Information systems outsourcing: a study of Florida cities.

• Author: Thai, Khi V.
• Position: Results of survey on Florida cities' budget for information systems outsourcing

Approximately 10 percent of total information systems expenditures are outsourced by Florida cities responding to this survey. While differing trends are evident between large and small cities, all show a proclivity for contracting out application development and maintenance.

An information system (IS) using information technology in business processes consists of six major functions: data processing, operation systems, network and telecommunication, end-user support, application development and maintenance, and systems planning and maintenance. An IS quickly becomes obsolete as technology changes rapidly; thus, a major issue is how can IS be managed effectively. A strategy increasingly being used for managing IS resources is outsourcing.

In IS outsourcing, the entire IS department or separate IS functions within the IS department are turned over to an outside provider. The outsourcing or contracting-out concept is not a new managerial technique in either the private or public sectors; however, IS outsourcing has become popular in recent years due to reported successes in the press, most notably perhaps when Kodak outsourced its data operation center to IBM in 1989, resulting in an evolving concept of IS as a commodity service.(1) Prior to the 1989 deal, a universal perception of outsourcing was that only small organizations which could not manage in-house operations resorted to outsourcing.(2) The large contract between prominent companies had a profound effect on IS outsourcing as a strategic management tool for other industries: it changed the industry's perception of outsourcing from a tacit admission that these companies could not run their own IS functions to the use of IS outsourcing as a strategic management tool that maximized a firm's value by reducing IS costs while maintaining IS integrity and quality. Because of its visibility, that outsourcing contract in fact legitimized IS outsourcing as a strategic management tool and encouraged imitative behavior among large organizations as an alternative IS services arrangement.

Survey Findings

In late 1997, the authors mailed a survey questionnaire to finance directors of all 241 cities in the state of Florida; of the 241 cities, 47 are of mayor-type governments and 194 manager-type governments. Returned were 104 usable responses (or 43 percent): 72 responses from manager-type and 14 responses from mayor-type governments. Eighteen cases could not be classified.

The results of this research indicate that city governments in Florida allocated 1.7 percent of their annual budget for IS expenditure. Of this total IS expenditure, 10.2 percent is for IS outsourcing. Breakdowns of survey data by governmental type, size of government, and functions outsourced are explored in the following sections.

Governmental Type. The difference between the two types of governments, council-manager and mayor-council, has been the subject of much research. Some research concludes that the manager-type government is the more efficient of the two...