Not outsourcing IT is a waste of resources
In Sweden outsourcing of IT in the public sector is quite rare. No matter if we talk about municipalities, county councils, or authorities. It is also one of the reasons why the sector has missed many of the advantages following the development during the latest years: cost efficiency, flexibility, and a stable source of competency, just to mention a few.
“These are our reasons for outsourcing. We mean that we can do this better, cheaper, and more efficient than, for example, a single authority can. If we cannot do that, we won’t add anything to the market,” says Ulf Nygren, outsourcing manager for the public sector in Sweden at Tieto.
It is still more common for Swedish municipalities to outsource things like schools and care of the elderly than IT operations, in spite of the latter not being seen as a municipal core operation. At the same time studies show that the public sector, by using the opportunity to make their IT operations subjects for competition, can save up to a fourth of their operational IT costs. These are resources that instead might be invested in better welfare services for the citizens.
Several analyzes, among those the one from the eGovernment Delegation, show that outsourcing of IT operations could generate savings between 10-25 percent in the public sector; money which might be used to strengthen welfare services instead. Ulf Nygren is astonished. He does not mince his words when he calls the situation a waste of resources. He estimates that of the full amount of the public sector’s resources, no more than 5 percent are used for IT in Sweden.
“If these 5 percent for IT could be used in a more efficient way, the other 95 percent could be much more effective, I guarantee it,” says Ulf Nygren.
That outsourcing is possible in the public sector stands clear in our neighboring Nordic countries. Swedish authorities might certainly be inspired by Finland, where the development has gone much farther, with for example a government CIO and the authority Valtori, which works like a service center for ICT-services for the Finnish state, within the government management. Ulf Nygren notes that a change is coming. The trend is turning back to centralization.
“The do-it-yourself attitude is changing. I can see how municipalities are starting to cooperate in several areas to make the competition requirements. It is also starting to happen in IT, even though a bit slow.”
The reason to the inertia in making IT a subject to competition has several explanations. One is that it often becomes a technology issue, but it shouldn't be, means Ulf Nygren. Today it is more important than ever before that IT is closer to the operations.
“Tieto has a lot of operations specialists which can help to find the optimal way to integrate the IT services in the operations,” says Ulf Nygren.
The level of outsourcing has also increased in the municipalities during the last years. 2014 almost every third municipality in Sweden outsourced some part of their IT operations to external IT suppliers. The inclination to outsource increases with the size of the municipality. An independent study from the analyst firm Radar Group shows that 9 out of 10 are satisfied with their outsourced operations.
The foremost reason for municipalities to outsource their IT operations is that IT has become more and more operations critical in the increasingly digitalized society of today. The demands of competence supply and modern IT infrastructure are increasing. An industrial IT supplier works in a competitive market, and for them to be assertive against the competition it constantly demands increased efficiency, quality, and innovative talent. Then add cost-aware politicians, striving for efficient and stable IT operations and it sums up to an upswing for outsourcing during the last decade.
According to the guidelines from the Legal, Financial and Administrative Services Agency are the most common efficiency benefits from outsourcing IT as follows:
- Reduced costs and price/performance development
- Focus on core operations
- Long-term competence supply
- Increased availability
- Increased flexibility, adaption to changes
- More distinct interface between orderer and supplier
- Applied ITIL processes
Some of Tieto’s clients in the public sector express cost savings in numbers between 20 and 30 percent.