Luncheon Speech by Mr K H Lau, Director of Information Technology Services at the American Chamber of Commerce in Hong Kong Information Technology Committee Outsourcing Seminar on 16 - 3 - 1999

Ladies and Gentlemen,

Thank you for inviting me to today's luncheon to share with you the Hong Kong SAR Government's new strategy in outsourcing our IT projects.

As you know, Government has been actively promoting the use of IT to upgrade the quality of our services to the public. Notwithstanding the falling prices of computer hardware, Government's annual spending on IT has been on a continuous upward trend for the past six years, and stood at $1,870 million in 1997-98.

Like many other large corporations in Hong Kong, a great number of Government's computer applications have been developed in-house by my Department - the Information Technology Services Department (ITSD). However, in-house application development is possible only when the demand for IT services within government can be supported by in-house resources. The uptrend in Government IT spending reflects the continuing efforts by departments to improve their services to the public and to increase productivity through the greater use of IT. The consequential rise in demand is so great that the required services simply cannot be delivered in a timely manner. Our solution is to adopt a more aggressive policy in outsourcing Government IT projects.

Currently, ITSD employs three methods of service sourcing. They are -

• In-house servicing which involves the deployment of our staff to perform IT work;

• Contracting-in by which contractors are engaged into the organization to supplement the in-house resources; and

• Contracting-out - by which we pass the work to contractors, but retain the day-to-day management responsibility in-house.

In order to meet with the fast growing demand for IT services within Government, we shall adopt a more aggressive outsourcing policy than the current contracting-out arrangements. With this policy, we aim to enlarge the delivery capacity for IT services, to accelerate delivery of the IT solutions, and to create a sufficiently large IT market to facilitate the development of and investment in the local IT industry. Last but not the least, as the daily management responsibilities rest with the external service providers, in-house resources can be freed up for other new IT initiatives.

Under our new outsourcing strategy, we will adopt an open approach to working with the suppliers, making it a win-win situation for both the Government and the suppliers. Our strategy will be based on partnership with the external service providers. Under this partnership approach, we would be flexible on how the delivery might best be carried out by the suppliers. We will exploit the strengths of both our own IT professionals and the wider IT services community to approach issues jointly, resolve problems together and achieve success mutually. We shall focus on output instead of input, and will jointly establish agreed service standards as output deliverables under contract.

Our new strategy for outsourcing will focus on a number of issues -

• The first is the need to manage risks at an appropriate level by adopting a "hands off but eyes on" approach.

• The second is to realise and demonstrate the benefits mentioned earlier. Thus we intend to start with a number of departments which are ready and willing to take on the challenges of outsourcing.

• The third is the selection of priority projects for outsourcing in order to test out the strategy. For this purpose, the application maintenance of existing systems and application development of new systems will be considered first.

• The fourth is to establish the right IT management framework for outsourcing, a framework which will allow the suppliers to deliver services to the users directly and to empower the users to take on day-to-day control of the management of these services.

• The last but not the least issue is to formulate a programme for outsourcing our IT activities. Our plan is to start outsourcing the application maintenance activities currently performed in-house by ITSD in 1999-2000, and to outsource over two-thirds of all new IT projects in Government by 2001.

There will be 3 different types of outsourcing arrangements under the new strategy - departmental or project-based; multi-departmental; and government-wide.

The departmental and project-based outsourcing arrangement is suitable for heterogeneous requirements, such as application development and maintenance, for which the requirements are unique to a particular department or project.

The multi-departmental outsourcing arrangement is suitable for homogenous requirements across a number of departments. This arrangement is applicable to departments in similar business areas, and with data sharing and function sharing opportunities. Examples are departments which share geographic information.

The government-wide outsourcing arrangement is suitable for homogenous functions, e.g. desktop installation and support, for which the requirements are common across most or all departments within Government. A recent example of this type of outsourcing arrangement is the Government Office Automation Support Service which was outsourced to the private sector early this year.

The activities that can be considered for outsourcing can generally be classified into 5 categories - application development/maintenance; network support; desktop support; helpdesk support; and data centre operation. Initially, priority will be accorded to outsourcing application development and maintenance activities which usually have the greatest demand for resources.

ITSD will play an important role in implementing the new outsourcing strategy. We will continue to provide advisory support to the users within Government on government-wide IT related issues. We will be working jointly with our users and the service providers to deliver quality deliverables to the public by making good use of the existing technologies. I am confident that this partnership will result in greater benefits to the public.

With an aggressive outsourcing policy, the Government hopes to be able to create a market of sufficient size to encourage the further development of the local IT industry and to attract more investment in the industry. And for ITSD, we look forward to working in partnership with the service providers to make our outsourcing programme a success.

Thank you.

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