Note to Feds: Outsourcing Hang-Ups Are So Three Years Ago

Don Tennant

The IT executives who will be gathered at the IT Business Edge Midmarket CIO Forum in Orlando in March probably won't have anything higher on their agendas than figuring out ways to cut costs. Sometimes an answer is relatively simple and readily available. The trick is overcoming institutional biases and C-suite handwringing to get it done.


One of the executives slated to attend the event is David D'Agostino, director of information technology at Advanced Technology Systems Corp., an IT services provider in McLean, Va. ATSC is a government contractor that provides e-mail, collaboration and other infrastructure services to a wide range of federal agencies, including the FBI, the Federal Housing Finance Agency, Pension Benefit Guaranty Corp., and the Department of Housing and Urban Development. As if that weren't enough, it does some defense work, as well.


I spoke with D'Agostino earlier this week, and we had an interesting conversation about the reluctance of government contractors to take advantage of cost savings made possible by outsourcing. He summarized the situation at ATSC this way:

Every application that we have here, there is somebody who can run it for us. There are a number of things that I would like to push outside, or strongly consider investigating [that option] further, where I get pushback from management just because of the kind of company we are. I am convinced that it would be cheaper for us to have our SharePoint and Exchange installations run externally by Microsoft. But the feeling inside is we provide these services to our customers, [and] it wouldn't look good if we were outsourcing stuff. So it's more of an organizational, institutional bias against outsourcing than it is an evenhanded analysis of the situation.

OK, but what if outsourcing enables really dramatic cost savings? According to D'Agostino, that's precisely the scenario that has arisen:

I know that when we did an acquisition a few years ago, the CIO of the other company was really pushing heavily to move to outsourced e-mail, because that's what they had. We did an analysis at the time, and it would be about twice as expensive to outsource it [as] it would be to keep maintaining it in-house. I looked at it recently, after Microsoft's most recent price drop on their hosted services, and it would be about one-tenth of what it costs us [now]. What happened is the cost has changed by an order of magnitude to have something outsourced-it's shifted pretty dramatically, just in the past three years.

So let's get this straight. ATSC was willing to pass up the opportunity to cut the fees it was paying to Microsoft by 90 percent just because of some stupid institutional bias? D'Agostino said there was another factor: the requisite security argument:

I guess I have to add that I don't think it's just that. Outsourcing has negative connotations for some people in terms of control and security, deserved or not. So when the preexisting bias is added to the market positioning of the company, then it just doesn't get off the ground.

Well, it needs to get off the ground. As a taxpayer, I don't want to pay 10 times more than I have to for a system that allows federal employees to e-mail each other. Neither cost nor security is necessarily the issue it was three years ago. Government agencies need to ensure that their contractors are providing the most cost-effective services possible, and a good look at outsourcing would be a great place to start.

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Jan 24, 2010 1:07 AM Mike Mike  says:

In their book Japan's Business Renaissance, Mark Fuller and John Beck cite the case of an older Toyota executive railing against the insane modern business mentality that is being propagated worldwide today:

'Another great example of a Japanese company built on the foundation of moral purpose is Toyota. At a time when a younger group of managers was asked why Toyota has become so successful, all answered with vague business school platitudes. One elder manager stood up to rebuke them saying What these people do not understand is that in 1946, the people in this city were eating bugs. That is the reason, you know, the reason that we had to rebuild this company is because our children were starving to death'. The manager went on to say that building a better life for the people of the region was first and foremost in the minds of Toyota's founders. Perhaps this is heresy today, but doesn't that seem like a more powerful driver than abstract concepts like return on investment?'

Jan 24, 2010 2:46 AM JohnAdams JohnAdams  says: in response to Mike

Another great Article by Mumbai Don.

Jan 25, 2010 1:14 AM Annemarie Annemarie  says:

Is Don moonlighting as a lobbyist?

Jan 25, 2010 2:02 AM Don Tennant Don Tennant  says:

Judging from these comments, there seems to be a lack of understanding of the term "outsourcing." Outsourcing is not synonymous with offshoring. Outsourcing simply refers to sending work outside rather than doing it in-house. Offshore outsourcing is just one segment of that.


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