Offshore outsourcing a no-go for Minneapolis CIO

Says he would like to send outsourced work overseas but that 'is not yet an option'

DALLAS – If CIO Karl Kaiser allowed his IT outsourcing provider, Unisys Corp., to move desktop support, network management and some other infrastructure services offshore, it likely would yield financial benefits. But it would also create problems.

Kaiser is CIO of the city of Minneapolis, and offshoring government IT work – even work that's done by the employees of a public-sector contractor – would touch off a political maelstrom. Kaiser only has to cite Lou Dobbs, the CNN commentator who has been waging a war on offshore outsourcing, to make his point about how explosive the issue is.

On the other hand, Kaiser said at Gartner Inc.'s Outsourcing Summit here this week that offshoring has to the potential to cut the $10 million that Minneapolis spends annually on IT infrastructure services by about $500,000 -- freeing him to use that money for other kinds of services. It isn't a huge sum, and Kaiser isn't pressing for offshoring. But he would like to see the attitude that government officials have about offshore outsourcing change.

"At the moment, it is not yet an option," Kaiser said of offshoring IT work. Businesses and governments "do sourcing around the world," he said. "We buy Japanese cars; we buy all sorts of things. But when it comes to offshore outsourcing, that's a no-no."

Minneapolis is somewhat unique among government entities: When the city outsourced its IT infrastructure nearly five years ago, Unisys took over ownership of its servers and PCs. Many government bodies outsource IT, but they typically do so as part of a managed services deal while retaining ownership of their systems.

But Minneapolis is squarely in the mainstream of the broader outsourcing trend. According to Gartner, the worldwide infrastructure outsourcing market totaled $164 billion in 2005 and is expected to increase to $234 billion by 2010, an annual growth rate of 7.4%.

The offshoring of infrastructure services, which includes functions such as the IT help desk, network and hardware management, database administration and security support, is attracting significant interest from corporate users, said Gartner analyst Kurt Potter. And, he said, outsourcing vendors can deliver those services from offshore locations.

Unlike Kaiser, Greg Tranter, CIO at The Hanover Insurance Group Inc. in Worcester, Mass., doesn't have to deal with the political complexities of government. His overriding mission is to improve IT and its ability to deliver business value at Hanover.

One of the steps Tranter is taking to meet his goals is to have 25% of the insurer's IT infrastructure outsourced by next month to Keane Inc., which runs a services center in India, and as much as 50% by year's end. The support services that Keane will handle include configuring servers and desktops, which is relatively routine and repetitive work.

"Why should I pay somebody here $100,000 to [configure] a server when I can pay somebody in India half of that to build it?" Tranter said.

He added that IT workers in the U.S. will be able to devote their time to more intensive tasks and to helping Hanover meet some of its other goals, such as building a service-oriented architecture and making its application environment "more reusable and easier to develop." Tranter is also interested in grid computing and the ability to move resources between computing platforms as needed to increase utilization rates.

Tranter took his current job in 2000 and soon began outsourcing some of Hanover's application development and maintenance work to Boston-based Keane because of problems hiring IT staffers, who were taking advantage of the job climate before the dot-com bubble burst. "The first four months that I was on the job, we had 30% annualized turnover, so I had no choice but to try to find capacity someplace," he said.

Over the years, Hanover has developed a tight relationship with Keane, and Tranter said he extended the outsourcing contract to 2011 late last year. The insurer, which had about 1,200 employees in its IT department seven years ago, now has 450 tech workers on its payroll, although the total IT workforce increases to 900 when Keane's staff is counted.

Tranter said the IT operation has become more a broker of services, working with Keane and IT vendors to integrate software. Internal skills have changed. Business analysts work closely with end users to define business requirements, which then are handed off to IT architects and technical leads, who design systems and create technical specifications. Keane codes, tests and delivers the applications.

"We get more work done today with less people then we did six years ago – significantly more work," said Tranter.

Copyright © 2007 IDG Communications, Inc.

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