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Guide to ICT Sourcing - Overview

Overview of ICT Sourcing

Contents of this Chapter:

• Evolution of Sourcing Strategies
• Growth of ICT Outsourcing
• ICT Outsourcing Policy
• Why Organisations Outsource
• Understanding Costs and Complexities is the Key to Success
• Environmental Strategies for ICT Procurement

Evolution of Sourcing Strategies

In recent years, many organisations have become more sophisticated in the way they run their ICT, disaggregating it into components instead of managing it as one large block of requirements. This allows them to better understand their specific strengths and shortcomings, and to move from the familiar single sourcing approach to one based on multi-sourcing (Figure 1).

Figure 1: Evolution of sourcing strategies

One of the main benefits of multi-sourcing is that it allows agencies to engage different specialists for particular ICT components. However, compared to single sourcing, it involves greater effort and complexity in selecting and managing vendors.

Consistent with Gartner’s 2006 research, Australian Government agencies are including multi-sourcing as an ICT outsourcing option, recognising that there is no single method that suits all requirements.

Growth of ICT Outsourcing

ICT outsourcing (both single and multi-sourcing) has emerged as a growth industry over the last decade, with worldwide spending growing from $9 billion in 1990 to over $287 billion in 2006. This is predicted to grow to over $370 billion worldwide by 2010 (Figure 2).¹

While Australia’s total spending on ICT outsourcing is only a fraction of this total – it is expected to reach over $7 billion in 2010 (Figure 3).²

Figure 2: Growth of worldwide IT outsourcing spend, A$b

Figure 3: Growth of Australian IT outsourcing spend, A$b

ICT Outsourcing Policy

The Australian Government’s ICT outsourcing policy devolves responsibility for implementing ICT outsourcing to agency chief executives and boards. In this environment, agencies can determine the most appropriate model(s) to meet their ICT and business needs while achieving value for money.

The outcomes of the chosen ICT model are included in the overall performance assessments of agency chief executives and boards, while agency progress is monitored and reported publicly in the State of the Service Report. For more information about the policy, see Commonwealth Procurement Guidelines.

Why Organisations Outsource

Organisations typically pursue external sourcing arrangements for two reasons. From an economic perspective, they use outsourcing to control or lower their ICT costs. From a strategic perspective, they use it to allow them to focus their energies and attention on core business processes and objectives, gain improved access to better skills or expertise, and provide services not available internally.

At the same time, many organisations have clear reasons for not outsourcing ICT services. These can include:

• The market price for outsourcing may be higher than internal costs – some organisations find they can fulfill their ICT needs more affordably by using their own resources.
• The risk associated with relinquishing control is too great – for some organisations, ICT is essential for business continuity, or is an integral part of what they do, and they want to keep it close to ensure it is always capable of supporting their needs.
• The risk of losing organisational knowledge is too high – this is of particular concern for organisations that have complex, customised technology.

Understanding Costs and Complexities is the Key to Success

Selecting and managing a sourcing arrangement can be far more complex than expected. Agencies should exercise care to arrive at the right ICT sourcing choice with the benefit of appropriate legal and contract management team assistance.

In addition, global experience suggests that many organisations have misjudged the true value of sourcing arrangements. This is in part because they did not analyse a sufficient range of options or were not careful enough when structuring exit provisions, which can trigger termination costs that make changing ICT sourcing arrangements prohibitively expensive.

The message from this collective experience is clear: ICT sourcing can provide both strategic and economic benefits for certain organisations but, because of the high levels of risk and complexity, the process needs to be handled with timely and careful deliberation.

Environmental Strategies for ICT Procurement

The rapid growth of ICT in Australia has prompted further consideration of how to better manage and reduce the environmental impacts of ICT, including energy consumption.

The government and the ICT industry are seeking to improve environmental outcomes through product stewardship, recycling and conservation strategies, and provision of guidance. The Australian Government’s Department of the Environment and Water Resources (DEW) is working closely with the ICT industry and other stakeholders to develop strategies for appropriate packaging, effective recycling, reuse, and disposal of ICT products at the end of their life. In parallel with government, the ICT industry is also addressing environmental considerations for manufacturing, product use, design and disposal.

The Australian Government has established and is continuing to develop strategies and initiatives for environmentally friendly purchase and disposal of ICT products. These strategies and initiatives can be found at the websites listed below.

Environmental strategies

Finance, through AGIMO, has developed a Better Practice Checklist: Managing the Environmental Impact of Information and Communications Technology.

Procurement resources

Commonwealth Procurement Guidelines (CPGs)

Environmental Purchasing Checklist – Personal Computers and Monitors []

Operation resources

Energy Efficiency in Government Operations Policy []

Energy Use in the Australian Government’s Operations []

Environmental Management Systems []

Recycling and Disposal resources

National Packaging Covenant []

1 - Hale, K. & Potter, K. (2006, October 27) “IT Outsourcing Worldwide”. Gartner Research.

2 - Hale, K. & Potter, K. (2006, October 27) “IT Outsourcing Worldwide”. Gartner Research.

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