Virginia Outsourcing Deal Bears Careful Watching

Not too long ago, I would have probably railed against the state of Virginia's decision to outsource the entirety of its IT operations.

But now I think that the state may be onto something. It's certainly taking an interesting approach, designed to avoid the major problems that have scuttled other states' outsourcing agreements.

The proposed $2 billion deal--which must be approved by the state legislature even though additional IT funding is not being requested--is being touted as way to save taxpayers $200 million, upgrade IT infrastructure so old it's considered a serious security risk, and provide other benefits.

Two major ingredients might combine to mean this stands a chance of success. First, the primary outsourcer--Northrup Grumman--has promised there will be no offshore operations involved in this deal, and is spending over $55 million to build two brand-new data centers in Virginia. Which leads to the second item: Northrup has promised to employ 900 state IT workers for at least a year, complete with 4% raises and signing bonuses.

In this way, the state has deftly avoided outsourcing political pitfalls that have plagued other states, including New Jersey and Connecticut. As my colleague Paul McDougall notes in his blog entry, the no-offshoring promise alone may have been what took IBM out of the running for this contract.

All that said, the long-term make-or-break part of the deal, in my opinion, will be the types of new and improved e-services delivered to citizens. Because in the end, all the back-room IT benefits in the world won't really matter to most people. Citizens want their government to make life easier or at least more efficient, whether that means being able to apply online for a new-business license or, as we can do in my home state of Massachusetts, go to the Registry of Motor Vehicle's site and see how long the wait is in any of the offices before we head out the door. (Is it accurate? Who knows. It just makes me feel better to believe the wait is 20 minutes as opposed to two hours.)

Regardless of how successful the rest of pact may be, the citizens of Virginia will probably measure this deal's success by the number and types of 'public-facing' services that result from the outsourcing arrangement. State leaders, both in and out of IT, would be wise to do the same.

This arrangement is especially interesting coming as it does on the heels of a little-noticed study by an economic forecasting firm. The study is about how global outsourcing is really creating jobs, on balance. And yes, the study agrees that some American IT jobs are going away as a result of offshoring, but still maintains that outsourcing adds jobs globally. Massachusetts Governor Mitt Romney, widely expected to announce his candidacy for President, said as much in a recent speech.

As for the Study: it was conducted by Global Insight, an economic analysis and forecasting firm, on behalf of the Information Technology Association of America. The study said that global outsourcing added some 257,000 jobs in the United States this year.

Although Mike Raimondi, a Global Insights spokesman, agrees there have been some "pain points" in terms of IT job losses too, overall the practice has improved wages, and encouraged investment and spending. Moreover, almost 75% of the 112,000 IT job losses that occurred between March 2001 and Sept. 2003 were due to factors other than outsourcing, including the telecom and dot-com busts, the study says.

By availing themselves of lower-cost workers, the logic goes, companies are able to pump more back into the overall U.S. economy, 'raising everyone's boat,' so to speak.

There is a lag between when jobs are lost and re-created, Global Insights says, but on the whole the practice is healthy.

It's an interesting premise. I have long considered offshoring, in particular, as a big negative for ITers in this country. (And being that I'm married to an IT guy, I'll admit to being a bit biased on this front.) I'm still not entirely convinced this is a good thing, but it has sure given me food for thought.