in general) are not particularly efficient in those processes."
The people of Australia were also concerned about what would happen at the end of a contractual term for an outsourcing relationship. After all, the staff, resources and intellectual property would have been transferred from the government to another company. Eastick says that even though the current outsourcing arrangement is for a finite period of time, the government has no plans of going back to the way that it once was. They will continue to keep policy and strategy within the government, which are its core functions; that will not change.
But IT inevitably will change. "You can't begin to write down in a contract what is going to happen in year six (let alone year nine) of the contract and have a chance at being right," says Eastick. "The only thing you can do is describe 'the what' and 'the why' of the arrangement. It isn't necessary to figure out 'the how' because it will come along. It wouldn't be as easy to say that without the resources of EDS," he continues. "Having EDS there to support and retain cutting edge technology is a definite advantage."
Spurring Economic Development
The outsourcing of IT to EDS will save the government of South Australia more than $100 million in computing costs over the life of the nine-year contract. But cost reduction is secondary to the government's primary objectives of spurring economic development and boosting the local IT industry. The government of South Australia has identified IT as an industry sector that is critical to the economic development of the state through export generation.
It is also a key enabler for the success of other industries. By teaming up with local companies and marketing local products through EDS' global network of clients, many South Australian businesses could benefit from reduced costs. This added benefit from EDS comes at no additional cost to the state. "EDS has demonstrated a very high degree of flexibility and commitment to developing a relationship with the government and the country of Australia in the long term," Eastick says.
Eastick explains a further benefit of taking care of business with a partner like EDS. "As technologies change, what we are finding is that we have access to EDS' people and all the organizations that they deal with around the globe. As a government, it would be incredibly difficult to stay up to date with current issues around the globe. For us, there is no such thing as a presence in North America or other places—unless, of course, you have a global partner like EDS."
Lessons from the Outsourcing Primer
- Outsourcing can reduce infrastructure.
- Outsourcing can contribute to standardization.
- Outsourcing can requires quite a bit of education at the citizen/voter level.
- Outsourcing can spur economic development and help lower local businesses benefit from reduced costs.
- Outsourcing can keep the buyer up to date on new global trends.