North Carolina Urged To Outsource Tech Ops

State-sponsored IT review finds that $76 million could be saved by handing off key services to private contractors and centralizing others.

Paul McDougall, Editor At Large, InformationWeek

April 21, 2011

3 Min Read

A consulting firm hired by North Carolina said the state could chop $76 million from its operating costs over five years by outsourcing the operation and maintenance of parts of its technology infrastructure to third-party contractors and consolidating other services under centralized management.

The study, by TPI, maintains that North Carolina could save $37.2 million by outsourcing mainframe operations, including hardware, software, support, and disaster recovery. Another $6.2 million could be slashed by outsourcing Wide Area Network services, including network monitoring, management, and provisioning, TPI concluded.

The firm also found that the state could save $8.9 million over five years by consolidating IT service desks currently maintained at four different state agencies into the central Office of Information Technology Services, while an additional $23.8 million could be saved by consolidating servers from five agencies into OITS.

As first reported by InformationWeek, North Carolina governor Bev Perdue last year ordered a review of all IT operations, with an eye to cutting millions of dollars from the cash-strapped state's tech budget and boosting the efficiency of services to state employees and residents. North Carolina's deficit is projected at more than $3 billion for the current year, one of the highest in the nation.

"No decision has been made," said a spokesperson for OITS. The spokesperson said state IT officials, including CIO Jerry Fralick and agency CIOs, are reviewing TPI's recommendations and will submit their appraisal to Perdue's office within a week or two. "They may come up with alternate proposals," said the spokesperson.

TPI, a unit of Information Services Group, handed its study to state officials on March 30. It found that North Carolina's IT operations could benefit from an overhaul and the use of private contractors for a number of services currently handled by state workers.

"The State has been fortunate not to have experienced significant IT infrastructure outages," TPI said in its report, a copy of which has been reviewed by InformationWeek. "The absence of significant IT infrastructure services outages is due in great measure to the hard work and dedication of the State's organizations and staff responsible for delivering those services."

Still, many of those workers may lose their jobs or transfer to outsourcers if Perdue decides to implement TPI's plan. TPI found that North Carolina's current IT setup, which features a mix of platforms and services run by individual state agencies and OITS is inefficient. "The actual level of service rendered is low," TPI said.

TPI said the state should outsource mainframe operations and services to a third-party that can provide variable pricing based on usage through a cloud-type model. It should also hand off network monitoring, management, planning, and design services to an outsourcer that can offer enhanced performance and security levels. TPI also recommends that North Carolina consolidate servers and service desks maintained by individual agencies into a single platform maintained by OITS.

One beneficiary of the proposal could be IBM, the only major player in the U.S. market with a significant mainframe hardware and services business. Big Blue also has close ties to the Tarheel state through a number of joint initiatives with the University of North Carolina, and it has a major presence in Raleigh.

If North Carolina proceeds with the plan, it won't be without risk. The history of state outsourcing initiatives is replete with stories of cost overruns, missed deadlines, and service levels that actually declined once the outsourcer took over. Virginia, for instance, was recently forced to rework its $2.3 billion outsourcing deal with Northrop Grumman following a series of setbacks that led to the ouster of state CIO Lemuel Stewart.

"A well structured contract is critical, but insufficient to ensure a successful outsourcing relationship," TPI said. "A comprehensive communication and change management program must be developed."

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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