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Outsourcing IT in Higher Ed: A Necessary Evil?

When an American company outsources work to an Indian firm, plenty of IT professionals bemoan how management is willing to bury middle-class jobs in pursuit of profits. But what if the organization doing the outsourcing is a public university?

News that the University of California San Francisco plans to outsource many of its technology functions to an India-based service provider appears to have sparked a blaze of concern that soon the entire UC system could adopt the same contract. While offshoring opponents predict that the plan could set off a domino effect of other colleges and universities following suit, institutional leaders appear to view the UCSF move as an individual decision made for strategic reasons — no different, really, from choosing any kind of service delivery.

According to reporting by Computerworld, healthcare-focused UCSF is laying off some 17 percent of the institution's 565-employee IT staff starting next February — after those same workers have presumably trained Indian replacements employed by HCL Technologies. Of the 96 positions being eliminated, just over half of the people facing layoffs are permanent employees. The remainder consists of contract employees, vendor contractors and vacant IT jobs that the university will stop trying to fill. Total savings for the five-year agreement with HCL, along with contracts the university already has with Dell and security company FireEye, is estimated at $30 million.

CIO Joe Bengfort blamed the cost-cutting maneuver on a ballooning IT operation whose operating expenses have doubled over the last five years — a result of the shift to electronic medical records and declining reimbursements.

But Bill Balint, CIO at Indiana University of Pennsylvania, said the San Francisco work environment would probably drive any IT leader to consider outsourcing. "If you're in a place where you have to pay high dollars to get and keep IT staff, and you don't have a team of people that are coming and staying for 20 or 25 years, and you don't have the funds to keep them up-to-date and current with emerging technologies, then maybe looking at third parties to provide at least a portion of [the work] could possibly get you better outcomes than staying with the traditional setup," he observed.

He has a point. According to compensation site Salary Expert, the average salary of a network engineer in San Francisco is about $108,147. In Indiana, PA, where Balint's institution is based, the same job earns 26 percent less — an average of $80,076.

On top of the salary disparity, many companies have become more generous in addressing work-life balance, which means IT hiring managers on campus have lost a major differentiator. It used to be that university work offered "a pension, benefits, regular work hours, very little chance of losing your job, a lot of vacation time, a short commute, a low cost of living," said Balint. On top of that, "If somebody was place-bound, they might work for you for less money because they didn't want to drive an hour and a half to some urban area," he pointed out. "Now, because of telecommuting, that impediment isn't as high as it was when I got into the industry."

Then there's just the general trend that IT service delivery is "undergoing a shift," as a 2015 Educause report acknowledged. Whereas more CIOs "generally think" they're still mired in "managing infrastructure and technical resources," by 2025, the focus will be "primarily on managing vendors, services and outsourced contracts," Educause researchers predicted. In other words, IT leaders anticipate that finding ways to shuck the work of touching hardware and software will become more common on their campuses, not less.

The same report shared data from a 2014 Educause Core Data Service survey of CIOs that found that about four in 10 institutions (44 percent) "have outsourced at least one non-cloud service," a practice that varies little by school size. Yet spending on outsourcing was only about 2 percent of the total central IT spending. Much more common were the practices of moving services to the cloud and participating in purchasing consortia, both of which also indirectly lessen the need to employ IT professionals on campus but rarely generate headlines tied to job loss.

IT as a Utility

Balint emphasized that he isn't "thrilled" about the aspects of outsourcing that force people out of their jobs. However, he noted, outsourcing to India isn't much different from choosing cloud services — the route his institution has gone — or managed services. Both of those result in more complexity, "because you have identity and security issues, but you don't own anything anymore."

This is part and parcel of IT still being viewed by many campus administrators as a utility, Balint added. "We have to have it, but we just want it to cost as little as possible. We don't want to hassle with it. We don't want to bother with hiring and performance reviews and trying to figure out pay grades and dealing with [employees'] personal challenges. We're just going to pay somebody and get out of that business."

Thomas Hoover, associate vice chancellor and CIO at the University of Tennessee at Chattanooga, isn't convinced that offshoring equates precisely to other forms of service delivery, such as the use of managed or cloud services. With cloud computing, he said, "You're just spending your money in a different way." Those forms of computing may "cut some of your capital expenses by not having to replace a huge server or cluster every five years, but it's still going to be a cost."

The advantage to the institution, he added, is that "you know what your cost is going to be. It's not going to fluctuate." The disadvantage: "You don't get the customization. You don't get some of the things that can be more innovative."

Hoover has lived through outsourcing before. During a lengthy stint in IT at Pepperdine University, he participated as the school outsourced its help desk to SunGard (now Ellucian). After three years, those services were brought back in house again.

The work being taken over by HCL at UCSF includes data center and network operations, along with unified communications; application maintenance for PeopleSoft, C#, .NET and Java; and "application development augmentation services." Those kinds of services, especially managing infrastructure maintained in the data center, are among the "easier" ones to contract out, said Hoover. The university can set service level agreements "which can be measured for uptime and show whether it's working or not."

Campus IT Gets a Corporate Makeover

The days when IT in higher ed was viewed differently from IT in the business world are gone, said Hoover. "We're definitely changing the culture here in IT to be much more corporate."

In Tennessee, that's due in large part to the state's implementation of "performance-based funding." After a base amount is set aside for operational support, the remainder of state funding is issued to colleges and universities based on their institutional outcomes.

Or, as Hoover puts it, "We are paid not by how many people have their bottoms in the seats during class. We're paid for how many bottoms are in the seats for graduation. In the end it's all about how many students graduate. And when your network uptime is this and your students are able to access your resources, that helps graduation [rates]."

As a result, he added, "We're much more outcomes-based."

That means measuring as much as possible: how many support tickets have been closed, how many project hours have been worked, how much value has been added. "It's no longer enough to say that IT is doing a great job," said Hoover. Now, IT has to prove it with data. "IT is definitely going to change or be changed," he warned. Otherwise, more institutions will try outsourcing, "because they can get much better performance than somebody who just doesn't get it."

Balint says that reduced IT budgets are inevitable. "It's gotten to the place where no matter how good and how much value you add, you have to find a way to bend the cost curve in higher ed." For that reason, he believes, diversity of delivery — not just outsourcing per se — is the trend. "I think you'll see increasing diversity in the way IT is leveraged. More consortiums. More private and public cloud. More people doubling down and saying, 'We're going to outsource everything but we're going to get really involved in data analytics or data modeling or whatever can help decision support. And we're going to put our A-list on there, and that's going to be a high expenditure area for us.' I think you're going to see a lot of that."

Outsourcing Caveats

If you're thinking about outsourcing, "you really have to do your homework," advised UTC's Thomas Hoover. That means calling institutions that have gone forward with their plans and those that have backed away "to get some real facts." He referenced a university in Los Angeles he's familiar with that tried IT outsourcing and shifted gears when it didn't work out: "It took a long time for them to get that credibility back. You've really got to do your due diligence before you make a decision like that."

IUP's Bill Balint pointed out that although outsourcing contracts may provide for predictable costs, those go out the window when something needs revision. The same is true, he noted, for managed or cloud services. Going off plan requires "a change order to the contract. But if you have your own staff, you can say, 'Hey, we're hurting for money this year. We're not going to buy that storage. We're going to delay that for a year so we can that money and put it into another need.'"

User expectations will also determine how well received outsourcing is, suggested Balint. For example, his university has always "invested heavily in application development and engineering. For a mid-size public institution like ours, our percentage of FTE staff that works in that area is probably very high." As a result, users are accustomed to being able to order the "Rolls Royce model" for their solutions, he said. "That's the way it's been all 27 years I've worked here." The benefit is that his IT organization is "like a Lego set." As the priorities change, "We can redeploy people however we need to."

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