MITRE State IT Outsourcing: Future Directions August 17, 1999

MITRE Objective and Agenda 0 Briefing Agenda -The IT Initiative’s Cancellation -Where The Road Leads from Here =Return to Doing Everything Inhouse (Unlikely) =Other Approaches to Acquiring Needed Capability Objective -- to address possible future direction for the State IT outsourcing market, in the wake of the Connecticut IT Initiative’s cancellation.

MITRE The IT Initiative’s Cancellation: June 22, 1999 State of Connecticut Cancels IT Initiative Connecticut had spent 2 1/2 years defining and implementing an ambitious, comprehensive IT outsourcing effort Other States were looking at Connecticut’s approach as a possible model for state-wide IT outsourcing Effort was politically polarizing, strongly opposed by public service unions and opposition political party State had been conducting negotiations with selected vendor (EDS) since January Governor Rowland cited cost, risk issues in canceling the effort “Cancellation of the Connecticut IT Initiative will be a stake in the heart to future State-wide, comprehensive IT outsourcing efforts” The Wall Street Journal

MITRE Return to Doing Everything Inhouse: Why This is Unlikely Definition: a return to inhouse system development, implementation, operation, and maintenance Difficulties: Public sector will lack necessary reservoirs of needed technical skills -- especially in e-commerce and web-based technologies Business of government is not necessarily to own the new systems needed to extend government services Competing uses for large, upfront funding that would be needed for systems, infrastructure development

MITRE Other Approaches to Acquiring Needed Capabilities Selective Sourcing Business Process Outsourcing Buying Business Functionality as a Service Unifying themes: Use of both inhouse and external service providers Greater oversight and integration complexity Greater need for oversight management Use of the value-added chain as a sourcing decision tool

MITRE Selective Sourcing (The “Boutique” Approach) 0 Characteristics -Focus is on securing best- of-breed, niche vendors for very specific needs -Use of both vendors and inhouse service providers -Contracts tend to be shorter and smaller than with comprehensive efforts 0 Advantages -Flexibility -Best-of-breed vendors 0 Challenges -Service integration -Accountability for end-to- end service delivery Success Requirements: Precisely identify needs Get all service providers working as a team Ensure single user POC for end-to-end service delivery Measure and incentivize service delivery quality

MITRE Business Process Outsourcing (BPO) 0 Characteristics -Outsourcing of business processes along with their IT systems and applications -IT is not separated from business process -Vendor selection based on business process expertise (e.g., logistics), not just IT expertise 0 Advantages -Focus is on business value -Best-of-breed vendors 0 Challenges -Must define business processes to be outsourced -Achieving enterprise- integration -Measuring and incentivizing process outcomes Success Requirements: Identify and isolate the business process to be outsourced Achieve enterprise IT interoperability Measure and incentivize business process outputs

MITRE Acquiring Business Functionality as a Service 0 Characteristics -Agency defines functionality needs as business functionality -Vendor delivers required functionality to specific IP addresses over the web -Agency billed on a “pay as you go” basis 0 Advantages -Avoidance of large, upfront development costs -Reduction in development time and risks 0 Challenges -This is still an immature facet of the IT industry -Accountability for end-to-end service delivery (application vendors do not own telecom infrastructure) Success Requirements: Fully understand this new business practice Integrate vendor’s services with agency’s business model Achieve trans-organizational integration and interoperability

MITRE Conclusions The market for state-wide, comprehensive IT outsourcing efforts has shrunk A return to traditional “do everything yourself” is unlikely States will use a variety of other approaches to meet their sourcing needs Logistics Applied Research Process Design Product Design Plant Engineering Ware- housing Manufac- turing Quality Control Market Research Marketing Adver- tising Sales Distri- bution RepairService The Success Factors for the Future will include Using the value-added chain as a sourcing tool Applying oversight management expertise to achieve service integration, provider teamwork Understanding and leveraging the application-as-a-service practice MITRE’s Ongoing Research: Public Sector Application of the Value-Added Chain Buying Business Functionality as a Service Deepening our Oversight Management Expertise