In or out of house

In the context of the Bush administration's competitive sourcing initiative, the attention of the information technology community has been focused mostly on whether some activities currently performed inside government would be more appropriate, in terms of cost and/or quality, to contract out.

But the Defense Department's use of contractors to interrogate Iraqi prisoners has brought a different question to the public's attention: Are there activities the government currently contracts out that belong in-house?

To answer that question, we need to go back to the basics of when it makes sense for an organization to buy something from the outside rather than make it itself.

Experts suggest that the most important rule for deciding between in-house production and outsourcing is: Keep your core competencies in-house and contract out the rest to organizations that specialize in those areas. The classic example would be running an agency's cafeteria or managing housing on a military base. These are not core competencies for government organizations, but they are the core competencies of companies that specialize in food service or housing management.

Likewise, developing and maintaining IT systems technologically are seldom core competencies for agencies, so they also are good candidates for outsourcing.

Based on that criterion, the government should develop its own business cases for IT investments, which are part of each agency's capital planning review process and must be submitted to the Office of Management and Budget for approval.

For many government organizations, IT is mission-critical. As noted, this doesn't mean that the technology work must be performed in-house. However, when IT is mission-critical, the ability to make good decisions about IT investments — deciding what investments make sense and what capabilities IT applications should have — should indeed be an agency's core competency. This is something government officials need to be good at, rather than contracting out for the expertise. Outsourcing the creation of business cases inhibits the development of in-house skills the officials should have.

I think many young people would be interested in jobs researching and writing business cases. If the only argument for contracting out for such services is that agencies won't pay high enough salaries to attract good workers to the jobs, the solution is to establish appropriate salaries, not to outsource for that reason alone.

Moving business case development in-house is a good component of a strategy for improving the government's ability to successfully manage its increasingly crucial IT investments. With the growing recognition of the importance of government program management capacity, now is a good time to begin.

Kelman is a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.

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