Research Paper on Government Outsourcing
Outsourcing in the Government
The definition of the outsourcing can be very different, as different government answer the question about how the outsourcing can be defined in accordance with their political contexts. For many governments the word “sourcing” have the same meaning as “market-testing” and “competing”. But in reality there can be several types of outsourcing in the government, the main one is defined as the process of contracting companies from the private-sector that it took the responsibility for the particular process or function, for which still the Government remains accountable. It is obvious that such a definition doesn’t include short-term contract relationships with the private sector, as well as excludes privatization, as in the latter case the government is no longer accountable for its function. 1
2. Government Outsourcing
Speaking about the core definition of the outsourcing in the government, I must say that it is related to the concept of privatization. The outsourcing may occur also between two governments, but in this case the delegation of authority to the private-sector firms does not occur. And even though there can be several types of government outsourcing, the key objectives and the main idea remains the same for all of them: it assists to reduce, make more efficient and reform government services. Nowadays governments are frequently turning to outsourcing for many reasons. They are willing cope with budget pressures, as well as have the need to cope with the provision of new and existing services in the friendlier environment and in more citizen-friendly ways to meet high expectations. At present moment there are three major trends in government outsourcing: it is growing, it becomes driven by more value-added goals, and it progresses along two key ways.
Outsourcing in the government is growing for about 20% per years, which is a huge growth tempo, and this tendency will keep for about five next years, as governments are planning to outsource even more functions and processes. 2The most popular processes and functions to outsource is IT functions, as well as applications and business process outsourcing (BPO) is gaining more popularity. And governments start to pursue not only aims to cut their expenditures and just do the more outsourcing the possible, but also they tend to add-value to what they outsource.
Returning to the outsourcing maturity progress along two trajectories, they are the transformational and efficiency one. The transformational path is primarily driven by goals of high potential value. Countries and governments that follow this way to achieve their objectives while outsourcing, are usually driven by the pressing necessity to improve citizen services or just to keep up with severe budget deficits in the accelerated frame of time. Such countries and government are experienced in effective dealing with inevitable hardships that are the results of mature and complex initiatives.
The path of efficiency is the way that is predominantly concentrated in the reduction of the costs and increasing of productivity. Countries and governments that are following this way are primarily concentrated on building technology infrastructure and on business application outsourcing as on the way to cut their outsourcing costs and to redirect the available capital to more mission-critical functions.
The main difference between discussed types of trajectories remains the extent to which the country is embracing business process outsourcing.
3. Key Characteristics of Successful Government Outsourcing
There are six basic characteristics the government should remember about to make the outsourcing process more efficient and finally successful. 3The first advice regards the shaping of the relationship in accordance with the situation. There can be central government guidelines, but accountability can rest with the agency executives. Outsourcing managerial decisions should be driven by the developed business strategy. Different options should be explored and previous experience from others used before starting the tender. The business model of government outsourcing relationships should be defined upon the long-tern, rather then short-term basis. The second main point promotes the use of negotiations for setting the tone of the outsourcing relationships. Government executives should take the personal participation in the process of negotiations. Core values and principles that should be followed must be included into the contract. Stakeholders should be identifies, as well as their needs must be analyzed for the important decisions. The contract should also include the possibility to shape the strategy and the type of the relationships, in other words should include flexible items, so that changes in the future be possible. The third important characteristic speaks about labor resources. Considerations of the workforce should be thoroughly managed, and questions related to the personnel should be treated with sufficient consultation and very close attention. Solutions regarding workforce should be made in accordance with particular situation, and cannot be the same for all.
Workforce transitions should be handles very carefully and measurably. The forth characteristic describes the relationships that are going on the ongoing basis. Information about the cost structures should be shared and trust should be built. Agreed procedures should be involved in dealing with sensitive issues. Mutual benefit, for both government and private sector, should be monitored on the ongoing basis and adjusted when necessary. Building long-term trust relationships is essential for successful outsourcing. The fifth point claims that high performance outcomes should be sought and the supervision and management of the delegated function should be with the government authority. Large and complex initiatives should be managed using proven methodologies, as well as tracking of the performance should include service levels which are managed to qualitative measures. And the final secret of successful outsourcing is about institutionalization of the innovation and flexibility. According to the achieved results, the innovation expectations should be agreed. Achieved results should be also benchmarked and compared with similar of other governments or with the results of other periods. Outsourcing organizations for contracting should be chosen large and multinational.
4. Information Technologies Government Outsourcing and Business Process Outsourcing
Information Technologies Outsourcing (ITO) remains the most popular function to outsource, and not only by governments. ITO provides government entities with opportunity to concentrate more on its main mission to serve country’s citizens and not thinking how to manage information technologies. Building of IT infrastructure by the contracted organization saves a lot of time and resources to the government. IT outsourcing objectives are the following: reduce operational costs, improve IT flexibility, paying attention to the main competencies and increase overall operational efficiency. Government usually outsource the following IT functions: wide area network and local area network support, help desk support, application services and development, trainings, data operations and server maintenance. There are four basic models of outsourcing relationships. There can be single provider ITO when IT outsourcing occurs to the one site-off provider, multiple provider of ITO, when outsourcing is done by multiple off-site providers, BPO, when outsourcing business processes to one off-site provider and finally Business Transformational Outsourcing (BTO) when the goal is to transform the organization though the outsourcer. 4The first outsourcing model provides government with an opportunity to outsource the part of its operations, so that the government organization can perform its primary functions. As technologies are becoming more complex and sophisticated, government can also use services of multiple providers by their specialization and from each vendor government organization is able to choose the selective service of the best ratio of cost and quality. But in such case, the relationship pattern with vendors becomes more complex and difficult to manage. But there is the way out, as large companies can subcontract other necessary and fulfill the overall assistance and process control.
When the government institutions become more result-oriented, they start to use more business process outsourcing. It can be management of fleet, collection of bills, check processing, payroll, etc. And finally BTO model is the transformational approach that involves taking different departments and using of IT to reengineer related business processes. The success of the transformation depends on the quantity of the stakeholders involved.
5. Government Outsourcing Concerns
Even though governments are enjoying benefits from outsourcing, they also have concerns related to this issue. The greatest government worry regards the job eliminations. As governments usually outsource due to budget constrains and cutting unwanted costs, they do not want to eliminate jobs, as they provide value for the government organization in general. The solution can be found in deploying employees to other companies, or transfer them to the contracted one, so that they were able to perform the same functions and fully concentrate on the performance. To ensure that transition, the government institution may demand (and include in the contract) that the outsourcer hire government employees. Or employees can be forwarded to other government organizations within the selected area. The next government great concern is connected with the fear of incurring high costs. But each institution should make the analysis of possible outcomes from outsourcing, as well as analyze technical and business environment to have the full picture whether outsourcing can be the alternative decision for the organization. And even though there appear no difference in costs for outsourcing and running the function inside the organizations, government organizations on practice prefer to outsource being proactive for the future.
To my opinion, the most essential government concern when it makes the decision whether to outsource or not remains the concern of losing data, and unwillingness the move the inside information and data outside the institution. But on practice, clear understanding of laws and regulations assists in making informed decisions regarding this aspect.
Even though many concerns are not very much serious and when thoroughly studied and analyzed can be overcome, there some function that should not be outsourced by government organizations. Some IT functions just need to remain inside the organization to ensure knowledge maintenance control, including business knowledge and project management. Project management is the essential operational function that is responsible for risk evaluation, changing management schedules and issues, which are connected with the cost and overall project success. The government organization should hold the total control upon the issue to ensure that users are satisfied and set goals are achieved. Business knowledge should also remain inside government agencies, as it includes strategic planning, standards and architecture. Business knowledge is the tool for future developments and without knowledge, government will not be able to manage IT in the future, is all business developments be with the vendor.
6. Government Outsourcing Implementation Phases
Even though government organizations may be different in size, business processes, functional departments, systems architecture, organizational hierarchies, applications, etc., following implementation phases are universal for all of them. There are four basic implementation stages involved: Launch, Mobilization, Transition and Operations. The task of the launch phase is to evaluate whether the institution should outsource. If the government makes such decision, then this step also includes creating teams and assigning roles, developing the communication plan (including discussions of people, outreach, government-vendor communications and relationships, implementation and expectations), creating of the project management plan, analyzing the system environment, RPF and selecting vendor. The next Mobilization phase includes contract development, service level agreements creation, and work statement formulation. Implementation or Transition phase ensures knowledge transfer, vendor relationships management, and customer satisfaction management. And finally the last Operations phase includes ongoing operations and actually the contract.
In the conclusion I would like to summarize that outsourcing in the government is widely spread and from year to year more attention is paid to it. Government institutions make decision to outsource to cut their expenditures, add value to services and save time to pay more attention to their primary functions. The basic functions that government organizations prefer to outsource include information technologies and business processes. Governments usually work according to particular outsourcing models. Critical success factors for government outsourcing include developing well-structured strategic plan for outsourcing, conducting site visits to outsourced entities, identification of the clear scope and inventory, maintaining business knowledge inside the organization, developing and following the communication plan throughout the process of outsourcing, creating good relationships with the vendor, training employees as well as using the system of penalties and rewards.
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