Outsourcing: The Great Debate

"We are seeing that market leaders in all industries are increasingly using outsourcing as a way to build and sustain competitive advantage"
Dennis Torkko, Arthur Andersen Contract Services

"I feel like a slave being auctioned off. All that's missing are the chains"
Anonymous IT person involved in an outsource

Outsourcing is seen by many observers as one of the pillars of modern management and economic practice. It is also one of the most difficult management topics to discuss. In many groups, the word "outsourcing" is not an economic or management concept but an emotional and political concept. Indeed, within an environment where hard-edged slogans such as "don't automate, obliterate", "lean and mean", "non-core" and "zero added value" are applied to jobs and, by default, to the people who have been doing those jobs, it is very difficult to avoid emotion and value-laden opinions.

A recent announcement by the Australian Federal Government to outsource the majority of the 2,800 IT jobs and related computer infrastructure in most government departments provides an excellent case study of how emotions and values can cloud the real issues of outsourcing. In a series of articles with headings such as "Bye, Bye Bureaucrats", "Bureaucracy Gone Bad" and "80,000 Heads to Roll", The Bulletin outlined government expectations of $50,000,000 per year savings from the $2 billion per year expenditure on government IT. Of course, the battle lines were immediately drawn with senior management from various government IT groups attacking the proposal and the key unions and staff associations such as the Community and Public Sector Union claiming that data security will be compromised and urging the public to send pre-written letter to the Prime Minister claiming " I am deeply concerned by our Government's plan to sell government information technology services to private interests, especially foreign companies. You do not have my permission to give information about me to private companies".iv

This claim and counter-claim is also evident in South Australia where the State Government outsourced $500,000,000 of IT infrastructure to E.D.S. The Opposition is claiming that the outsourcing has not saved any money and, in fact, has increased the cost of IT to the South Australian Government. Of course, the Government and E.D.S. responded saying that the estimated savings of around $12,000,000 per annum had been realised.

While both examples above are from the Public Sector, similar debates occur in the Private Sector. However, these tend to happen behind the closed doors of the Boardroom.

Clearly, outsourcing is more than just another management fad. It is a highly emotional issue and, as a result, it has become increasingly difficult for both observers and participants in the outsourcing debate to remain neutral. In addition, for many organisations, outsourcing has become a major strategic issue and, as will be discussed in this paper, unless very specific management actions are undertaken, many organisations will find that outsourcing, like so many other management trends, can be a strategic and financial disaster.

State of play

While outsourcing is not a new concept [IDAPS was providing outsourced computer services in Australia from the early 1970's], the late 1980's saw the beginning of a major escalation in the levels of IT outsourcing. The most commonly accepted reason for the sudden growth of IT outsourcing is that many organisations sought to rapidly reduce costs [primarily staff] to offset losses caused by the stock-market and financial crash of 1987/88. A less acknowledged reason, as discussed by Thomsett [1997], was that many business experts had become so frustrated with the attitudes and poor response of their internal IT groups that they were turning to external IT providers with expectations of improved relationships, service and response.

Certainly by the mid-1990's, outsourcing and IT outsourcing, in particular, has become big business. In the U.S., an Outsourcing Institute/Frost and Sullivan Market Intelligence survey found that by the end of 1995 $38 billion annually was spent by US organisations on IT outsourcing. Other research by GE Research indicated growth rates in IT outsourcing of 22% per annum. In 1997, PA Consulting reported that in a world-wide survey of 1200 organisations, 51% had commenced outsourcing and 75% expected to outsource some operations by 2000. Bryam Johnston v estimated that the rate of outsourcing had increased by 225% over the past 5 years.

While to our knowledge, there has been few estimates of the total size of IT outsourcing in Australia, the following major outsource relationships from the past two years give a clear indication that IT outsourcing is at least in the order of billions of dollars :

• Westpac $100,000,000
• Colonial State Bank $500,000,000
• Commonwealth Bank $250,000,000
• Commonwealth Bank $6,000,0000 [estimated]
• Telstra $3- 6,000,000,000 [estimated]
• South Australian Government $500,000,000
• Federal Government $7,000,000,000 [estimate]
• Victorian Government $500,000,000 [estimate].

Other major IT outsourcing arrangements such as the AMP and Andersen Consulting's AMPlus have not been costed publicly but, clearly, would be in the hundreds of millions. Based on these figures, it is reasonable to estimate that the total IT outsourcing in Australia is in excess of $20 billion over the past 2 years.

Categories of outsourcing

Any discussion of outsourcing must make some clear distinctions between what type of work is being outsourced and the extent of the outsourcing.

What is being outsourced?
As discussed by Thomsett [op. cit.], there are two distinct categories of work in all organisations.

Process work
The first is Process work. This work is "business as usual" and has the following attributes:

• it repeats;
• it has a short time-frame [usually measured in minutes];
• it is standardised, non-creative and structured;
• it is documented;
• it is easily measured;
• it minimises variation between people undertaking the work; and
• it operates within the status-quo.

This work is found in factories, offices, restaurants, airlines, construction, hospitals, banks and so on. We estimate that between 70 - 80% of all work belongs to this category.

Project work

The second category of work is Project work. It is the exact opposite of Process work. It is designed to change "business as usual" and has the following attributes:

• it is unique;
• it has a long time-frame [usually measured in months];
• it is non-standardised, creative and generally un-structured;
• it is difficult to document;
• it is not easily measured;
• it maximises variation between people undertaking the work; and
• it changes the status-quo.

This work is found in all organisations but, in most organisations, is clustered in groups such as Marketing, Information Technology, Research, Policy and other specialist groups. We estimate that, for most organisations, this work is around 20 - 30% of all effort in an organisation vi.

It is important to note that in other business sectors, outsourcing is typically focussed on Process work. For example, Australia Post outsourced its shop-fronts which are all Process work. QANTAS has outsourced much of the food preparation for its flights. Most garment manufacturers have outsourced the manufacturing of clothes to lower cost countries such as China. As noted in the Fortune Outsourcing Section, the typical outsourcing relationship involves routine work such as customer servicing, H.R., sales and order taking, customer complaints and assistance and order fulfilment.

However, within many IT areas, a different type of work is being outsourced - Project work. As we'll discuss in this paper, the outsourcing of such complex and critical work requires very careful strategic and operational management.

It is Project work that drives the level of innovation and differentiation in organisations. For example, in the clothing industry, the design of the clothes, the choice of fabric and colour [i.e. the creative Project work of garment manufacturing] is retained in-house while the cutting, sewing and assembling, shipping and distribution [i.e. the non-creative Process work] is outsourced. Put simply, Process work is the arms and legs of the body corporate while Project work is the brain and the heart.

The outsourcing of the development of new products, service and other innovation places at risk critical factors such as intellectual capital, intellectual property and control of the very process of organisation renewal and re-engineering.

It is important to note that discussion of outsourcing in the popular media rarely differentiates between Process or Project work and, as a result, confuses the two categories of work.

Types of outsourcing

There are three broad types of outsourcing relationship. Each of these has different strategic, management and economic issues.

Global or Strategic

This is the most comprehensive form of outsourcing. It involves the complete transfer of an entire function. For example, the proposed Federal Government IT outsource or the outsourcing of the Telstra Information Technology Group to I.S.S.C. are example of what is termed Strategic outsourcing. In IT areas, this involves the development people, the support people, Computer Operations [hardware and software], network people, the computer networks and the desktop computers. In effect, all computer capability, excepting very small PC-type capability, is contracted to an external organisation for periods between 5 - 10 years. Extremely complex legal and contractual effort [often requiring years of negotiation vii] is required and very complex service-level arrangements are developed. These arrangements typically involve previously internal or permanent organisation staff being transferred to the outsourcing organisation. In the case of the Telstra, Commonwealth Bank and Federal Government outsource relationships over 7,500 people are expected to transfer to the outsourcing organisation.

Partial or Tactical

This form of outsourcing involves major sub-functions or projects being outsourced. For example, the South Australian Government outsource to E.D.S. involved computer hardware, software and communications infrastructure. Initially, no IT project development staff were included in the outsource. The Tactical outsourcing of the operation and maintenance of computer equipment and infrastructure [Process work] has been well-established since the 1970's. The outsourcing of major projects is the other type of Tactical outsourcing. Telstra outsourced the $250,000,000 plus FlexCabs project to Andersen Consulting and the Commonwealth Bank outsourced the $200,000,000 Mainstream project, also to Andersen Consulting. Typically, Tactical outsourcing of projects does not involve staff transferring to an outsource organisation whereas, Tactical outsourcing of computer operations and infrastructure does involve people moving into new forms of employment.

Contracting or Targeted

This form of outsourcing is the most common. It involves the contracting out of parts of projects or sub-functions. For example, an organisation may simply outsource the provision and support of PCs or a contract project manager, systems analyst or programmer are contracted to undertake a project still being developed by in-house people. This form of outsourcing has always been in the IT area and, as such, does not raise the major issues associated with Strategic or Tactical outsourcing.

The case for outsourcing

The following are the typical justifications used to support outsourcing. Some have been well-covered in the media while others are less public and more controversial.

Lower costs

It is argued that by accessing a service provider that has lower cost structures[derived from the outsource organisation's singular focus, economies of scale, etc.] the internal costs are reduced. The Outsourcing Institute estimates that average outsourcing savings range from 9 - 15%. However, the Process and Project work distinction has not been applied to these savings figures [see later]. For example, an organisation may not be able to sustain the costs or of maintaining main-frame computers and the requisite back-up capability. In addition, they may not be using the technology to its full capacity. An outsourcing organisation can spread both the costs of support and the spare capacity across a number of clients resulting in lower costs for all clients.

Risk sharing or reduction

By exporting high risk projects or processes to a more professional external organisation, reduction of risks can be achieved. However, this is normally associated with the external outsourcing organisation including additional charges or a cost-premium for assuming the risk. Risk-sharing is a more attractive advantage. The sharing of risk between the organisation and the outsourcing organisation is the basis of a strategic partnership [see later]. One method of risk-sharing is where the financial structure of the outsourcing includes delayed payments based on successful risk management.

Economies of scale

The outsourcing company has existing infrastructure, expertise and excess capacity that can be offered to the client at discounted prices. This is a compelling argument for smaller organisations that cannot afford to maintain services, equipment and expertise in-house. For example, as discussed earlier, there are many types of equipment that is cheaper to operate and support at large volumes. A smaller company may not have the demand to justify a full-time and professionally-staffed Help desk for users of PCs.

Access to greater skill pool/intellectual capital

Large multi-national outsourcing organisations may have access to international experts, knowledge repositories and infrastructures that are typically not available to most organisationsviii. This is a compelling justification provided that the outsource contract stipulates which experts are required [see later]. Most outsourcing organisations have many thousands of consultants and they often have access to group-ware based repositories of knowledge, experience and expertise which are updated and accessible world-wide.

Greater focus - elimination of non-core activities

By eliminating non-essential activities, the organisation can use outsourcing to either release key people to concentrate on core functions and/or assist senior management in focussing on these core activities rather than being diverted into trivial functions. Again, this can be a compelling justification provided that the organisation is clear on what is "core" and "non-core" functions. In his book, The Unconscious Conspiracy, Professor Warren Ben's [1985] describes how his strategic mission to create a multi-disciplinary university curriculum was thwarted by his diversion into resolving many small, day-to-day operational problems such as allocating parking spaces for university staff.

Greater focus -the "Squeaky Wheel" syndrome

Paradoxically, the very size, cost and associated contractual issues of the outsourcing effort often results in senior management giving more focus to the areas being outsourced. In effect, the more sophisticated political and relationship-management skills of the senior management of the outsourcing company results in the senior management of the client company becoming more involved in the management of the outsourced function than they were when the function was undertaken in-house.

More Control

This is probably the powerful justification for outsourcing. As documented by Thomsett [op. cit.], IT people have tended to use their expert power to dominate their business and external clients. This "professional arrogance" is well established in other professions such as medicine, law and engineering. Many business people simply feel that they have lost control of the IT strategy and technology. By seeking to outsource their IT people, the expectations of many business people is that the outsourcing organisation will be more responsive to their needs and will be more prepared to be pragmatic in offering solutions. In effect, outsourcing is a form of "pay back" by a group of business people who are increasingly frustrated with being manipulated and confused by their internal IT people who are supposed to be providing service.

More Professionalism

Similar to the control justification, there is an expectation that the outsourcing organisation will be more professional in managing their relationship with their clients. In addition, the expectation is that the outsourcing organisation will have more professional development and management standards and procedures that internal IT groups. This justification is based on the belief that the outsourcing organisation must be more professional as they have had to "live on the streets" and sell their expertise.

Cash Infusion

This justification is simple and powerful. By selling off the intellectual capital, accumulated equipment, goodwill and/or future revenue stream of the function being outsourced, the company can obtain an immediate cash infusion. For example, the ISSC/Telstra outsourcing arrangement involves an un-disclosed but substantial transfer of money into the Telstra bank accounts ix. In essence, up-front cash infusion is an advance payment by the outsourcing organisation of future profits from the outsourcing to the client organisation.

Ideological Purity

In an era of economic rationalism or "neo-liberalism", there are elements of ideological "purity" in the concept of outsourcing especially in the government sector. As explored by Geoffrey Baker x, the economic rationalist belief in reducing the size, cost and impact of government and letting the free and competitive market drive growth has supported the move to major outsourcing of many government functions. As detailed by Kerry-Anne Walsh [op. cit.], the current Australian Government's belief that "smaller is better" was outlined by Max Moore-Wilton, the Government's Cabinet Office Chief and major adviser on the bureaucracy xi, in a symposium where he argued that the only way for the public service to thrive is to separate the policy and service arms of government [i.e. outsource the service delivery].

The Case Against Outsourcing

In the current pro-outsourcing environment it is difficult to obtain clear, hard evidence to support the argument against outsourcing. Clearly, an organisation that has gone very public justifying reduced costs from outsourcing would be very reluctant to go public with the increased costs that it has experienced as a result of outsourcing. However, the following factors have been seen by our group in many of our clients.

Higher costs

Certainly in the area of Process work [which includes computer operations and support], the Outsourcing Institute survey's indicate an average of 9% cost reductions. However, in the outsourcing of Project work, the results are more mixed. In fact, experts such as Bryam Johnston [op. cit.] now argue that in IT areas, cost reduction is should not be the prime reason for outsourcing xii. There are many factors that explain either neutral or increased IT costs upon outsourcing. However, in our experience, the most significant is that internal IT project groups often worked 30 - 50% additional effort which was treated as non-costed, unpaid and bonus xiii. It is our experience that few, if any outsourcing companies would tolerate those levels of unpaid and uncharged work. In addition, there is a clear profit motive from the outsourcing company's perspective. Unless substantial cost reductions are gained, the need by the outsourcing organisation for profit margins of, at least 20 - 30%, must lead to increased costs. Finally, outsourcing organisations typically have much more highly-refined and focussed cost tracking systems leading to previously-untracked costs being charged back to the client organisation.

Risk exposure

There are substantial risk exposures associated with IT and other Project work outsourcing. The three key risk areas are loss of control of major projects [see later], potential financial litigation and loss of intellectual capital [see later]. There have been a number of very public litigation cases resulting from outsourcing. In Australia, two examples are the Federal Government and K.P.M.G. and the N.S.W. Government and IBM. However, anecdotal evidence [from extremely well-informed sources] reveal that there have been a number of major litigation suits between major private sector organisations and outsourcing organisations that have received no publicity. Clearly, it is in the interest of both parties in a failed outsource arrangement for the failure not to become public. Needless to say, contract litigation lawyers and expert witnesses have become a growth business.

Dis-economies of scale

This is an extremely interesting negative factor. Basically, the smaller and less high profile the outsourcing client, the larger the incentive for the outsourcing organisation to downscale the attention the client receives. Given the size of most outsourcing organisations xiv, the client may in fact receive a more bureaucratic and un-responsive service than they received from their ex-internal IT group. In Australia, most outsourcing organisations are local subsidiaries of international organisations and are often restricted by global priorities, rules and policies.

Limited access to knowledge base/The "B Team" syndrome

This is a related factor to the previous one. The access to world-wide experts is often constrained by the fact that they are working on "more strategic" clients or projects. In addition, many outsourcing arrangements have started with the "A-team" being involved with the initial negotiations and projects but, as the contract proceeds, the outsourcing organisation uses the contract as a vehicle of placing "B-team" and trainees. This practice is encouraged by poorly-developed contracts which do not stipulate the skill and experience levels required from the outsourcing organisation.

There is a further argument against the access to higher skills justification. The explosive growth of outsourcing has severely stretched the available "talent pool". Simply, there are not enough real experts to meet the demandxv.

Loss of intellectual capital

Of all the negative factors this is probably the most serious and least understood by the executives making the outsourcing decision. The concept of intellectual capital is relatively new and still gaining acceptance in mainstream management theory. As discussed by Thomas Stewart [1997] and Karl Erik Sveiby [1997], there are two primary types of knowledge: explicit and tacit. Explicit knowledge is published and public while, tacit knowledge is "in the heads of the experts". In the IT area, very little knowledgexvi has been made explicit. As a result, the lossxvii of IT personnel associated with outsourcing leads to a loss of tacit intellectual capital and capability. As has been documented on many previous occasions, the best people leave first, as they have the greater options, leaving a "averaged-down" group for the outsourcer to recruit.

Loss of control of core activities

The entire concept of "core" versus "non-core" processes reflects the Process versus Project work issue. Traditionally, the Process work or business-as-usual was the core activity. In a bank, for example, the Branch network and the product distribution chain was the core business. However, as identified by numerous management gurus, the core business in the new organisational environment is the development of new products and creative client relationship-building mechanisms. Information technology and project development is central to these new core activities. By outsourcing the people and intellectual capital required to develop new products, services and systems, many organisations risk losing control of their future. They are outsourcing the new core of their business.

Conflicting Agendas

The traditional concepts of shared values and loyalty are irrelevant in an outsourced relationship. The focus of the client organisation is reduced costs and the focus of the outsourcer is profit - clearly a conflict situation. Unless the outsourcing contract has been designed to minimise this inherent conflict [see later], the size, fee structure, reward systems xviii and global reach of typical outsourcing organisations will generally place the client organisation's agenda at risk. There are few incentives in the typical outsourcing relationship for the outsourcing organisation to "go the extra distance" for the client.

What to do?

Given both the pros and cons for outsourcing, there are a number of critical issues that must be addressed by an organisation considering outsourcing. These include :

Clean house before you sell it

It is the experience of our group that many organisations have extremely poor costing and productivity measurement systems [especially in the Project areas]. As a result, the expectations of savings are often based on financial data derived from poor cost and tracking systems. For example, one outsourcing contact that we are aware of is based on a commitment from the outsourcing organisation to improve productivity of the IT group being outsourced by 30% p.a. However, the existing productivity measures implemented in the client organisation are highly compromised by incorrect cost and effort tracking. In effect, there is no effective benchmark for evaluating whether productivity has been improved!

If you can't measure it, don't outsource it

Best Practice Project Management is vital

In any of the types of outsourcing: Strategic, Tactical or Limited, the management of both the outsourcing relationship [including the contract and associated legal issues] and the project work being undertaken by the outsource organisation is a showstopper. If the scope, objectives, risk, quality, costs and benefits of the work involved has not been defined professionally and precisely and managed by expert project managers, then both parties are exposed to frustrating and expensive debates about issues such as what work was "in scope" and what work was "outside scope". In addition to planning the work, the on-going monitoring and control of scope, risk and quality changes is equally critical.

As a group that has specialised in project management for over 20 years, it is our experience that few organisations have invested the time and effort in developing internal project management skills. Certainly, very few have the level of expert project manager required to manage complex outsourced projects and, as a result, often abrogate the project management function to their outsourcer.

If you can't manage it yourself, don't outsource it

Get a good lawyer

The negotiation and development of legal contracts for service, intellectual capital and fees within the Project work area is subtly different from the negotiation of contracts within the Process work area. As discussed earlier, the outsourcing of Process work has always been a part of industry sectors such as construction and manufacturing. The form and content of tenders and legal contracts within these sectors is well-established. However, in the area of complex Project work, the legal and contractual issues are more complex. For example, the issue of intellectual property and copyright remains a major challenge for the legal profession.

The development of the outsourcing contract requires the client organisation to ensure that they seek expert legal and accounting advice in the areas of performance measurement, intellectual property, valuation of intellectual property, fee structures and so on. In many cases, the very size of the major outsourcing organisations and the fact that many are associated with the dominant accounting and legal organisations [e.g. Andersen Consulting is associated with Arthur Andersen] means that the outsourcer often has better legal and contract advice than the client organisation. Our group is aware of at least two major outsourcing relationships that have been prematurely ended by the outsourcer proving that "their lawyers are better than the client's lawyers".

If you can't make it legal and binding, don't outsource it

Watch your intellectual capital

As discussed earlier, the whole concept of intellectual capital is still becoming accepted in many organisations. However, as discussed by Sveiby [op. cit.] and others, the value of intellectual capital is becoming increasingly strategic. Sveiby makes the point that the difference between the traditional market valuation [physical assets, inventory, etc.] of companies such as Microsoft and Sun and the actual share price is 1:10! In other words, the market values the knowledge of the people in Microsoft at $9 for every $1 dollar of traditional physical asset value.

In the majority of organisations, the value of knowledge and expertise on how certain business and information systems operate and how to develop new products and systems is rarely understood and measured. In fact, as well-documented by Robert Cringely [1992], the lack of understanding of intellectual capital lead to two of the most significant and costly mistakes in computing history. The first was the Xerox's loss of the intellectual ownership of the "G.U.I." paradigm after they showed Apple's Steve Jobs the Xerox PARC Alto computer in 1979 and the second was the "outsourcing" by IBM of the their PC's operating system to a young company called Microsoft in 1981.

It is critical that the client organisation understands what intellectual capital it has in its systems and in its people and that the contract with the outsourcing organisation either legally recognises that intellectual copyright and capital [essentially within its systems or people] or has specific financial and legal consideration for the transfer of intellectual capital. It has been reported that some smaller vendors have lost their intellectual property rights in the South Australian government as, upon winning the outsource contract E.D.S. effectively nullified pre-existing contracts between the South Australian government and other suppliers xix.

If you can't understand it, don't outsource it

Build a "win-win" relationship

The inherent conflict between the agendas of the client and outsourcing organisations discussed earlier makes it imperative that there is consideration within the relationship for long-term "win-win" scenarios. There are two basic options available however, the first is really only available to very large organisations considering Strategic outsourcing.

The easiest option for ensuring that both partners in an outsource relationship have a shared agenda is for the client organisation to buy part of or take an equity in the outsourcing organisation. This type of arrangement is being developed for both the ISSC/Telstra deal [Telstra is reported to have taken a 26% equity in ISSC Australiaxx] and the proposed outsourcing by the Commonwealth Bank of its 1,500 IT staff [estimated to be in the order of $6,000,000,000]. As stated by Jim Evans, the CFO of the Commonwealth Bank's Technology, Operations and Property Group "If you can put some money in and work with them....it is an act of seriousness in terms of the relationship with the provider of the service". However, Telstra and the Commonwealth Bank are the two biggest users of IT in Australia which provides them with both the "muscle" and the financial backing to undertake such partnership relationships. Clearly this option would be not available for most organisations especially small or medium organisations.

It must be emphasised that this type of relationship does not guarantee the client organisation lower costs or, in fact, any of the other justifications behind outsourcing. It simply means profit-sharing drawing on revenues from all other clients of the outsourcer. In effect, the client organisation could receive worse service and support from their outsourcing partner which is "offset" by profits from other companies serviced by the outsourcing partnership.

The second option is more difficult to negotiate and implement but, in many ways it is more aligned to the reasons for outsourcing discussed earlier. By structuring the contract to include delayed payments or tranches based on proven i.e. "in the bank" savings as a result of the outsource partnership, the client organisation can create a relationship where the outsourcing partner is focused on producing the expected savings, improved service and so on.

If you can't lock the outsourcer in to profit-sharing, don't outsource it

So should you outsource?

As far as Strategic outsourcing is concerned, the short answer is probably "NO".

Given the lack of effective project management, senior management awareness of the complex issues in managing major projects and professional cost tracking, the best case for most Australian organisations is neutral or slightly increased costs [coupled with loss of some of their best intellectual capital as people resign rather than join the outsourcing organisation] and the worst case is total loss of control of their intellectual capital and capability to implement strategic direction. We must conclude that few Australian organisations have the project management capability to manage the relationship with major international outsource organisations. To quote one insider in a company undertaking Strategic outsourcing, "The Deadly Embrace awaits us".

Tactical and Limited outsourcing, provided it is managed effectively, is a viable option for most companies.

It has been reported that Andy Macdonald, the head of O.G.I.T., who is driving the outsourcing of IT in the Australian Federal Government was "uncomfortable", when facing questions from the Senate Estimates Committee, regarding the benefits he was claiming for the deal. On certain issues, Macdonald is reported to have said that he as "hot and cold on that"xxi.

Our group can certainly understand Mr. Macdonald's uncertainty regarding outsourcing.

References

Footnotes

i Fortune International, Outsourcing, Special Advertising Section November 1995.
ii The concept of "sticking to the knitting" first popularised by Peters and Waterman in In Search of Excellence clearly supported outsourcing as a vital re-engineering tool. Subsequent authors and experts such as Michael Hamer, Al Dunlap, Professor Brian Quinn and many others have continued to advocate the value of outsourcing.
iii Kerry-Anne Walsh, "Bureaucracy Gone Bad", The Bulletin, May 6, 1997, pp. 16-19.
iv Mike Taylor, The Sunday Canberra Times, May 25, 1997. pp. 1.
v David Crowe, "Strategy outs cost-cutting as focus of contracting out", Australian Financial Review, May 27, pp. 31.
vi It should be noted that there are many Project-type organisations. Examples include software organisations such as Microsoft and research organisations such as CSIRO. In these organisations, the relative percentages of Process and Project work could be reversed.
vii Both the Telstra and South Australian Government outsourcing negotiations took over 18 months to complete. There is no public estimate of the costs of these negotiations. The Commonwealth Bank has admitted that a team of 30 people are working on its proposed outsourcing plan [The Australian Computers and High Tech, 10 June 1997, pp.1]
viii It is interesting to speculate on the impact of the Internet and World-Wide-Web on this justification. For example, a search conducted by the author on "outsourcing" resulted in over 7,400 references. Included in these references were some extremely rich sources of statistics and information.
ix James Riley, "Workers to decide fate of Telstra/ISSC Outsourcing merger", The Australian Computers & High Technology, 3 June 1997, pp.1.
x Geoffrey Baker, "The Great Divide", The Australian Financial Review Magazine, June 1997. Pp. 30 -37.
xi Moore-Wilton has also had similar roles in State Government notably the Victorian State Government under Premier Kennett.
xii It is interesting to note that Johnston, currently with P.A. Consulting was previously the Managing Partner of Andersen Consulting in Australia. Andersen Consulting are one of the largest outsourcing organisations in the world.
xiii Both our group and extensive research on over 5,000 projects by Capers Jones [1996] confirms these figures.
xiv E.D.S. is reported to have over 40,000 people. With the Telstra arrangement, I.S.S.C. Australia will have grown to over 5,000 people in just over 2 years
xv At a recent international IT conference, professors from two US universities reported that they had been offered "bounties" in the area of US $10,000 from high-profile outsourcing organisations for each top student that they helped the outsourcing organisation recruit.
xvi The knowledge discussed here includes the knowledge about existing production systems as well as the knowledge about managing and developing new systems.
xvii Since the announcement of the outsourcing of he Federal Government IT areas, one recruitment company informed our group that they were receiving over 100 un-solicited requests for placement per week from Federal Government IT people!
xviii Many outsourcing organisations use reward systems based on billing hours and profit loading for senior management and partners,
xix James Rikey, "Tempers Rising in the Government Outsource", The Australian Computers & High Technology, 3 June 1997, pp.52.
xx James Rikey, "CBA plans equity role in outsourcing relationship", The Australian Computers and High Tech, 10 June 1997, pp.1
xxi Mark Hollands, "IT industry on the wrong track", The Australian Computers and High Tech, 10 June 1997, pp. 2

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