Outsourcing & The Fed. Market

8 Pages·1992·0.28 MB·English

April1992
Vol.I,NFoI.TM3P
APublicationfromINPUT’SFederalInformationTechnologyMarketProgram
Outsourcing and The Federal Market
GeneralOutsourcingDiscussion
Exhibit1
Togainsomeperspectiveonoutsourcinginthe GrowthFactorsfor
federalmarketplace,ithelpstobrieflylookat CommercialOutsourcing
theongoingcommercialoutsourcing
explosion. ThoughsomeofINPUT’S
competitorsclaimevenhigherratesofgrowth •Continuingeconomicslump
inthemarket,I—NPUT’Sownestimateis
healthyenough 18%compoundedoverthe •Successofmajorvendors
nextfiveyears.
•Outsourcingmorecomprehensive
Thereasonsforthisstronggrowthare
saruem:marizedinExhibit1. Theprimaryreasons Source: INPUT
•Thecontinuedslumpintheeconomy
makestheimmediatecostreductions Therearealsosomeexamplesofentire
offeredbyoutsourcingattractivetomore businessoperationsbeingturnedoverto
companies. outsourcingvendors. Thistrendisexpectedto
accelerateasthedecadeprogressesandclients
•EThDeSrienlastmioveotshulcycetsrsanosfiItBiMon’isngISmSaCjoarnd pbaerctonemreshmioprtehactoimsfeovrotlavbilneg.withtheoutsourcing
outsourcingclientsisstimulating
increasedacceptanceoftheconcept. FederalOutsourcingActivity
•jbTmdueaehsgivetienpnltornoueoiptncsnmaeogensunctsrteoic,.niignnnIcgeotltpanuwerdoorreawratkmniiugnomccnealshmnueaodmnrgeotsesrmoisetefostntfewtthlafwa,rainesre fpDaeeoddreieissroaadtlphpfimorsaiorsnmktaeim1nte9g?9l19eI%vtNeolPf1ooUr9fT9ta6hpc.etriosTvjaihetcmayttespsfettiirhlvevlea-rgdyereepoarwtrehtsehenatts
desktopservicesandeveneducationand a$1.7billionbusiness,growingto$2.6billion
trainingcomponents. by1996. Thefederalmarketisnowthesecond
largestoutsourcingmarketandwillstillbein
1996,thoughbyasmallermargin(see
Exhibit2).
©1992byINPUT.Reproductionprohibited.

—
Exhibit3,favorthe
Exhibit2 growthofoutsourcing.
U.S.FederalGovernment
5 r Bfaucttotrhseraetparleayneaglsaot.ive
Budgetrestrictions
w 4 continuetoplaguethe
~^Cic3D_^~CCO/5 3 pnaogrteoncdcueirreaeisml,eannmtdapntloyadnnesleaoeyfd,eidf
WCXDCD eISxpuapngsriaodnse.saDnodDin
iCw_D' 2 particularissaddledwith
Z> thisproblem. Vendor
protestsarealsodelaying
1 theprocurementprocess.
Sincemostofthe
outsourcingprocurements
0 1991 CAGR 1996 aremajorawards,these
9% areparticularlyaffected
Source: INPUT byprotestactionand
congressionalscrutiny.
TheCORNoutsourcing
contractrecentlyawarded
Whyistheresuchadifferenceingrowth? toEDSisaclassicexampleofonethathadto
Afterall,systemsoutsourcingwasanearly bepassedthroughtheprocurementprocess
p(hgoevneormnemneonnt-ionwtnheed,fecdoenrtarlamcatrokre-toppelraactee.d)GaOnCdO tawntiic-egbreafnodr-edeistiwgansstfuindayllbyyaAwaMrSdefdo.rGThAeOreicsent
COCO(contractor-owned,contractor-operated) alsotemperingplansfornewlarge
facilitiesmanagementcontractshaveexisted procurementsandiscausingsomeofthe
foryears. procurementeffortstobesegmented.
Infact,thedistinctionofwhoownsthefacility
hasbecomeinsignificant. Thetermmission Exhibit3
contractinghasevolvedtodescribethe
outsourcing—arrangement. Itreallymeansthe FederalOutsourcingGrowthFactors
samething namely,thatavendorassumes
totalresponsibilityforanagency’sdata
processingrequirements. •Lackoftechnicalskillspersists
Thereisstillashortageofsufficienttechnical •Mandatedservicesrequired
skillsinthegovernmenttooperateandmanage
computercentersandimplementnew •A-76initiativestillinplace
technologies. Therestillisastrongmandate
foragenciestoprovideservicestothepublic Source: INPUT
thatservethepublicwelfareandthesecurity
needsofthecitizens. TheA-76initiativeis
stillinplace,encouragingtheuseofprivate
contractors. Thesefactors,summarizedin
2 ©1992byINPUT.Reproductionprohibited.

OutsourcingComponentsinthe •DoDcannotacceptciviliancontractor
FederalMarket personnelinISfunctions. Manyofthese
functionswouldbecomemissioncritical
Nowthatweknowthedrivingforcesand orevenhighriskintimesofemergency.
inhibitorsforthefederalmarket,arethereother
differences? Theoneglaringdifference,in •TheIRSwillnotturnovercertain
IondoueNttsPskhUotaTuop’rppcSsieenonrpgviaitsnocireoiasnnp,icadlnilusdyd,tebhuiaofsttiahtnteheraesllsse,exorippvnaeintrchsaeetisiofsoneundoscefhrwaiallsl fcttcoauohpnmohacpuebtllgiielphotintIevsylRe.ynoSfdtiootmraapsxrcrwooievlmtelmuerbirtnescpuisrsayoelscdteveseemsxnistdneognrs,ively
market.
ETxhheirbeitar4e.tFwiorsrt,eamsaonnsyfaogretnhciis,esilalruestarlarteedadiyn Tlihkeeloyuttosobuericnicnlgucdoemdpionnfeendtersalthpartoacruermeomsetnts
acquiringtheservicesneededthroughaseries aretherefore:
odfopnrootcnuereemdeantnse.twMoarknymaangaengceimees,ntfocroemxpaomnpelen,t •lParboocreastsoirniegso,pleorgaitsitoincss,apnadrteincguilnaerelryiantg
rineqtuhierierdoutotsuosuercFiTnSgc2o0n0t0r.actOtbheecrasusheavteheaylraeraedy facilities
emsatnaablgiesmheedntPCc/ownotrrkacsttsatsiuocnhparsoEcDuSre’msenStM/C(the •Softwaremaintenance
Army’sSmallMultiuserContract)andsothey •Applicationssoftware(primarilyofnon-
donotneeddesktopservicesintheir mission-criticalapplicationssuchas
outsourcingagreements. Stillothersare financialmanagementsoftware)
accustomedtousingSETAagreementsfortheir
softwaredevelopmentandcannotorwillnot Thefollowingcomponentswillprobably
changetheserelationships. continuetobeseparatecontractsorretained
internally:
Exhibit4 •Networkmanagement(voice,dataand
image/video)
Differencesin
FederalOutsourcingMarket •Softwaredevelopment
•PC/workstationsupport(includingLAN
•Serviceacquisitionsplitup administration)
•Reluctancetoturnfunctions •Educationandtraining
toprivatesector Conclusions
Source: INPUT Thereducedsetofrequirementsforfederal
outsourcingcontractsstillgivesvendorsan
— opportunitytooperateinthismarketwitha
Sinecpoanrtdi,cumlaarn—yafreederreallucatgaenntcitoesmmDoovDeragencies olepaenreart,iomnoarlephefafsiec.ieTnthissupdpooerstn’gtroaupppliynttohethe
completeresponsibilityforfunctional marketingphaseoffederaloutsourcing
operationstocommercialvendors. activities,sincetherigorsoftheprocurement
processarealreadywellknownandrequire
©1992byINPUT.Reproductionprohibited. 3

muchmoremarketingsupportthanmost MoretoCome
commercialopportunities.
INPUThasscheduledacloserlookatthe
Thereisasubstantialmarketforoutsourcing federaloutsourcingmarketinthefourthquarter
servicesinthefederalmarketthatwillcontinue of1992. Atthattime,thesizeofthemarket
togrow,butataslowerpacethanthe willbeanalyzedindetailandparallelswillbe
commercialmarket. Thedemandforservices drawnbetweenthecommercialandthefederal
willincludeonlyasubsetoftheservices sectorthatwillbevaluabletovendorstryingto
requiredinthecommercialarena. Certainwell- movefromonemarkettotheother.
entrenchedvendorssuchasIBM,EDS,Martin
Marietta,BoeingComputerServicesandCSC
haveexperiencedteamsthatknowhowto
operateverycosteffectivelyinthestructured
federalcontractsenvironment.
ThisResearchBulletinisissuedaspartofINPUT’SFederalInformationTechnologyMarketProgram
fortheinformationservicesindustry.Ifyouhavequestionsorcommentsonthisbulletin,
1953GallowsRopalde,asSeuicatlel5y6o0u,rVlioecnanlaI,NVPAUT22o1r8g2a,niTzealtieopnhoonreJo(h70n3F)r8a4n7k-6at87I0N,PFUaTx,[phone].
4 ©1992byINPUT.Reproductionprohibited.