Application under study:________________________________________________________

Information services (IS) are unique as compared to other organizational resources which have been successfully selectively sourced in the past. In particular, there are six characteristics associated with IS which make it different from other sourcing opportunities. These are:

1 Information technology evolves rapidly.

2 The underlying economics of information technology (IT) changes rapidly.

3 The penetration of IS to all governmental activities is simultaneously ongoing throughout government.

4 The switching costs to alternative IT and IS suppliers is high.

5 Customer's are relatively inexperienced with IS outsourcing.

6 IS management practice rather than economies of scale lead to economic effectiveness.

The purpose of the selective sourcing analysis is to:

• help Commonwealth agencies assess the quality and effectiveness of services currently provided by their respective Information Systems (IS) and Information Technology (IT) resources
  
  
• determine the viability of selective sourcing as a means to augment existing IT/IS services in the Commonwealth of Virginia.

Success in IT sourcing depends as much on judiciously exploiting external resources and capabilities as it does on optimally deploying internal ones. Therefore, IT selective sourcing must be proactively considered and should be an explicit part of every organization's IS strategy.

The use of an analytical framework is required to examine selective sourcing options within the organization's strategic intent. This will help to identify and weigh options as well as to formulate appropriate strategies for realizing the ambitions of IT and for the organization.

There is a need to focus on key activities and issues in the selective sourcing decision process. This includes the assessment of potential IS functions and activities that may be suitable for outsourcing or rightsourcing. A determination must be made concerning which decision rights to confer to vendors and which to retain. The outsourcing and implementation process must be analyzed by examining the essential aspects of contracts, as well as the organizational and human resource issues related to structuring and managing a successful outsourcing relationship.

The benefits and risks associated with IT outsourcing vary and must be carefully considered. The following table outlines the benefits and risks of outsourcing based on selected motivations and goals.

The Benefits and Risks
Associated with IT Outsourcing Vary with Motivations and Goals

Other Key Considerations

It is crucial to recognize that intent and ambition for selective sourcing will likely change over the course of time as the organization and technology both evolve. It is important to anticipate shifts in priorities and to build flexibility into contracts and alliances to deal with them.

There are five questions to ask before you undertake a selective sourcing initiative.

1 What are your core competencies?

2 How does your IT organization help enable corporate strategy?

3 What IT skill sets will you need in the future?

4 Can a vendor provide your current service levels at a lower or variable cost?

5 Does upper management support your outsourcing decision? (General Assembly)

The answers help identify road blocks to effective and efficient IT organization. Selective Sourcing is a disciplined three-phase process:

• Phase I -------Establish
• Phase II ------Manage
• Phase III -----Terminate

Although each phase is unique, they are interrelated and must be considered as a whole.

Selective sourcing decisions should be made within the context of a larger IT strategic plan. This involves assessing current resources by IT functions and then deciding whether to hire and train in-house talent or to augment or replace these resources by using selective sourcing with external service providers.

It is important to hire experienced technical consultants and attorneys who are familiar with the state-of-the-art in outsourcing contracts. This will provide the organization with the necessary experience needed to deal with the many issues and experience levels of the private sector in the event outsourcing is the selected option. It is necessary to define and enforce measurable Service Level Agreements (SLA) before the contract is signed.

Organizations should approach the entire selective sourcing decision process in a holistic fashion and must take care to avoid choosing suppliers and structuring outsourcing arrangements that do not fit their strategic intent. It is important to dissect the vendor's offering in order to yield insights into the real value added by their capabilities and resources.

Organizational compatibility and effective management mechanisms are also crucial to the ongoing success of outsourcing relationships. It is necessary to have the right people, roles and skills in the retained IS department. Managing transitional human resource issues is difficult but nevertheless critical to making the selective sourcing arrangement work over the long term.

The following table examines selective sourcing issues in terms of the three phases (establish, manage and terminate) and the factors of consistency, competency, continuity and contract which are necessary for success.

These considerations lead to the question:

"How should Virginia source
information technology or information services?"

The use of "selective sourcing options" offers the optimum potential benefit for the Commonwealth. That is the selective sourcing of information services to take advantage of inherent strengths from each source. It also recognizes the importance of competition. This selective sourcing option is shown as a continuum ranging from insourcing through co-sourcing to outsourcing.

The selective sourcing options are found in Appendix A.

As discussed above, an IT/IS oriented selective sourcing analysis is required to arrive at an informed decision. The analysis will determine whether the function under study should be performed in-house, outsourced to a private provided, or provided in some combination of the two options to include the use of managed competition.

These key questions about IT selective sourcing are to be answered after completing the selective sourcing analysis. The objective is to determine the selective sourcing option to maximize the positive answers in the sourcing analysis.

1 What should be the intent and ambition for the IT activity that was studied? How can selective sourcing be used to achieve the stated goals?

2 What kind of selective sourcing relationship should be entered into?

3 How should the selective sourcing relationship be structured to meet announced objectives?

4 What actions and time-line must be completed to ensure the success of these arrangements and acceptance by the customers?

Information Technology and Information Services
Selective Sourcing Options Analysis

The following set of questions addresses the rationale to be considered in making a selective sourcing decision. Please complete every question in each section.

The main reason to conduct the selective sourcing analysis is:

Consider the public policy issues which best serve
the public safety and welfare of Virginia citizens

A. The objective of this analysis is to determine if the services can be transferred to the private sector without public harm. The evaluation should address the following issues:

To determine if the services can be transferred to the private sector without public harm:

(1) Understand

(2) Eliminate

(3) Simplify

(4) Automate to create the most effective organization in-house

E. IT performance management system questions:
Explain any question marked with a "no."

G. Balanced score card to measure IT effectiveness:
Explain any question marked with a "no."

H. Impact of IT in terms of strategic needs:
Explain any question marked with a "no."

K. Innovation and learning:
Explain any question marked with a "no."

L. Ranking of customer survey question area:
Explain any question marked with a "no."

The objective of the cost analysis is to determine what it costs government:

•to perform the baseline activity

•to monitor the activity, and

•what future costs government can avoid by transferring the activity to the private sector during the course of the proposed contract.

 

Please provide estimated cost for base contract, plus all option years, for the following categories:

• Personnel Costs (including salaries, unemployment insurance, fringe benefits, etc.)
• Operating Costs (maintenance, vehicles, equipment, office space)
• Capital Costs (present and anticipated)
• Insurance/Liability Costs
• Allocated Administrative Costs
• Management/Supervision Costs
• Any Other Costs Related To Providing The Service

To set actual performance targets, organizations benchmark with other IT organizations in the enterprise, with IT organizations outside the enterprise, or with similar processes but in other industries using best of breed or world class standards.

Estimated contractor cost by benchmarking to provide service for base plus all option years.

$___________________________________

Compare the above financial information with information obtained from benchmarking against best of breed or world class activities. In the event that benchmarking is not practical, comparative information may be obtained by requests of interest or other similar type contracts that may have been awarded.

Review and analyze answers to the foregoing questions and then complete the requirements on page 6 and the "Information Technology or Information Systems Selective Sourcing Options Analysis Submittal."

The following defines the various selective sourcing options:

A more complete list of definitions pertaining to privatization and competition are contained in: