IBM beats Indiana in outsouring case no one 'deserves to win'

By Stephanie Overby , CIO |  IT Management, IBM, outsourcing

Pinto isn't surprised that IBM walked away unscathed. "IBM prides itself on its ability to write and negotiate onerous contract terms. They have developed this skill through many years of experience, and wield it artfully," he says. " Even though IBM did not perform in alignment with the intent of the agreement, they were deemed to have satisfied the letter of the law."

IBM was able to avoid material breach of the contract by meeting somewhere between 50 and 80% of its service levels. "Surprisingly, the court minimized problems that many IT managers would find unforgiveable, including a 48 hour call center outage, and readily gave IBM a pass for the difficult and politicized environment in which it was working," Parks says.

Big government IT outsourcing deals have a poor track record for success. Indeed, they may be doomed to fail from the start, says Adam Strichman, founder of outsourcing consultancy Sanda Partners, who says IBM actually made a valiant effort with this deal.

"What is hiding between the lines here is that the state wanted to change it's culture by outsourcing--always a difficult move, but almost impossible for a government organization. [Indiana wanted to] shift the [welfare] eligibility determination [process] from the state offices to a centralized call center." says Strichman. "Guess what--when they did that, the old organization magically still had control, and [then they were] paying for two organizations. State organizations are masters at never giving up control. This is a textbook case of why outsourcing often fails at the government level."

Political rhetoric also made Indiana's assertions against IBM difficult to prove. "Public-sector outsourcing is complicated by politicians' desire to claim success right up to the moment when they are forced to confess to a problem," says Parks. "In this case, the repeated 'thumbs up' from various state officials were impossible to reconcile with the later claim of material breach. In government, line management often has very little ability to influence this sort of activity, even when the realities don't match the sound bites."

Public sector IT organizations might far better if they adopted a more incremental outsourcing approach, says Strichman. "Set up a shop that doesn't interfere with state jobs and fiefdoms. Roll out a high tech alternative in parallel with the status quo. Test it, work out the bugs, and roll it out selectively," says Strichman. "A tiny contract would not have had so much riding on it, and could be tested until they got it without colossal budget pressures and bad press. It can work, if states stop biting off more than they can chew, and outsourcers and consultants stop serving it up that way with a smile."


Originally published on CIO |  Click here to read the original story.
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