Opening Keynote by Mr. Stephen Mak, Deputy Government Chief Information Officer, at the 2nd IT Outsourcing Conference & Expo
25 - 10 - 2005
Mr Fung, Distinguished Guests, Ladies and Gentlemen,
Good morning! I am pleased to address you today at this 2nd IT Outsourcing Conference and Expo. If my memory serves me right, I spoke on a similar occasion last year and, like you, I find that the notion of IT Outsourcing has taken on some new dimensions. I should like to share some of my thoughts with you.
[Outsourcing in general]
Catalyzed by international trading, the business environment has become increasingly competitive nowadays. To strive for survival or sustain competitiveness in market, organizations have to work on initiatives to reduce costs and enhance efficiency. Outsourcing has been an important strategy to help achieve these organizational goals.
Through outsourcing, organizations can farm out non-core functions to outsourcers, enabling the organizations to re-prioritize and re-direct their resources on their core areas of competency. With this value preposition, it is common to see outsourcing being enlisted on the standing agenda of most organizations today. In this regard, from what I can observe government departments are not immune to competitive forces. In fact, in some cases government faces some unique and more challenging situations than the private sector when it comes to outsourcing. These include the procurement framework, the business and contract models, terms of payment, and measures to address the issues arising from surplus staff as a result of outsourcing.
[Outsourcing Trends]
Let me spend a few minutes on the outsourcing landscape as we see it. Over the years, the classical model of IT outsourcing, e.g. project-by-project outsourcing, has taken on new varieties, including organizational (i.e. the outsourcing all IT activities of an organization vis-à-vis project-by-project); and business process outsourcing (i.e. the outsourcing of business process together with the associated IT activities). With the maturity of the outsourcing market and the increasing integration between business and IT, we see there is an increasing trend for organization to consider business process outsourcing. With these additional choices, the approach to outsourcing in a given organization has become necessarily complex and requires in some cases careful crafting of contracts and extensive due diligence exercises.
We also see a growing trend of outsourcing taking place in this part of the region too. In a recent forecast by Gartner, it predicts that the Asia/Pacific IT services market will grow at a compounded annual growth rate of 9 percent through 2009, outpacing the global growth rate of 5.5 percent. We see the growth mainly coming from countries such as China and India which have been actively developing their outsourcing markets in the recent years. The local ICT industry, on the other hand, is ramping up its efforts to get a piece of the action and make Hong Kong a place of choice for outsourcing (by other countries), especially in the areas of software development, integration, data centre operations and facilities management.
[Outsourcing in Government]
We are however not lagging behind in Hong Kong. As you may know, the Hong Kong Government has been upholding the principles of "Big Market, Small Government" and "Market Leads, Government Facilitates". We have been outsourcing government projects and services to various industries in cases which are considered appropriate and would bring value for money.
[IT Outsourcing]
In the area of IT, the Government has been leading by example. We have started actively outsourcing our new IT projects since 1998, with the first introduction of our IT outsourcing policy at that time. We achieved in making a steady increase in outsourcing in the past years. The current percentage of new Government IT projects being outsourced stands at around 95%. I should like to update you on a number of recent initiatives in IT outsourcing in Government.
[ITPSA]
The high percentage of outsourcing can be attributed to the success of the various Outsourcing Arrangements institutionalized in the Government. An important one of these is the Information Technology Professional Services Arrangement (or the ITPSA in short) which is a standing offer arrangement for the acquisition of various IT services such as Programme/Project Management, System Development Life Cycle services, on-going maintenance and support services, etc. Through ITPSA, 76 Government departments have successfully outsourced over 550 work assignments in the past 3 years. The total value of assignments outsourced has exceeded HK$460 million.
[The SOA-QPS]
The well-accepted ITPSA will expire in December 2005. Building on the success of the ITPSA, and having taken into account industry and user feedback, we have developed a new arrangement, called the Standing Offer Agreements for Quality Professional Services (or SOA-QPS in short), to dovetail with the expiry of the ITPSA contracts.
Compared with the existing arrangement, the SOA-QPS will have improvements in a number of areas that may be of interest to the industry :
First, the new arrangement will enable the participation of more suppliers. The number of Standing Offer Agreements (SOAs) will increase from the current 23 to around 40.
Second, we will put more emphasis on quality. We will introduce quality scoring in the proposal selection process. We will also put in place a quality scoring system that assesses and reflects the capability and on-going performance of individual contractors.
Third, we will encourage innovation by allowing contractors to propose new staff category in addition to those specified by government.
Fourth, we will devise incentives to encourage prime contractors to increase the engagement of their sub-contractors, thereby enhancing the latterˇ¦s participation in Government projects. We will ask the principal contractors to include sub-contracting in their continuous improvement plan and will take sub-contracting into account in the quality scoring system.
Last but not least, to facilitate participation by Small Medium Enterprises (SMEs), we will introduce monthly/regular payment options and waive performance bonds in some circumstances with an aim to alleviate their financial burdens.
[The CCC Outsourcing Initiative]
Apart from enhancing our existing outsourcing arrangements, we also seek to expand our scope of outsourcing. Currently, we are finalizing a contract to outsource the operation of one of our major data centers, which is the first of its kind in Government. We plan to outsource the hosting service of 10 information systems currently being operated at our Central Computer Centre.
We expect that, through this outsourcing project, we would improve operational efficiency and effectiveness in the delivery of hosting services. We also expect to achieve savings in operating costs, and to foster the development of the IT industry in the provision of data centre services. The outcome of this exercise would also provide a good reference for us in formulating a long-term strategy of data centre service provision in the Government. Our ultimate goal is to maximise the use of private sector resources where they are capable of delivering the capacity, service level, and quality of service required by Government, while at the same time relieving government bureaux and departments from the operational chores and executive time in managing data centres, especially in cases where there is already a mature and effective market locally.
[Next wave of e-Government]
The various outsourcing arrangements mentioned above help create an environment conducive to the development of various government-wide initiatives. A notable one of these in the pipeline is the Next Wave of e-Government programme.
We launched our e-government programme in 2001. By now, we have already put in place the required infrastructure, and provided an e-option for 90% of the public services amenable to the electronic mode of delivery. In the next wave, we will deepen our e-government coverage and sharpen our focus on service quality and effectiveness. Specifically, we plan to achieve the following objectives :
- to enable citizen-centric delivery of e-government services and enhance service quality, so as to increase citizens' satisfaction and utilization of e-government services;
- to create a strong e-government branding for Hong Kong; and
- to facilitate smooth re-provisioning of ESD services ahead of the expiry of the ESD contract in January 2008.
The next wave of e-government would give rise to some new IT projects in government. In pursuance of our outsourcing policy, this would mean more outsourcing business opportunities in the market. We have set up a dedicated team to take forward our work programme for the next wave of e-government applications, and in due course (we expect by the middle of 2006) we will approach the market for expression of interest in facilitating the planned development of service clusters and public-private-partnership opportunities.
[Conclusion]
As set out in our Digital 21 Strategy 2004, the Government will continue to press on e-government strategy and expand our outsourcing policy. We believe this will generate business opportunities for the private sector.
Outsourcing has been proven to be a viable form of business management. To reap the expected benefits, it is essential to have a good understanding of the competitive edge that outsourcing would bring about and to get the outsourcing arrangement right. A focused conference like the one today will surely be a good opportunity for participants to exchange views and share experiences on a wide range of relevant subjects. I congratulate the organizer for staging this event, and wish the Conference every success.
Thank you.
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