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BriefingCopyright © 2001Briefing PresentationsAndrea Di Maio and Ian Marriott

StrategicStrategic Sourcing Sourcing Scenario Scenario

Ian MarriottIan MarriottResearch DirectorResearch Director

E-Government ScenarioE-Government Scenario

AndreaAndrea Di Maio Di MaioResearch DirectorResearch Director

0

Andrea Di MaioResearch Director

E-Government Scenario

Andrea Di Maio is a research director in Gartner Research, where he focuses onthe Economic and Monetary Union (EMU), e-government strategies and regulatoryaspects of e-business. Prior to joining Gartner, Mr. Di Maio coordinated theEuropean Commission's activities on the impact of the Y2K problem and theIT impact of the EMU. He has more than 15 years of experience in IT. Mr. Di Maioearned a master's degree in electronics engineering, summa cum laude, fromPolitecnico di Milano.

1Briefing


Copyright © 2001Briefing PresentationAndrea Di Maio

Conclusions

• There is a serious mismatch betweenpolitical objectives, e-governmentchallenges and an ability to deliver.

• E-government is more abouttransforming relationships thanabout technology.

• E-government requires newarchitectural, sourcing and planningapproaches.

Pilot e-government projects are making electronic services available online all overthe world. Europe is coming forward, with Scandinavia and the United Kingdombeing slightly more advanced (the former on achievements and the latter onstrategic planning) Although e-government has elements in common withe-business as far as computer and communications infrastructure, architecture, andsome of the functional and non-functional requirements, the two are not the same.The goals differ. E-business is concerned with becoming more effective and efficientat doing business, by delivering value to shareholders and customers. While valuecreation and efficiency are also important for e-government, the relationshipbetween constituent and government has a compulsory component that is missingfrom e-business.

E-government is about more than building new Web-enabled front ends for oldback-office applications. It is about transforming the ways in which people governthemselves. Governments based on geographical space will need to re-examine theirroles in a connected world. The Internet changes how we pay taxes and who isconsidered part of our community.

However, Web technology is facilitating these changes, but there are fundamentalrequirements in terms of political will, regulatory frameworks and managementstructures that must be addressed for e-government to succeed. It is also importantnot to forget how many "reinventing government" initiatives fell short of results forthese same reasons well before the Internet.

Briefing2

Copyright © 2001 Briefing PresentationAndrea Di Maio


E-Government DefinitionTo optimizegovernment servicedelivery,constituencyparticipation andgovernance.

Thetransformationof internal andexternal public-sectorrelationships

Through Internet-enabledoperations,informationtechnology andcommunications

e-Government

e-Governance

Digital Society

Digital Dividethose that cannot or will not access

IT and globalregulations and policies

society embraces theconnected environment

Conclusion:There is a serious mismatch between political objectives, e-government challengesand ability to deliver.

E-government is the transformation of public-sector internal and externalrelationships, through Internet-enabled operations, information and communicationtechnology to optimize government service delivery, constituency participation andgovernance. A digital society is a society or community that is well-advanced in theadoption and integration of digital technology into daily life at home, work andplay. E-governance is the development, deployment and enforcement of the policies,laws and regulations necessary to support the functioning of a digital society andeconomy, as well as of e-government. In the short term, governments are puttingtransactional services (e.g., permitting, payment and billing) on their agenda, buta strategic view of e-government includes social, technological, economic,environmental and political agenda items. Beyond 2005, strategic solutions areneeded to address the erosion of the tax base due to telecommuting and onlineselling, a governmental crisis in developed countries due to a retiring workforce,and socio-economic disruption due to a digital divide that keeps some sectors ofthe population outside the Internet economy.Action item: Avoid tactical solutions that are not part of a strategic plan.

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Strategic Planning Assumption:Through 2004, over 50 percent of e-government projects worldwide will fail to deliverthe service levels required by citizens and businesses (0.7 probability).

E-Government Drivers andInhibitors

DriversSocial• Demographics• Tech-savvy• Workforce and population changesEconomic• IT impact• Government spendingPolitical• Mandates, devolution• Geographic competitionEnvironmental• Clean industry• Location-independentTechnical• Infrastructure• Standards

Inhibitors

• Social• Digital divide

• Privacy• Education

• Skills shortage• Economic

• Funding model• Economic downturn

• Political• HR policies

• Legal framework• Environmental

• Last-mile impact• Technical

• Infrastructure• Heterogeneity

Several forces have driven e-government efforts worldwide. On one hand, theoverall population in developed countries has increasingly become accustomed toself-service and is computer literate, economic growth has decreased governmentdeficits, and countries have started benchmarking against each other (for example,the e-Europe initiative) about e-government. On the other hand, there areinsufficient numbers of people trained in appropriate technologies , the digitaldivide is closing slowly and demands a multiple delivery channel, and privacy andconfidentiality concerns are mounting. Technologically, the lack of a single, unifyinginfrastructure coupled with differences in implications, applications, and datastructures increase the difficulty of sharing information between departments andlevels. Labor rules and policies, particularly in public sector, can strongly influencehow new tasks and skills are introduced. We expect the economic downturn willsoon top the list of constraints to e-government because most e-governmentstrategies were conceived for an expanding economy, providing the funding andregulatory framework to fuel the necessary expenditures for e-government, andreducing unemployment concerns.Action item: The top inhibitors must be specifically identified and addressed in thee-government strategy. Strategies must be revised to include the impact of slowereconomic growth or recession.

Briefing4



Strategic Market Statement:In 2004, the United States will generate in excess of $3.2 billion in Internet-generatedB2B and B2C e-commerce revenue, and Europe will grow to more than 80 percentof that.

E-Government Spending and Trends

0

2

4

6

8

10

12

14

U.K. France Italy

E-Government Spending in Europe

$ in Billions

E- Government Spending inthe United States

Services Usedby RespondentsAdmin/Finance

Transportation

Public Safety

Human Services

Courts/Justice

Health

0 20 40 60 80

75%

72%

62%

48%

45%

42%

Services Plannedby RespondentsProcurement

Taxes

DMV

Permits

Licenses

Voting

0 20 40 60 80 100

86%

75%

62%

55%

55%

43%

$ in Billions

0

20

40

60

80

100

120

2000 2001 2002 2003

Non-E-GovE-Gov

Non-E-GovE-Gov

Although with differences in adoption rates and preferred devices, all Organizationfor Economic Cooperation and Development (OECD) countries are rapidlyprogressing toward a connected economy. E-commerce expenditure per capitais expected to exceed $12,000 in the United States and reach more than $7,000 inEurope in 2004.

At the same time, we expect the level of public spending into e-government serviceswill increase at a more than 30 percent CAGR, with aggressive objectives set bymany countries to provide the majority of public services online in the next one tothree years. The pace of change is hardly compatible with the processes requiredto agree upon and implement the policies needed for balanced and sustainabledevelopment. Therefore, enterprises and public agencies must prepare forconsiderable uncertainties while the political and regulatory framework tries tocatch up with technology developments and their applications. While breakthroughtechnologies always challenge the status quo, the problem governments face withthe Internet is the scope, depth and speed of the change, which are allunprecedented.

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Strategic Planning Assumption:Through 2004, over 50 percent of e-government projects worldwide will fail todeliver the service levels required by citizens and businesses (0.7 probability).

E-Government Everywhere

U.K.: 100% by 2005

IRL: All but themost complex

by 2001 NL: 25% by 2002

FIN:"Significant"proportion

by 2001

F: Access by 2000

I: Key services by 2002

• Soft targets

• Focus on service delivery

• Benchmarking frenzy

• Technology push

• Competition:

– between governments

– with the private sector

• Local vs. central

• Multiple delivery channels

• Rights to "opt out"

• Soft targets

• Focus on service delivery

• Benchmarking frenzy

• Technology push

• Competition:

– between governments

– with the private sector

• Local vs. central

• Multiple delivery channels

• Rights to "opt out"

Although the issues to be resolved are the same, e-government strategies will differto reflect the different government organizations, infrastructure development,constituent expectations and so on or different countries. Objectives are ambitious,but rather flexible. Little has been stated as far as democratic participation isconcerned, with almost all e-government initiatives focusing on service delivery,and a tendency to insource rather than outsource business processes. The e-Europeinitiative sponsored by the European Commission is acting as a catalyst for lessactive countries, but it has also sparked information society benchmarking efforts.The effect is that countries that are less advanced in their e-government thinkingtry to replicate electronic service delivery targets or initiatives which have beenundertaken in more advanced ones with relatively little attention paid to differingconstituent needs and degree of readiness. In some cases, e-government effortsoverlap an ongoing restructuring or "reinvention" effort. Most plans consider theneed for a balanced delivery of services across different channels, including themost traditional ones; however, implementations are still far from ideal.Action Item: Governments need to support aggressive e-government agendas with changesin the laws and regulations affecting public procurement, public-sector labor, privacy andsecurity. In their absence, government agencies, as well as their suppliers and outsourcers,should expect e-government transformation to remain superficial

Briefing6



Strategic Planning Assumption:By 2005, more than 80 percent of national e-government strategic plans that are nottightly integrated with a digital society plan will fail (0.8 probability).

Classifying E-GovernmentStrategies

Outside-in

Inside-out

Bottom-up Top-down

Agency onDemand

BureaucracyWins

Cyber-Official

Drive

FocusDigital divideDemand/supplymismatch

U.K., Australia,Singapore

ItalyGermanyJapan

NL, U.S.

UltimateE-Government

E-government strategies in different regions take different approaches accordingto whether they are inward- or outward-looking, and whether they are driven atthe top political level or more at a ministerial or department level. This leads tofour scenarios; in each one e-governance plays a different role.

• "Cyber-official": Gradual transformation — e-governance mostly focuses on enabling e-service delivery.

• Bureaucracy wins: Integration across departments raises regulatory issues around privacy/security, but service delivery remains firmly in the government's hands.

• Agency on demand: Added value starts raising issues as to constituent value, and how services may be better designed and sourced to deliver that value.

• Ultimate e-government: Where more governments claim they will be in two to five years. The transformation requires a substantial e-governance effort — e-government and digital society strategic plans are seamlessly integrated.

Governments moving their e-government objectives counterclockwise in thediagram will face considerable difficulties (for example, an unprepared digitalsociety) or offer services for which there is a modest demand.Action item: Understand the nature of an e-government strategy to evaluate whether itse-governance component is adequate.

7Briefing



3. Transaction

Funding stream allocationsAgency identityBig browser

Job structuresRelocation/telecommutingOrganizationPerformance accountability Multiple-program skillsPrivacy reduction

Integrated servicesChange value chainNew processes/servicesChange relationships(G2G, G2B, G2C, G2E)

Some new applicationsNew data structures

Cost/Complexity

Time

Constituent Value

2. Interaction

1. Presence

Approval Public

Existing

Streamlineprocesses

Web siteMarkup

Trigger

4. Transformation

� Constituent demand � Political climate� Agency identity� Maturity� Trust

Four Phases ofE-Government

How much is enough?

Legacy sys. linksSecurityInformation access24x7 infrastructureSourcing

BPRRelationship mgmt.Online interfacesChannel mgmt.

CompetitionConfidentiality/ privacyFee for transactionE-authentication

Knowledge mgt.E-mail best practicesContent mgmt.MetadataData synch.

Content mgmt.Increased support staffGovernance

SearchableDatabasePublic response/ e-mail

Search engineE-mail

Strategy/Policy

People

Process

Technology

Self servicesSkill set changesPortfolio mgmt.Sourcing Increase business staff

Conclusion:E-government is much more about transforming relationships than about technology.

There is no smooth transition from "government" to "e-government." In goingfrom only a presence on the Web to a profound transformation, with new servicesand processes and a seamless integration inside and across agencies, governmentorganizations must resolve four sets of issues: existing strategies and policies maybe inadequate to address new kinds of internal and external relationships, and toexploit new delivery channels; people may strongly oppose changes; bureaucraticprocesses developed for a hierarchical organization may prove inadequate tosupport constituent-centricity; and new technologies and architectures must bemanaged. Progressing through e-government phases implies increasing costs andcomplexity, but also greater constituent value. Most of the technology challengesare faced in Phase 3, when online transactions require unprecedented reliability,availability and security levels. In Phase 4, people, organization and processchallenges become the main stumbling block to overcome. Policy and regulatoryimpact will be considerable in Phase 3 and Phase 4. While most initiatives try toachieve Phase 4, effective transformation, they must be rooted into the social,constitutional, legal, economic and technological context which they will influenceand be influenced by. In some cases, valuable objectives can be achieved by justimplementing Phase 2 or Phase 3 solutions, provided the business and political casefor each of them is articulated and they can be convincingly compared to similarinitiatives in other geographies.

Briefing8



Strategic Planning Assumption:By 2004, more than 70 percent of e-government strategies that do not set clearand measurable objectives for constituency value, operational proficiency andpolitical return will fail (0.8 probability).

E-Government Strategy Choices

E-Government Strategy Choices

Consumer Concerns

Control and Initial

Legislation

• Higher Cost of Business• Regulatory Limits on Data Sharing• Higher Cost and Limits on E-Business,

E-Government?

TechnologyRealization

LegislationRefinement

TechnologyBacklash

Cycle

Best Value

HighestConsensus

Constituent Service

OperationalProficiency Best

Service

E-GovernmentStrategy

Excellence

PoliticalReturn

Privacy and Security Backlash

Business Concerns

Strategies should balance constituent service, operational proficiency and politicalreturn. Citizens and enterprises should look to interact with the government agency,as commercial enterprises put emphasis on channels according to brand image orROI; agencies must grant each constituent comparable access to their servicesthrough any channel. Constituents have expectations based on their experienceswith the Internet at home. Achieving proficiency in e-government requires atransformation of processes and of what government does. Major transformationefforts must deal with a lack of flexibility in an aging workforce and regulatoryconstraints. Relationships between governments and constituents tend to be morecomplex than for enterprises because of the political benefits/repercussions.Depending on the benefits or costs that accrue to various constituencies, politicalreturn is a real consideration that can advance or impede an e-government initiative.At the same time, we expect concern will grow among constituents that theopenness of information access will invite misuse and privacy invasion.Action item: Expect to learn from failures. Use strategies for pilot tests and experiment withnew funding/ sourcing models. IT professionals must get involved in making policy. Solidprogram management with clear, measurable objectives along all three axes is key. Mapassessment, policy and measurement against operation efficiency, political return andconstituent service. Set consistent metrics and goals.

9Briefing



Strategic Planning Assumptions:By 2003, more than 90 percent of governments in OECD countries will deploy oneor more portals to provide citizens with the ability to perform transactions (0.8 probability).

By 2006, fewer than 20 percent of G2C transactions conducted over the Web will takeplace through government-managed portals (0.6 probability).

Today's E-Government PortalsAre Irrelevant

2000• High-visibility• E-government mock-up• Internally managed

Legal issuesownership and integrationportal market dynamics

2005• Outsourced• E-services• Integration with

commercial services

There are several valid reasons for investing on a government-managed singleportal: it has great visibility, it can be an effective decoy for a shaky e-governmentstrategy, it can genuinely provide a different and more constituent-oriented viewof public information and, to some extent, new ways of interacting with thegovernment. However, contrary to the common belief, it is unlikely to serve itspurpose beyond Phase 2 and Phase 3 of e-government development. A portal doesnot automatically solve channel integration and management issues, it impliessignificant legal issues as far as content liability, competition, data protection, and itsmanagement can create friction between ministries and agencies. Governments mustconsider portals as tactical developments and pursue government transformationefforts under the assumption that three to five years from the establishment of theirportals, government services may be accessed through different channels, andmanaged by external service providers or partners in the private or nonprofitsectors. They must plan how these tactical portals will move from being completelyinsourced (or internally managed) to being a collection of e-services accessedthrough commercial and other third-party portals.Action item: E-government plans need to focus on developing cooperative architectures sothat services will be seamlessly integrated, irrespective of where they will be accessed from.

Briefing10



Strategic Planning Assumptions:By 2004, Internet voting vendors will get more than 90 percent of their Europeanannual revenue from sources other than political elections (0.7 probability).

By 2008, more than 90 percent of votes will be cast over the Internet in at least oneofficial local election in Europe, with more than 40 percent of those votes cast fromremote locations without an election official present (0.6 probability).

E-Democracy: Voting and Beyond

Regist

ratio

n

Verifi

catio

n

Record

ing

Reporti

ng

Usual locations

Extended locations

Anywhere

Phase

Remoteness (accuracy, vulnerability)

Electronicsignature

Smartcards

Optical scan

DRE

I-votingFormdownload

Ð Market fragmentationÐ Internet penetrationÐ Privacy and securityÐ Election laws

Ï Digital signature, smart ID cardsÏ Election reformsÏ Successful pilotsÏ Increase participation

• Online consultation• Local elections• Associations, parties

The ability to replace or implement voting technologies is based on several factorsbeyond the technology itself: budgets, current laws, certifications, voter perceptionsand polling place staff. In the United States, states that can overcome cost, legal andperception hurdles will reap efficiency, accuracy, voter flexibility and increasedparticipation benefits from polling place Internet voting or direct recordingelectronic (DRE) technology. In Europe, the main drivers to the adoption of newvoting technologies will be decreasing participation, on-going election reforms,and the deployment of digital certificates and smart identity cards. At the same time,many countries do not allow absentee ballots, vendor presence is low and voting hasa low priority in current e-government plans. We expect remote voting will remainlimited to elections that are not legally binding, such as opinion polls andreferendums, with few exceptions, most likely in Scandinavia or Germany.

Action item: Pilot Internet voting, both at polling places and remotely, for elections that arenot legally binding (for example, opinion polls or referendums) even if all the technology andregulatory elements are not in place. This will allow them to gain experience and identify andovercome constraints. It will also provide a means to increase constituents' democraticparticipation and will help develop the training in this area for election officials.

11Briefing



Strategic Planning Assumption:Countries that expect annual GDP growth to slow to less than 2 percent between2001 and 2003 will need to substantially modify e-government strategiesby year-end 2001 (0.8 probability).

E-Government in a SlowingEconomy

EconomicGrowth

EconomicRecession

Political Instability

Political StabilityE-Dream

OpportunisticEasy Money

Paternalistic • Managed devolution• Synchronized e-government and

info society• Strategic sourcing• Growing intermediary and GSPs roles• Focus on constituency service• Priorities: e-democracy

• Unmanaged devolution• Tactical sourcing• Confusion about responsibilities• Government-managed e-services

and portal• Focus on political return• Priorities: taxation, social security

• Centralization• Recovery strategy/information

society plan• Focus on efficiency• Priorities: e-procurement,

employment

• Public spending soars• Only tactical moves• Public employment grows• Unclear focus• E-government applications

stagnate

Two factors that greatly affect e-government strategies are the economic cycle andthe degree of political stability. Both influence the role and behavior of governmentson matters such as devolution, deregulation, subsidization of industry sectors,distribution of public expenditure and so forth. Combining these two factors, fourscenarios emerge that help forecast how e-government strategies in different partsof the world will evolve. Growing and politically stable economies will achieve themost effective results, striking the right balance between the roles of differentgovernment levels and the private sector. Growing economies in a less stablepolitical environment will take more tactical approaches, focusing on political returnnot constituent value. Economies with a slowing growth or approaching recessionwill feature re-centralization of some government functions, higher structuralspending and a partial relief on skill shortage. Where the political climate isunstable, e-government initiatives will lag behind as their priority will drop againstincreasing unemployment and a slower development of B2C e-commerce.Action item: Central and local governments must consider now what impact a changingeconomic climate will have on their e-government initiatives and plan accordingly. Theymust plan for different scenarios, reassess their e-government priorities and sourcingstrategies, and develop communication plans to highlight the positive impact of theirinitiatives.

Briefing12



Strategic Planning Assumptions:Through 2003, less than 10 percent of agencies will participate in a governancestructure needed to enable constituency-centric transformation (0.8 probability).

Through 2003, government agencies will be able to overcome all cultural, turf, fundingand political issues necessary to achieve constituency-centric transformation(0.1 probability).

The Governance Convergence

Action Items:• Build an extra-

agency view ofgovernance

• Includeconstituents,partners andadvocacy groups

• Develop acooperativearchitecture

Time

Governingpolicy/regulations

ITgovernance

Globalgovernance

E-Governance

Governance is a cross-jurisdictional organizational structure that provides adecision-making process to determine the services, architecture, standards andpolicies for the organization's IT. E-governance is the development, deploymentand enforcement of the policies, laws and regulations necessary to support thefunctioning of a digital society and economy, as well as of e-government.Governance issues blossom through all levels of e-government. Concerns withglobal governance are currently handled separately from the IT "internal"governance issues. Those setting the governing policy and regulations are oftenanother group. What is changing is the emergence of an e-governance, theconvergence of all three types. As IT makes the same inroads into day-to-dayoperations of government as it has in business, we expect enterprise governance andIT governance will become indistinguishable. As IT-experienced personnel enter themainstream of the government management ranks, those using IT will be chargedwith setting the governing policy and regulations. When these governing boardsfinally develop and implement cooperative architecture across department andagency boundaries, there will finally be single, unified e-governance.Action item: Establish a governance board with multidepartmental jurisdiction.

13Briefing



Strategic Planning Assumption:By 2003, those governments that have not implemented a cooperative architecturewill fail to meet e-government transformation objectives (0.8 probability).

E-Government Architecture

Infrastructure

Shared ServicesData

Integration

Application

Interface

Counter Phone Web Digital TV

Channel Mgt. CRM Workflow Mgt.

Tax

Svc

s

Em

plo

ym

E-p

rocu

r

Hea

lth

Saf

ety

Ed

uca

t.

Per

mit

s

Just

ice

So

cial

Sec

.

En

viro

nm

SCM

Legacy Apps

middleware

office

PKI

payment

directoryGIS

platforms devices networks

Mgmt

Authentication

Security

Privacy

Policies

ERP

Kiosk

Datamodel

legacyConst. IDWeb data

Standards

Conclusion:E-government requires new architectural, sourcing and planning approaches.

An e-government architecture is different than a traditional IT architectureprimarily because the customer is the system user. The e-government system mustbe designed for a different user population with widely different characteristics.Some of the principles include customer-centricity, scalability, availability, multipleaccess channels and usage profile. The customer interface layer includes channelmanagement, CRM and workflow management. The business application layerincludes all the government applications of departments whose processes areintertwined. The integration layer will enable business logic components to behaveas if they were a single integrated applications, even though they are substantiallydifferent in design, language and structure. The shared services layer consists ofthose services that are common to all applications. The data layer includes legacyand Web-oriented databases, and a customer index data warehouse database, andrequires that an enterprise data architecture and data model to be planned anddeveloped. Cooperation must be established between departments on certainelements of the architecture, such as those in italics in the graphic above.

Action items: E-government should identify common support service opportunities. Establishdata commonality.

Briefing14



Strategic Planning Assumption:Through year-end 2003, more than 80 percent of government agencies will havestated e-government availability requirements of 99 percent or greater uptime;however, fewer that 50 percent of these agencies will meet such requirementsdue to a lack of traditional systems management processes and technical-availabilitymechanisms (0.8 probability).

Welcome to 24x7

TechnologyFailuresOperator

Errors

ApplicationErrors

TraditionalUnplanned Downtime

• Higher costs• Image damage• Impact on others

Key Disciplines• Change Management• Problem Management• Capacity Planning• Security• Continuity Planning

45%20%

35%

ApplicationErrors

ConstituentErrors

TechnologyFailures

E-GovernmentUnplanned Downtime

• More failures• Less tolerance• Greater visibility

40%20%

40%

Objectives

• Reduce Planned Downtime• Reduce Unplanned

Downtime

Highly available, shared infrastructure services are a necessity for movinge-government beyond mere presence and interaction. Organizations moving tosupport 24x7 infrastructure should employ systems management disciplines andtechnologies to maintain availability within established service levels. Change,configuration and problem management requires that new and more robustprocesses be put in place by an organization with commitment and support.Workflow-based capacity planning that supports performance monitoring, historicaldata analysis and modeling/simulation is needed to minimize downtime withincreasing demands on the computing infrastructure. A security risk andvulnerability assessment should lead organizations to implement technologiesand practices such as continuous monitoring for availability, virus prevention anddetection, intrusion prevention and detection, contingency planning, and disasterrecovery. They should aim at reducing planned downtime by using hot swappablehardware, clustering technology with host sharing storage, back-up solutions andworkload management tools, as well as reducing unplanned downtime by usingredundant components, clustering to transfer processing load between hosts,redundant network connections, firewalls and more.

Action item: Focus e-government "extrastructure" investments to provide a highly availableand redundant technology platform, but to help resolve people and process issues as well.Earmark a sizeable portion of the IT budget to prevent and resolve legal consequences ofsystem and application failure.

15Briefing



Strategic Planning Assumption:By 2004, over 70 percent of governments in OECD will fundamentally changeappropriation processes to address e-government program failures (0.6 probability).

Funding: Polycentric andInnovative

Collaboration

Data Sharing

Resources

Program

Interdependence

Cost

internal external

traditional

innovative

Source

Method

directappropriation

unusedappropriation

executive order

innovationcharges

value-addedfees

What

How

transactionfees

E-government is compelling governments to re-examine the way funds arecommitted. In an environment that requires interoperability with an ever-increasingnumber of users, government IT and program offices must begin to work morecollaboratively to share resources and leverage innovation to multiple programoperations. Government enterprises must establish funding models that channelresources to both agency programs and enterprise IT functions for the establishmentand management of shared infrastructure. Many governments are establishingtechnology innovation funds, to be managed by the central IT authority. The fundbecomes a source for supporting shared infrastructures and for agencies to drawfrom for innovation. Funding schemes that rely on one source, such asappropriations, are exposed to greater risk after electoral changes and economicdownturns than funds that rely on multiple sources of revenue. Money can comefrom a variety of sources, ranging from more traditional appropriation and fundredistribution methods, to fees derived from constituent transactions. In many cases,this requires the establishment of a central IT authority delivering services todifferent agencies.Action items: To ensure the survival of the fund through political and economic cycles,governments must use revenue from a variety of sources.

Briefing16



Strategic Planning Assumptions:By 2005, over 60 percent of e-government services for constituents will be managedand delivered by external service providers (0.7 probability)

E-Government Sourcing

Transaction

InformationOutsourced

Service e-voting

100%50%

e-polling

tax filing

DMV

search laws

RFP

certificatestourism, culture

tickets and fines

0%

What

Multipleplayers/open market

In-house Outsourcing

CompetitionLevel

Build vs. Buy

Singleplayer/captive market

Selective Outsourcing

BrandServicesCo.

JointVenture

InsourcingFull

Outsourcing

Best-of-BreedConsortia

Internal

IT

Prime Contractor

How

• IT system integrators andoutsourcers

• Telecom operators• Media companies• Banks• Accounting firms• Associations• Horizontal portals• Vertical portals, e-government ASPs

Who

Any sourcing strategy has two dimensions: the make or buy decision, and theorganization's aim to use a single IT provider (internal or external) or leveragemultiple providers. This leads to different sourcing models: internal IT; insourcing(i.e., making the IS organization a separate business unit); joint venture — building aseparate IT service company with an external service provider (ESP); fulloutsourcing of a single, strategic contract with a single provider; best-of-breedconsortia — which is an ESP consortium that is built up with one acting as primecontractor; selective outsourcing — where a separate outsourcing contract isestablished for selected IT functions; brand service company — a new model for ITservices and non-IT services and processes that enables the service company to haveleverage in the ESP market, selectively outsourcing part of the services, and evolvinginto a market provider too; and prime contractor which is an organization thatspecializes in managing and integrating end-to-end services on behalf of the clientorganization. E-government transformation will enable completely differentrelationships between constituents and government. Governments need tooutsource routine electronic service delivery through a variety of intermediariesand government service providers (GSPs), rather than focusing on the governancefunction.

Action item: E-government strategies must articulate the mission governmentsand their agencies will be promoting in the transformation process and retain corecompetencies while outsourcing as many other functions as possible.

17Briefing



Strategic Planning Assumptions:By 2004, more than 80 percent of e-government benchmarks that are based ontraditional operational measures or developed for private e-business sectors willprovide no (or limited) value to e-government programs (0.8 probability).

Defining Constituent Value

Value

Cost

High

Low

High Low

DesirableAcceptable

MandatoryUnacceptable

Inherently high value• Health• Education

Added value• Taxation

Inherently Low Value• Certificates• Mandatory permits• Fines

Average revenue/incomeAverage service timeCost of opportunityCost/time to commute

A critical component of an e-government strategy is an assessment of which servicesare best provided through certain channels to size and prioritize investments.Agencies and their consultants tend to focus on how much obtaining a service costsconstituents, usually by associating a cost to the time needed to access a service orcomplete a transaction. Using this as the only criteria leads to tackling first theservices that cost more to constituents. Although this looks like a sound approach,there is a fundamental difference between a service that is highly critical or valuableto constituents (for example, getting a job or a loan) and a service that is the merefulfillment of an administrative obligation (for example, getting a permit). Todetermine which should be tackled first by an e-government strategy, we suggeststeps to classify service levels by constituent value and cost, providing an objectivemeasure for the constituent service axis of an e-government strategy: segmentconstituents, both citizens and businesses; associate an average cost to constituentsof each service; associate a value of getting the service; and prioritize services byvalue/cost.

Action item: Agencies and their ESPs should define a rigorous process to articulate thevalue/cost ratio, and use it as an integral part of e-government strategy development ande-government measurement.

Briefing18



Recommendations

• Assess readiness and constituency needs

• Define measurable targets for constituentservice, operational proficiency and politicalreturn

• Articulate funding and sourcing alternatives

• Develop a multiple-channel strategy

• Revise plans to take changing economicconditions into account

• Prepare to manage expectations

E-government is already here, but its main wave has just started. There aredeadlines and mandates that need immediate attention. There are tactical solutionsand ESPs to examine. However, we advise organizations not to get so caught up infighting fires that long-term work is ignored. Avoid solutions that are strictlytactical; even short-term solutions need to fit into a strategic framework. Find waysto fund cross-departmental work, obtain funding waivers when necessary. Get theIT and governance bodies of related departments together and build a cross-departmental governance policy. Start an inventory of networks and data sets,including in-place standards and data dictionaries. Use this information to build acooperative architecture to enable data and application sharing. Finally, study andaddress issues such as the digital divide with respect to your constituency. After all,it doesn't matter how "efficient" a service is if it doesn't help the people it issupposed to help.

19Briefing



Conference PresentationSYM8DataMgt1098AHilwa

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��

➤➤ Governments will use Strategic Sourcing to implement e-Governments will use Strategic Sourcing to implement e-government strategies and address several other key challenges.government strategies and address several other key challenges.

➤➤ Governments must manage the synchronization of their ownGovernments must manage the synchronization of their ownobjectives for dynamic change with the large-scales changes inobjectives for dynamic change with the large-scales changes inthe IT Services industry — or face failure.the IT Services industry — or face failure.

➤➤ Strategic Sourcing must become a Government core capability.Strategic Sourcing must become a Government core capability.Building a Sourcing Strategy that embraces externalizationBuilding a Sourcing Strategy that embraces externalizationmodels is essential.models is essential.

➤➤ A major change is needed in the structure and management ofA major change is needed in the structure and management ofstrategic ESP relationships.strategic ESP relationships.


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Strategic Planning Assumption:Through 2004, over 50 percent of e-government projects worldwide will fail to deliverthe service levels required by citizens and businesses (0.7 probability).

��

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DriversSocial• Demographics• Tech-savvy• Workforce and population changesEconomic• IT impact• Government spendingPolitical• Mandates, devolution• Geographic competitionEnvironmental• Clean industry• Location-independentTechnical• Infrastructure• Standards

Inhibitors

• Social• Digital divide

• Privacy• Education

• Skills shortage• Economic

• Funding model• Economic downturn

• Political• HR policies

• Legal framework• Environmental

• Last-mile impact• Technical

• Infrastructure• Heterogeneity

Several forces have driven e-government efforts worldwide. On one hand, the overallpopulation in developed countries has increasingly become accustomed to self-serviceand is computer literate, economic growth has decreased government deficits, andcountries have started benchmarking against each other (for example, the e-Europeinitiative) about e-government. On the other hand, there are insufficient numbers ofpeople trained in appropriate technologies , the digital divide is closing slowly anddemands a multiple delivery channel, and privacy and confidentiality concerns aremounting. Technologically, the lack of a single, unifying infrastructure coupled withdifferences in implications, applications, and data structures increase the difficulty ofsharing information between departments and levels. Labor rules and policies,particularly in public sector, can strongly influence how new tasks and skills areintroduced. We expect the economic downturn will soon top the list of constraints toe-government because most e-government strategies were conceived for an expandingeconomy, providing the funding and regulatory framework to fuel the necessaryexpenditures for e-government, and reducing unemployment concerns.Action item: The top inhibitors must be specifically identified and addressed in thee-government strategy. Strategies must be revised to include the impact of slowereconomic growth or recession.


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ConsultantsConsultantsSoftwareSoftwareandand

hardwarehardwarevendorsvendors

SwSw houses and SI, houses and SI,especially e-ESPsespecially e-ESPs

Most largeMost largeand midsizeand midsizeenterprisesenterprises

OutsourcingOutsourcingvendorsvendors

PublicPublicsectorsector

SmallSmallenterprisesenterprises

High-profileHigh-profileenterprisesenterprises

BankingBankingand financialand financial

servicesservices

��

IT professionals are moving away from government departments and enterprises in which IT is perceived to be ofrelatively low importance. They are gravitating toward enterprises that use IT to drive business and revenue, creatingan "IT food chain." Implementation specialists, for example, regularly depart enterprises in pursuit of opportunitieswith implementation consulting firms, systems integrations or ISVs . As IT professionals progress along the foodchain, they seek improvements in compensation, working conditions, career chances, experiences and quality ofwork. The food chain strains retention and recruitment globally, forces enterprises to turn steadily toward ESPs andincreases the likelihood that ESPs will, in turn, intensify their "poaching" from other companies. In Europe, thesetrends are accentuated by the longer notice periods (three months) and the lower international labor mobility. Witha few exceptions, staff turnover is in the 2 percent to 9 percent range but climbing. In Europe, the replacement cycle isboth long and damaging in key positions. Declining retention rates, difficulties in recruiting, increasing dependenceon contractors and deepening skills shortages in critical functions are frequently mentioned as reasons whyEuropean governments and enterprises are turning to ESPs.

Decision Framework


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� � �� !��

� � �� !��

Central Administration

1 Responsibility Center1 Process and Organization1 Information System1 Buyer

Periphery PeripheryPeriphery

LocalAdmin.

LocalAdmin.

LocalAdmin.

LocalAdmin.

LocalAdmin.

LocalAdmin.

LocalAdmin.

Complexity increase by N (10-100s)N Responsibility CentersN Processes and OrganizationsN Information SystemsN Buyers

Interconnection and Interoperabilityrepresent an huge additional challenge

Devolution is a word that is often heard in Europe. Regardless of where you currently are in yourcentralization/decentralization moves, e-Government certainly provides opportunities and could push you towardsthe decentralization of tasks.

What are the implication of such moves for IT and IT-enabled services?A major implication is the increase of complexity. For example, let us assume that a given public responsibility (andthe complex IT-enabled processes involved) are going to be devolved from a single Central Administration to aregional level or town level (tens or hundreds of organisations covering the whole country territory). In theory anunmanaged devolution could result in a ten (or hundred) fold increase in complexity and IT costs.Other issues are the exchange and alignment of information and process between different local administration(territory boundary) as well as the entire cost of operations (IT plus non IT assets and staff).Process decentralisation is adding a serious challenge to governments in terms of how to source the 10s or 100s ofsystems/services needed by the local administration without limiting their political power or responsibilities, andensuring the same service or process is delivered all over the country without increased cost of collection.


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��

Legal Framework

Conflicts of Interest

New Regulations

Antitrust Issues

Governance

Government Privatization

Privatization may appear to reduce the burden for Governments in terms of changes and sourcing issues. Since aservice responsibilities are going to be managed by a privatized entity (telecommunication, utilities, public services)the first reaction seems to the be that the entire issue is removed from Public Administration. That is partly true, butlooking at the issue from the privatized entity point of view the issue is very different. Management and staff thatpreviously worked under Public Administration rules are suddenly propelled into a full commercial, or more oftenpartially-protected, market status. That brings to the privatized entity a number of issues, most of which are relatedto the kind of skills that were based upon a totally different view of working life: from civil-servant style tocommercial style the challenges are huge.

Public entities that are moving towards privatization will be experiencing the pressure of change, and relatedsourcing issues, in greater measure and faster than the rest of the public sector. Quite often the privatized entitieswill source skills, services or partnerships from the market within an unclear or contradictory legal framework. Ingeneral, the connected economy is going to reduce the barrier between Public Administration and CommercialServices. This will result in an entire world of new issues, such as conflicts of interests, need for new regulations, andantitrust issues.


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DealQualification

Deal Bid andProposal

DealManagement

• Profitability Assessment• Cross-Selling Potential• Political Leadership

• Contract Life Cycle/ Break Even Point• Risk Transfer• Political Motivation• Funding• Flexibility

• Track Record• Openness• BPM and ITO• Preconsultation• Lengthy Bid Process

GovernmentPPP/PFI Deals

�� "�

�� "�

A mixture of tradition and legal requirements for transparency and fairness created in Government a uniquedeal culture. The continuation of this culture is now under considerable pressure. Government organizationshave to "clean-up" and modernize their processes and deal structures, as much as their public role allows, inorder to meet current and (increasingly) future challenges with respect to flexibility, achievable quality and costtargets.The following are characteristics of Private Finance Deals:Deal Qualification

■ PFI contract lifecycles are extremely long compared to commercial sector relationships.

■ The onus of risk is almost entirely placed upon the vendor.

■ Upfront funding is an important prerequisite to PFI deals. The "break-even" point is a key consideration.

Deal Bid-and-Proposal

■ Openness during the bidding phase is a necessity.

■ Assess the possibility of combining business process management with pure IT work.

■ Public Sector bid process is usually much more lengthy and complex than private sector deals

Deal Management

■ Profitability assessment must be an ongoing process.

■ Evaluate the cross-selling potential for commercial sector deals.

■ Change of political leadership can herald shifts in project prioritization.


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�� # �� # ��

External IT Services Spending External IT Services Spending (excluding (excluding Telco Telco and Utilities)and Utilities)

Country 1999 2001 2004 CAGR99-04G erm any 2,563 3,283 5,061 14.6%Uk 5,211 6,864 10,625 15.3%France 3,301 4,005 5,849 12.1%Italy 1,905 2,281 3,207 11.0%Netherlands 1,472 1,940 3,006 15.3%S weden 1,001 1,271 2,015 15.0%B elgium 673 849 1,271 13.5%Res t of E urope 5,524 7,209 10,991 14.7%G rand Total 21,652 27,701 42,025 14.2%

Both Central and Local Government bodies will invest increasing expenditure with External Service Providers toattempt to resolve challenges such as:

Central Government:

Devolution of access and delivery of government services to regional governments

Increasing empowerment to EU bodies

Delivering service to the citizen (G2C) via multiple channels

Managing vast stores of information

Compliance with the euro currency

Reducing costs through e-Procurement

Local Government:

Modernising IT systems to administer local taxes

Increased sharing of information and systems integration with central government agencies

Increased level of responsibility devolved from central government

Budget v spending distribution between Central and Local Government in line with citizen’s expectations.

Achieving a balance between (a) reducing costs and (b) citizen expectations for better service delivery


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Until 2005, Until 2005, ESPsESPs will will outnegotiate outnegotiatetheir clients through superior skills,their clients through superior skills,resulting in resulting in ESPsESPs enjoying more- enjoying more-favorable terms in 90 percent offavorable terms in 90 percent ofdeals (0.7 probability).deals (0.7 probability).


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In employing each of the four models, users will be seeking specific business objectives:

Management: Users’ foremost concern is to optimize the value of their capital investments via applying resourcesand processes to ensure a maximized return on their IT assets.

Access: Users do not want to own technology/assets or build up large IT staffs. Instead, they want to procure theneeded functionality to ensure maximized operating income.

Optimization: Users are focused on their competitiveness, how to most effectively avail themselves of the bestsources to maximize market share through applying best-in-class expertise to their organization.

Creation: Users are seeking wealth creation — return on equity — via achieving connected relationships in virtualmarketplaces or being connected in supply chains.

Users’ sourcing strategies must be continuously under surveillance to uncover when business objectives are intransition or imminently changing; a sourcing strategy may require a migration plan from one quadrant to another.

Conclusion:Strategic sourcing demands evaluation of delivery models and value objectives to ensure IT efficiency and businessoutcomes.

$ ��#��$ ��#��

SharedSharedEnvironmentEnvironment

IT EfficiencyIT Efficiency

Business OutcomesBusiness Outcomes

EnterpriseEnterpriseEnvironmentEnvironment

MANAGEMENTMANAGEMENT

OPTIMIZATIONOPTIMIZATION CREATIONCREATION

ACCESSACCESS

DeliveryDelivery

Exploit knowledge and human capitalExploit knowledge and human capitalto maximize market shareto maximize market share

Deploy and apply resourcesDeploy and apply resourcesand processes to maximizeand processes to maximize

return on assetsreturn on assets

Connect knowledge andConnect knowledge andrelationships in virtual markets torelationships in virtual markets to

maximize return on equitymaximize return on equity

Procure functionality toProcure functionality tomaximize operating incomemaximize operating income

ValueValue


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�� %��

�� %��

BusinessBusinessOutcomesOutcomes

Service Provider (TSSP, SSP, etc.)Service Provider (TSSP, SSP, etc.)

ASP ASP

BPR/ChangeMgt.BPR/ChangeMgt.

Applications OutsourcingApplications Outsourcing

Enterprise OperationsEnterprise Operations

Meta Market MakerMeta Market Maker

IT EfficiencyIT Efficiency

IT OutsourcingIT Outsourcing

Internet Market MakerInternet Market Maker

Transaction Processing Transaction Processing

Commerce BackboneCommerce Backbone

Hosting - Internet DataCenterHosting - Internet DataCenter

Product SupportProduct Support

CREATIONCREATIONOPTIMIZATIONOPTIMIZATION

Consulting Consulting

IntegrationIntegration

DevelopmentDevelopment

BPO BPO


DesktopDesktop

NetworkNetworkHelp DeskHelp Desk

BSPBSPI-BPO I-BPO

Exchanges/PortalsExchanges/Portals


MANAGEMENTMANAGEMENT

MSP

SCMERPERP

ACCESSACCESS

Mapping the various IT service categories to the sourcing matrix reveals the complexity of offerings that userswill procure to enable various outcomes.The management and optimization quadrants reflect the more familiar services to support the traditionaleconomic values; in the access and creation quadrants, new Internet-based services emerge that are lessmature but nevertheless requisite if an organization is considering how to evolve an e-commerce-basedbusiness.Management and access provide the IT infrastructure underpinnings to enable the value that optimize andcreate respectively purport to deliver. In the future, users will need to segment their sourcing strategies interms of what services are needed to enable specific outcomes.Gartner advises the following when the outsourcing option is chosen: 1) business imperatives should lead inselecting the type(s) of service required; 2) different evaluation criteria for ESPs must be applied indetermining the sourcing strategy for different service categories; and 3) multiple ESPs will be chosen toensure "best in class" services provision.Action Item: Users must monitor technology innovation; as technology evolves, and greater maturity occurs withinmarketplaces, new services will be added in the access and creation quadrants.


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The Market Tectonic ShiftsThe Market Tectonic Shifts

Business Oriented IT Spending

Commodity andStandardization

2000 2010

Differentiationto Commodity

OPTIMIZATIONOPTIMIZATION OPTIMIZATIONOPTIMIZATIONCREATIONCREATION CREATIONCREATION

MANAGEMENTMANAGEMENT MANAGEMENTMANAGEMENTACCESSACCESS

ACCESSACCESS

DeliveryDelivery DeliveryDelivery

ValueValue ValueValue

IT EfficiencyIT Efficiency IT EfficiencyIT Efficiency

Business OutcomesBusiness Outcomes Business OutcomesBusiness Outcomes





The connected economy will challenge the delivery capacity of the IT service industry. Delivering IT projects andservices is still highly dependent on people (and thus culture and geography) and collaboration between clients andproviders (also culture-dependent).

Gartner believes that there will be some major trends affecting the four market quadrants in the coming years - atrend toward commodity/access services and a trend toward value-added services. These trends are caused by thedifferent drivers affecting clients and providers.

1) A strong migration of revenues toward more standardized and commoditized services, especially forinfrastructure management, causing a migration from the Management toward the Access quadrant

2) A significant migration of revenue and margins toward the Optimization (or differentiation) quadrant and thesmaller Creation quadrant. That is related to an increase of value added IT spending during the transition toward aconnected economy

3) Differentiation services that initially increase an organisations competitiveness in the market tend to becomewidely used. Consequently, those "new" services are reduced to commodities and result in a need to invest in newleading edge systems and services.


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Strategic Planning Assumptions:By 2005, over 60 percent of e-government services for constituents will be managedand delivered by external service providers (0.7 probability)

�� #��

Transaction

InformationOutsourced

Service e-voting

100%50%

e-polling

tax filing

DMV

search laws

RFP

certificatestourism, culture

tickets and fines

0%

What

Multipleplayers/open market

In-house Outsourcing

CompetitionLevel

Build vs. Buy

Singleplayer/captive market

Selective Outsourcing

BrandServicesCo.

JointVenture

InsourcingFull

Outsourcing

Best-of-Breed

Consortia

Internal

IT

Prime Contractor

How

• IT system integrators andoutsourcers

• Telecom operators• Media companies• Banks• Accounting firms• Associations• Horizontal portals• Vertical portals, e-government ASPs

Who

Any sourcing strategy has two dimensions: the make or buy decision, and theorganization's aim to use a single IT provider (internal or external) or leverage multipleproviders. This leads to different sourcing models: internal IT; insourcing (i.e., makingthe IS organization a separate business unit); joint venture — building a separate ITservice company with an external service provider (ESP); full outsourcing of a single,strategic contract with a single provider; best-of-breed consortia — which is an ESPconsortium that is built up with one acting as prime contractor; selective outsourcing —where a separate outsourcing contract is established for selected IT functions; brandservice company — a new model for IT services and non-IT services and processes thatenables the service company to have leverage in the ESP market, selectively outsourcingpart of the services, and evolving into a market provider too; and prime contractorwhich is an organization that specializes in managing and integrating end-to-endservices on behalf of the client organization. E-government transformation will enablecompletely different relationships between constituents and government. Governmentsneed to outsource routine electronic service delivery through a variety of intermediariesand government service providers (GSPs), rather than focusing on the governancefunction. Action item: E-government strategies must articulate the mission governmentsand their agencies will be promoting in the transformation process and retain core competencieswhile outsourcing as many other functions as possible.


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#��#�� &�'�� #��#�� &�'��

Multiple players/open market

In-house

Out-sourcing

CompetitionCompetitionLevelLevel

Build vs. BuyBuild vs. Buy

Single player/captive market

SelectiveOutsourcing

BrandServicesCo.

JointVenture

Insourcing

Best-of-BreedConsortia

Inte

rnal

deliv

ery

Prime Contractor

FullOutsourcing

Inte

rnal

Man

agem

ent

Key Issue

What are the latest trends in the externalization of internal services by user enterprises?

Key Issue: What are the latest trends in the externalization of internal services by user organizations?

There are two dimensions: the make or buy decision, and the organization’s aim to use a single IT provider (internal orexternal) or leverage multiple providers. The different models are:

Internal IT: The current status of most organizations’ IT operations.

Insourcing: This is the process of separating IS from the organization as a BU.

Joint Venture: A separate IT service company is built and shared with a market ESP. Outsourcing JVs are mostlyoriented to serve the client/partner; business JVs are mostly oriented to sell services to third-party clients.

Full Outsourcing: This is the most classical model — a single, strategic contract with a single provider.

Best-of-Breed Consortia: An ESP consortium is built up, and one of the providers takes the role of prime contractor.This is mostly used in very large international deals.

Selective Outsourcing: A separate outsourcing contract is established for selected IT functions, within a best-of-breedtactical approach and competitive deals.

Brand Service Company: This is a new model for IT services, non-IT services and processes. The service company doesleverage in the ESP market, selectively outsourcing part of the services, and can evolve into a market provider too.

Action Item: Organizations should focus on their sourcing past and then build a strategy for the future.


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While "multi-sourcing" will remain theWhile "multi-sourcing" will remain thedominant sourcing strategy throughdominant sourcing strategy through2005, 40 percent of large enterprises2005, 40 percent of large enterpriseswill adopt a prime or general contractorwill adopt a prime or general contractorto manage the ESP chaosto manage the ESP chaos(0.7 probability).(0.7 probability).

A sourcing strategy must be built as an individual exercise for each organisation.The combination of starting point, challenges, capabilities, culture and boundaries, and the expected final status andobjectives, are so unique that any sourcing strategy is in itself unique.

Generally, the market is pushing towards both Selective outsourcing and the Prime contractor role. However,Gartner believes that the most used strategy will be selective sourcing (multi-sourcing).

The increasing complexity of the market, the emerging IT value chain concept, and the increasing need forinnovation and service availability, are bringing a growing number of large organisations (including Governments)to test and adopt the Prime Contractor approach. However, the market is not yet ready to deliver it.


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�� (�� #� �&��

�� (�� #� �&��

Acquire

Build/Own

Hosting Partner

Channel Partners

5. Platform

6. Network

3. Applications and Content

4. Data Center Operations and Hosting

2. End Services — Service Integration/BPO Partners, SI/VAR Channel Partners, Application Management

1. Customer Relationship/General Contractor

Example Delivery/ Partnership Model:

ISV

Provider

Provider

Provider

Provider

Client

PrimeContractor

Services,Results,Resources

Services,Results,Resources

Process Interactions P. Interactions

Money Money

Contract, (b) SLA Contract, (t) SLA

Six Layer ASPArchitecture

The Prime ContractorRole

A Prime Contractor is typically an External Service Provider who is charged with the responsibility to manage andintegrate multiple providers (products, projects and services) to derive a single solution or service for a clientorganization (the role may also be fulfilled by an internal organisation).

The growth of this role signals another, far bigger, trend that is quickly emerging and challenging not only clients butproviders too. This trend is toward the IT value chain. This can be defined as: "the design, implementation anddelivery of increasingly business value-added, end-to-end IT services, of pre-defined content and quality, that arebuilt up by a chain of, increasingly specialised, partner or providers".

The clearest example of the IT value chain is an ASP. They provide an end-to-end service that is build up on a 6 layerservice infrastructure (Network - Platform - Operations - Application - End Services - Customer Relationship). TheASP usually cannot specialize and deliver directly all those layers and thus must leverage on specialised providers,especially for packages, infrastructure and operations.

With any type of client-provider relationship, the client must "manage the deal".Clients must focus on managing the relationship, the end-to-end service must be evaluated, and emerging needsmust be addressed. No model in the Sourcing space allows for "zero" management from the client.


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Phase 1:SourcingStrategies

Phase 2:Vendor pre-Selection Tender Preparation Project (Best Practices must be applied here)

Phase 4:SourcingManagement

Phase 3:TenderExecution upto Transition

Phase 3

Phas

e 1 Phase 2

Phase 4

Public Tender

or RFP/SOWG

overn

ance

Initiatives

It is important for Government bodies to consider the requirements of each phase of the Sourcing Life Cycle in orderto achieve the implementation of successful project and initiatives.

Phase 1 is the development of a Sourcing Strategy, where the classic Why? and What? Questions should beaddressed. Asking Where? And How? At this stage is relevant, but may not have an answer until later in the LifeCycle.

Phase 2 is where the Vendor pre-selection activity begins, and the Invitation to Tender is formulated. This is a keyactivity in a Government bid, and must receive the time and resources necessary to develop the framework for thedeal.

Phase 3 moves the project through the Tender execution activities, and incorporates the selection of the supplier (theWho?), the finalization of the contract (including the Where? and the How?) and the transition of the services.

Phase 4 is the management of the agreed contract, Service Level Agreements (SLAs) and the management of therelationship.


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�� #��%�� &�� #��%�� &��

Sourcing Strategy

Evaluation and Selection

Negotiation,

up to contract

ContractManagement

Sourcing Strategy

TenderPreparation

Tender Executionup to contract

ContractManagement

Learning and Best Practices

Very Open Approach Very Formal Approach

BusinessesUS UK

PFI

PPPContinental Europe

The Life Cycle of a Commercial deal and a Government deal have a number of similarities, and also a number ofdifferences.The Commercial tender is typically a very iterative, interactive process which allows the parties to understand therequirements of the other over a longer period and adapt the nature of the contractual relationship. This facilitates amore flexible and reactive relationship, and is often an important factor in establishing a successful businessrelationship in a long-term and strategically important deal.

The typical Government deal is a much more formal and rigid engagement. This is not ideal for either party, andnecessitates a well planned and well communicated tender preparation phase to the project.

The most important factors for a successful Government deal are:

1. A carefully developed sourcing strategy.

2. A well thought-out and executed Tender project

3. The establishment of appropriate governance capabilities to manage the deal.

NB. There are country-level differences in the degree of formality applied to the tender process, and differences inthe type of externalisation models which exist (e.g PFI/PPP). This will also influence the approach taken to LifeCycle issues.


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Conclusion: The role of IT transitions to broker, rather than supplier, of services.The drivers are increasingly strong for the development of strategic sourcing as a management discipline in the ISorganization. Business pushes technology to respond with increasing speed and flexibility. Technology becomesincreasingly complex, at a faster pace of change. IT expenditures are continuously growing. As a response, ESP offersare becoming increasingly varied, sophisticated and cost-effective, at adequate levels of efficiency and quality. ESPsare also becoming the vehicles for bringing IT innovation into the organization.

Strategic sourcing is a broad approach that covers all IT-related needs and their consequences. It will deal both with theIT skills necessary to develop an accounting application and with the skills necessary to completely outsource it as abusiness process; both with the IT skills necessary to develop a data-mining application and with the skills necessaryto, using that data, design an e-business strategy.

Strategic sourcing approaches sourcing needs from an integrated perspective. It implies a holistic view, both aboutthe needs and the various internal and external sources that will be combined to fulfill those needs.

Action Item: Resources must be dynamically combined in the most efficient and effective manner, given the enterprise’scharacteristics and business objectives.

Strategic Planning Assumptions:By 2003, 70 percent of leading organizations will adopt strategic sourcing as a core discipline (0.7 probability).Through 2005, leading organizations will employ ESPs on a situational "as needed" basis (0.3 probability).

#��) �� #�� #��) �� #��

■ Alignment andorganizationassessment

■ Corecompetencies

■ Market scan■ Make-or-buy■ Sourcing

Models■ Risk analysis

■ Governancemodel

■ Metrics■ Payment

models■ Terms and

conditions■ Provision for

changes

■ Relationship■ Performance

assessment■ Goals: reach

businessobjectives,efficiency,quality,innovation

■ Transition

■ GoalIdentification

■ Main Criteria■ Organization■ Partnership

opportunities■ Tender

Preparation■ Tender

execution

Strategic SourcingStrategic Sourcing is the dynamic delivery of resources andis the dynamic delivery of resources andservices to ensure achievement of strategic objectives.services to ensure achievement of strategic objectives.

Internal and external, Processes and IT, resources and servicesInternal and external, Processes and IT, resources and services

SourcingSourcingStrategyStrategy

Evaluation andEvaluation andSelectionSelection

ContractContractDevelopmentDevelopment

SourcingSourcingManagementManagement


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Until 2005, fewer than 25 percentUntil 2005, fewer than 25 percentof organizations will have an effectiveof organizations will have an effectivesourcingsourcing strategy or decision process strategy or decision processfor usingfor using ESPs ESPs (0.9 probability). The (0.9 probability). Therest will userest will use ESPs ESPs reactively, resulting reactively, resultingin cost inefficiencies, service conflicts,in cost inefficiencies, service conflicts,organizational disputes and a crisisorganizational disputes and a crisismanagement mode of operationsmanagement mode of operations(0.7 probability).(0.7 probability).


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�� *�� #��#�� &

Strategic GoalsStrategic GoalsMarketMarketCapabilityCapability

InternalInternalCapabilityCapability

SourcingSourcingGovernanceGovernance

SourcingSourcingModelsModels

Strategic Goals. Key elements in identifying a sourcing strategy are the required strategic results and the overallcapacity to compete, cooperate and interrelate in the connected economy; strategic sourcing is not just aboutoutsourcing current business or IT services.

Internal Capability. Internal capabilities (competencies, business processes, IT processes and services) of traditionalgovernment entities are generally considered inadequate to fulfill the challenge of the connected economy.

Market Capability. The IT service market is one of the more-dynamic and chaotic marketplaces. Most newer ITservices (the ones that should bring innovation and added value) are in their early stages. Application serviceprovider, e-business project and services, customer relationship management and supply chain managementintegration are in their infancy or early adolescence, while a few offering lines (e.g., data center or desk top services)are entering early maturity (i.e., the commodity stage).

Sourcing Models. Existing (or future) capacity (available internally, in the market or through a partnership) can beengaged and exploited through different sourcing approaches and models. This is mostly the space of make or buydecisions.

Sourcing Governance. The sourcing governance model is the sum of management capabilities, methods andprocesses, organizational roles and responsibilities, and rules and agreements that support the dynamic delivery ofservices in a mixed (internal and external) environment. The IS organization side of sourcing governance is strictlyrelated to the evolution of the IT broker (e.g., the evolution of the IS organization from being a direct providertoward being a broker, and an integrator of services provided internally and externally).


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)��#��#�� &)��#��#�� &

Strategic GoalsStrategic Goals

InternalInternalCapabilityCapability

GapAnalysis

MarketMarketCapabilityCapabilityMarket, Risk

Analysis

SourcingSourcingGovernanceGovernance

ManagementCore Capability

SourcingSourcingModelsModels

MarketEngagement

Strategic sourcing is a core capability for government enterprises. It allows them to manage innovation, and todeliver processes and services effectively and efficiently to the internal organization, business partners, and clientsor constituency, while looking at the enterprise as part of the connected economy.

The response to such challenges must take into account, analyze and harmonize many different elements, such asstrategic decisions and initiatives, internal capabilities, what the service market offers and really delivers, what isneeded to manage this mixed world, and how to engage the service providers. The growing trend toward virtual,net-liberated government entities means an ever-increasing use of outsourcing and partnership concepts in variousdisciplines and processes. This complex, connected world demands interrelated sourcing decisions must be takenand executed, to ensure objectives are fulfilled. This world contains sourcing decisions such as resources, skills,continuous services or business processes. Government entities must enforce to the maximum extent those internalcapabilities considered core and strategic, while leveraging innovation ability and better economies of scale fromexternal providers. This must ensure a continuous and efficient management of sourcing through the four phasesof its life cycle: strategy, selection, negotiation and contract management.


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Conclusion:A major change is needed in the structure and management of strategic ESPrelationships.

"�� #�� "��

Business Change

Technology Change

ServiceVolumes

Relationship Management

High

High

Low

Low

Technology Refresh

ContractedServices

In an environment of fast business and technology change, such mechanisms rapidly (forexample, within months of contract signature) become inadequate. In a network-liberatedorganization, they will be inadequate from the day they are signed. Many of the "one-off"decisions (for example, business strategy, supplier strategy, risk management, staffing andfunding) that are made during the initial decision to outsource will need to be madecontinually.Establishing the mechanisms that manage the way in which service recipient and serviceproviders work together will be critical. Most strategic ESP deals fail to because of abreakdown in the relationship between the parties. The key to success lies in the managingthe relationship, rather than governing the contract. The rest of this presentation examinessome of the tools, techniques and approaches that leadingworld-class organizations are using for relationship management.


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Through 2005, 50 percent of ESP projectswill be considered unsuccessful by seniormanagement because they have notdelivered anticipated value (0.7 probability).

By 2005, senior management will have theexperience to choose the type of strategicESP relationship that best fits their businessstrategy and to define the value they wantfrom the deal (0.3 probability).

#�� +��


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Definition:Value is defined as something of perceived importance (needs and wants),for which you are willing to pay.

A Good Deal is One That Delivers Value

Value is:Something of perceivedimportance (needs and wants),for which you are willing to pay

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Value is:Determined bythe client not thesupplier

Supplier Client Client'sClient

Source: Knowledge Advantage

Conclusion:A major change is needed in the structure and management of strategic ESP relationships.

Value is a term that is often used, but less often understood. Gartner defines value assomething of perceived importance (needs and wants), for which you are willing to pay.Worth can be established through multiple currencies. For example, quality of service,responsiveness, customer satisfaction and ability to innovate. By definition, then value isdetermined by a buyer (service recipient), not a seller (service provider). In a chain of buyersand sellers (service recipients and service providers) the movement of value is from the leftto the right. Each step in the chain adds value to the subsequent step. What is key is that acompany must receive maximum value from its suppliers if it is to deliver maximum valueto its clients. In a long-term, strategic ESP relationship, the key component of value —something of perceived importance — will vary from onetype of deal to the next.


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Strategic Business Imperative:Organizations need to understand the mix of factors and behaviors that constitutesa "good deal" for them and for their supplier(s). To ensure that the deal stays on track,all of the factors need to be regularly assessed. All too often, assessments focus onservice levels and price alone and assume that the other factors will take care ofthemselves.

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Service Recipient Service Provider

Alignmentand Vision

Contract andRelationship

CustomerSatisfaction

Service Levelsand Pricing

Do WeHave aGoodDeal?


Correct communication of the contribution of IT to its sponsor organization has become essential. Aseries of technically focused charts will do little to inspire confidence. Itis now important to express all performance measurement in business terms. In a long-term(out)sourcing deal, the key question is: "do we have a good deal?" Gartner research has identified thefollowing four high-level areas that constitute a good deal.• Alignment and vision: Can both parties meet their strategic and operational goals, and respond to business and technology changes?• Contract and relationship: Does the management of the contract and the relationship meet the needs of both parties?• Customer satisfaction: Are business unit users and managers satisfied?• Service level and pricing: Does the scope of work, delivered service and price, meet business requirements and are they reasonable?The first step in answering the question "do we have a good deal?" is to understandthe nature of the deal (for example, utility, enhancement or frontier) and the relative importance ofeach of the four factors.


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Tactical Guideline:A well-designed outsourcing deal will make the provision for adjusting the performancecriteria as the classification of the relationship (for example, utility, enhancement andfrontier) changes.

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EnhancementUtility Frontier

Alignment and Vision

Contract and Relationship

Price and Service Level

Customer Satisfaction

Criteria


The four factors that define a good deal — alignment and vision, contract and relationship,customer satisfaction, and service level and pricing — will vary in importance from deal todeal, and as the relationship develops. For a utility deal, service level and price will be thedominant factor and will typically carry a weighting of more than 50 percent. Customersatisfaction will typically focus on the end user. An enhancement deal will place moreemphasis on the relationship and on contract flexibility (value will be more dependent onsuccess in these areas than in a utility relationship). Customer satisfaction will focus onbusiness managers, as well as end users. Price and service level will continue to beimportant, but will carry a lower overall weighting than for a utility deal. In a frontier deal,alignment and vision will be critical to success. The deal will be focused on business benefit,or the development of new business, with the direct price of the services delivered lesscritical to the meaning of value. Customer satisfaction will include business executives. Thecombination of the four factors, and the relative importance assigned to each, represent a setof common goals for both the enterprise and the ESP.

18


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The New CriticalCompetency

BuildSourcing

GovernanceCapability

Establish aSourcingStrategy

Manage theRelationship,

not justthe Contract

Identify theChallenges;

Internallyand

Externally

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RECOMMENDATIONS

1) Identify your key challenges, and those of the IT marketplace

2) Strategic Sourcing must be considered a core capability and built in your organisation.

First Action item: Analyse your sourcing strategy

Second Action item: Plan and execute tenders as key projects

3) Focus on building Sourcing Governance within your organisation. It is the engine which will run and enhanceyour strategy and your capabilities

4). As deals become increasingly complex, and strategically important, it is crucial manage the relationship withyour service suppliers - not just the contract.

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