Managing IT Outsourcing for Digital Government

Abstract

IT outsourcing has become an increasingly important strategy in meeting the demand for digital government services in many developed countries. In the United States, government IT outsourcing is expected to become the fastest-growing segment of the overall federal IT market.1 In 2002, the federal government spent US$55 billion on IT service contracts (Harris, 2003). The European Union also witnessed mega government IT outsourcing deals. One of the most visible deals is the British government’s National Health Service modernization plan, which features a host of multi-year IT outsourcing contracts whose total exceeds £5 billion (Collins, 2004). Government interest in IT outsourcing will likely be sustained by growing interest in creating value for citizens (Accenture, 2002). The confluence of many factors has made IT outsourcing an appealing option for governments around the world. Governments around the world are facing the challenge of delivering more services with fewer resources to meet the demands of their citizens and businesses. Information technology is able to increase efficiency in service production and delivery. However, alone, governments find it difficult to provide the financial resources and competitive wages which attract needed IT talent to deploy e-government services (National Academy of Public Administration, 2001). Against this background, outsourcing becomes a value proposition for government. With outsourcing, government can gain access to IT expertise while gaining efficiency derived from private-sector economies of scale. Nevertheless, good management is needed to realize IT outsourcing’s potential for creating value. This article focuses on IT outsourcing in the public sector, analyzing management issues, and offering practical solutions. The background section defines IT outsourcing as well as its associated benefits and risks. The next section offers a process-oriented practical methodology as a tool for public managers to navigate the entire life cycle of IT outsourcing projects. More importantly, this process provides a structured way to maximize benefits and minimize costs associated with IT outsourcing. Then, a discussion of future trends examines IT outsourcing issues on the horizon. This article concludes with a general set of recommendations.