Outsourcing's Potential in Higher Education Copyright 1991 CAUSE From _CAUSE/EFFECT_ Volume 14, Number 2, Summer 1991. Permission to copy or disseminate all or part of this material is granted provided that the copies are not made or distributed for commercial advantage, the CAUSE copyright and its dateappear, and notice is given that copying is by permission of CAUSE, the association for managing and using information resources in higher education. To disseminate otherwise, or to republish, requires written permission. For further information, contact CAUSE, 4840 Pearl East Circle, Suite 302E, Boulder, CO 80301, 303-449-4430, e-mail info@CAUSE.colorado.edu OUTSOURCING'S POTENTIAL IN HIGHER EDUCATION by Robert J. Robinson ************************************************************************ Robert J. Robinson is Executive Director of Computer and Information Services at Oakland University, where an outsourcing strategy has proved successful for administrative computing. ************************************************************************ ABSTRACT: Outsourcing in one form or another can be an effective management tool to respond to a variety of circumstances in meeting higher education's computing needs. It deserves careful consideration when those circumstances occur. The decentralization and distribution of computing on many campuses is accelerating. Client/server systems, powerful mid-range machines, workstation-level desktop systems, and more are changing the framework for application systems architecture. Most administrative systems are built around the centralization premise and will be relied upon for many years, and will continue to demand mainframe machines to perform satisfactorily. However, demand in the academic programs for mainframe computing resources is waning and is eroding that contribution to the justification of such machines, machines which in many institutions also support administrative applications. Further compounding the difficulty for administrative processing is the increasing demand for substantive cost reductions. One avenue information technology managers should investigate for its savings potential is to outsource some or all of the required computing resources. This tactic, now routinely familiar to academics who use the nation's supercomputers and other off-campus resources, seems still to be controversial in administrative arenas. Industry is turning rapidly to outsourcing, and many of the reasons are relevant to universities. The banking industry, for example, is showing intense interest in outsourcing computer services as a way to reduce the impact on their bottom lines and get large investments off their books or forestall them. In some cases their motivation is to ease the process of converting acquired banks to common systems, while for others the driving force is to maintain stability and reduce the risk and reliance on rapidly changing technologies. For others, conversion of either applications or operating software is a driver. And some CEOs are attracted to the notion that outsourcing will permit them to focus on the real core mission of the business, of which information technology is a critical but supportive service. These forces in banking have led to a resurgence for those service bureaus which are positioned to respond. IBM, for example, has signed several major banks including BankSouth, while EDS has signed First Fidelity. And the non-bank outsourcing business has led one prominent bank, Mellon, to become a general servicer for other industries as well as banking. What is outsourcing? Outsourcing is, simply, acquiring from off-campus suppliers or providers selected services which historically have been provided internally. By no means a tool simply to address computing requirements, many campus services may be outsourced: food service, bookstore, printing, equipment maintenance, landscape maintenance, and so forth. Outsourcing in the technical arena, however, requires special attention and demands special considerations. It is important to understand that computer service outsourcing offers a broad range of opportunities, and should not be viewed as synonymous with facilities management. Indeed, a full facilities management arrangement is a form of outsourcing, but at the other end of the spectrum one might take advantage of outsourcing by simply purchasing computer time. The conditions which dictate a choice are dependent on many factors, but it is generally agreed that a key issue is management control. Control is critical, and needs to be carefully addressed in the process and during contract development. Unfortunately, a chief information officer's concern about control may well be interpreted by campus management as the CIO's concern for his or her job, which is frequently threatened when a facilities management arrangement that he or she did not initiate is being considered. That prospect might be a driving force in encouraging the CIO to initiate such an investigation on his or her terms. What are some drivers and drawbacks? A significant potential driver for considering outsourcing in higher education, especially when salaries are non-competitive, derives from the difficulty of maintaining a sufficient, qualified technical systems group. While every institution wishes to retain a level of such talent and skill, outsourcing of computer time can be coupled with provision of at least some supplemental technical staff support. And, of course, project management and programming support are at least occasionally outsourced. Yet another driver is conversion from one software operating system to another. This is generally a costly and risky endeavor, made much easier by outsourcing. In this case the existing system is maintained until a full conversion or transition to the new system has been effected. One rather simple and direct action, which assists in maintaining access to large-scale equipment in the face of declining on-campus need, is to outsource the computer itself, along with the underlying operating and base software, and retain the management, technical, programming, and to some extent operating staff functions. If communications costs are not prohibitive, this move can be very economically advantageous. Whatever the strategy investigated, full knowledge of existing costs is essential. One complicating factor in assessing the potential is that in-house operation costs are frequently accounted for as a one- time expense, whereas external service is a continuing cost, perhaps on a per-transaction basis. Outsourcing generally places added demands on management. To be successful, outsourcing needs to be carefully bid, contracted, and managed, with performance measures monitored routinely. And the benefits require frequent review to verify their continued viability. Certainly outsourcing is not appropriate for every setting. Some operations are not located conveniently to a potential source, so communications might be difficult and excessively expensive. Other organizations may have a wealth of talent aboard and would not find the potential benefits of supplementary staff support useful or economic. Others may have political situations which would not support a shift to outsourcing (such as extensive concerns for data security). And the need to enter into an extended contract may be a significant deterrent. On balance, outsourcing in one or another form can be an effective management tool to respond to a variety of circumstances. Information technology managers in higher education would do well to carefully consider its potential for meeting various campus computing needs when the opportunities present themselves. ************************************************************************