The Ins of IT Outsourcing
FOR MANY, THE WORD "OUT-sourcing" conjures up images of jobs being lost overseas. Others envision writing blank checks and becoming increasingly frustrated by unmet expectations. It's a word that has gotten a lot of media attention in recent years and has served as a key issue for many political campaigns.
Outsourcing, the business of contracting with an outside vendor to provide goods and services outside an institution's core competencies, has traditionally been more associated with services such as the operation of bookstores or dining halls. Increasingly, colleges and universities are considering outsourcing all or part of other services, such as IT support. More than 80 percent of chief financial officers surveyed last year by Eduventures (www.eduventures.com) said their institutions had outsourced some technology-related services during the previous year.
This growing interest in outsourcing IT is driven in large measure by two factors: cost and efficiency. With 4 to 7 percent of annual institutional operating budgets spent on information technology, administrators are searching for ways to contain cost and increase revenue. And the demand for the latest available technology put on them by students and faculty is increasing with each new class.
All of the public attention on outsourcing has created some common misperceptions. Following are some of the ones we hear most often.
There are, of course, different models for outsourcing, and some positions are subcontracted to foreign countries to take advantage of cheaper labor. This model, however, has not been as prevalent within institutions of higher education. IHEs have been more interested in on-site managed services or hosted relationships in which some services are provided from a central location.
One of the challenges colleges and universities face today is recruiting talented IT professionals, often to remote locations, in a highly competitive environment. Commercial vendors enjoy the luxury of scale and can attract skilled technicians by offering additional benefits and opportunities for promotion. Vendors supporting multiple customers also have the flexibility to move personnel among locations as needed and don't face the same limitations as that of a single institution.
The greatest reluctance IHEs face when considering outsourcing is from internal IT staff . Technicians fear being replaced by better-skilled workers. Yet half the senior administrators surveyed by Eduventures last year indicated their primary reason for outsourcing IT services was the lack of availability of in-house staff and skill sets. Because of their knowledge and experience leveraged across multiple sites, vendors are able to evaluate the skill sets of existing staff , upgrade those skills where appropriate, and bring more up-to-date skilled personnel to the site as appropriate.
In 1998, for example, Immaculata University (Pa.) elected to outsource its IT services. The majority of its IT staff were retained in the conversion and provided the people power to lead the institution in implementing a new administrative system. And while most of the university's servers are located on campus, several supporting the new ERP system are hosted, providing the institution additional remote database and systems support.
While outsourcing the management of technology should not be approachedas a way to cut costs, it can offer opportunities for greater efficiency. Predicting the cost of technology is difficult, particularly when institutions do not understand how to appropriately align their technology expenditures with their institutional goals. In the most recent Educause Center for Applied Research (ECAR) Core Data Services report, only 62 percent of respondents were able to "make a reasonable estimate about what was spent on IT outside their centralized IT organizations." Vendors can not only help institutions strategically invest in their IT but can also provide a predictability of spending and a governance process to help colleges understand how to control their IT costs.
Brookdale Community College (N.J.) elected in 1995 to outsource its IT operations. The college got help in developing and implementing a $10 million technology improvement plan and, during the first five years of the partnership, realized a saving of $1.25 million over previous cost estimates of keeping IT in-house. Equally as important, the college was able to significantly enhance the quality of IT support and customer satisfaction to its students, faculty, and staff .
Employees fear there may be a lack of responsiveness on the part of IT staff if the chief information officer is not a college employee. In most cases, the school actually ends up with more "real" control than it had before because it can hold the vendor contractually liable for performance to specific sets of agreed-upon metrics. Institutions can hardly ever do that with their own employees and, as is often the case, lack the fundamental knowledge of IT to establish the right metrics to measure optimal performance. SunGard Higher Education, for example, works with all of its customer institutions to establish strong IT governance to ensure there is broadbased input from all segments of their campus communities and institutionally driven decision making.
It's hard to address this misperception in a general way since outsourcing arrangements vary. Some outsourcing may involve short-term projects, while others call for longer-term partnerships. The key, as in any successful arrangement, is finding the right balance that serves the needs of both the institution and the vendor. It is also critical for institutions to select a vendor that is both willing and able to modify its scope of responsibilities as the needs of the institution change over time.
There may have been a time when technology was a tactical offering on most campuses. Not anymore. Today IT is the digital thread that binds together campus communities. There is virtually no department or function on campuses today that is not directly affected by technology.
The most successful outsourcing initiatives occur when administrators take a strategic approach to aligning technology plans with an institution's strategic objectives. The stakes are too high for technology decisions to be delegated to the CIO. Setting the course must be a shared process at the highest levels. When done correctly outsourcing can enable an institution to measurably improve its performance in all areas of the institution where processes are technology-enabled.
San Juan College (N.M.) has relied on a vendor to help align the technology plan with the institution's strategic objectives. Through business process redesign, the college was able to reduce its annual IT operating budget by $100,000 and at the same time add new services and see an increase in customer satisfaction. San Juan also has been able to keep pace with its growing student enrollment, more than 35 percent in the last six years, by initiating new programs and course offerings, both in the classroom and online.
This is a legitimate concern, because the nature and function of higher education is different from most other enterprises, and certainly from the business world. Those vendors most successful at providing IT management services to higher education are the companies that have invested in understanding the process and have dedicated the resources to acquiring and leveraging that knowledge.
At any college interested in bringing in a third party to help manage its technology, administrators should research that third party's depth of knowledge and also understand its commitment to the institution's ultimate success. Is the vendor willing to make recommendations based on what is in the best interest of the institution? Or is it more interested in selling its own particular goods and/or services?
Again, this addresses the issue of whether IT is, in fact, a strategic or tactical component of running a college or university. Perhaps as recently as a decade ago, administrators were primarily concerned with keeping their networks operational and replacing legacy administrative systems with stable, commercial ERP systems.
As many of those back-office functions have become routine, and efficiencies in those areas, both functional and financial, have been realized, attention has shifted to providing more effective IT services in and around the classroom and in functional areas that are more central to the mission of the institution. The ability to measure institutional performance, fueled in large part by accreditation agencies and legislative funding sources, is an increasing priority.
Ed Nadworny is president of SunGard Higher Education Managed Services.