Table Of Content

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,(703)847-6872. 4 ©1992byINPUT.Reproductionprohibited.