Governments Look to Outsource HR, IT Functions

August 10, 2004 ( - National and state governments are rapidly joining the private sector in outsourcing key human resources and other functions.

In the United States, the government outsourcing trailblazers include the US Transportation Security Administration, the State of Florida, Detroit Public Schools and the Texas Health and Human Services Commission. Overall, between 10 and 15 states are considering outsourcing some functions, according to a Conference Board report sponsored by Accenture HR Services.

Specifically, governments are looking at outsourcing processes and services such as:

  • payroll and benefits processing
  • Web sites and call centers
  • vendor management
  • HR process redesign
  • service delivery strategy
  • s taffing and recruitment
  • d ata issues
  • p erformance benchmarking
  • d esigning and building IT infrastructure.

Governments are attracted to outsourcing solutions for three main reasons: cost savings, reducing capital spending, and transforming fixed costs into variable ones. For example, IT systems are reaching the end of their life span and legacy computer systems, which are 25 years old, need to be replaced. With growing deficits and a reluctance to increase taxes, many states are looking at capital outlays of $80 million to $100 million to replace these systems. Financing technology upgrades is too costly for many government organizations, given the rapid rate of technological change and persistent cost-reduction pressures, the report found.

However, the study notes that governments must carefully weigh negative consequences, such as job losses, skills transfers, unemployment costs and the disruption of local services against the promised benefits.