Multinational IT service providers face a rethink of relationships with Australian channel companies following the Federal Government's decision to restructure its outsourcing policy.
The move comes in response to a review of the "implementation risks" associated with the Federal Government's IT outsourcing policies by former head of the ASX Richard Humphry in mid January, and was met with enthusiasm by local service providers.
The proposed changes include the splitting up of department "clusters" and increased departmental autonomy when it comes to the nature and extent of the outsourcing.
However, the Government will not relinquish control over the progress of outsourcing among its departments. According to the DOFA press statement, "agency performance will be monitored and reported publicly through the Public Service and Merit Protection Commission".
Ironically, the about face in government policy has resulted in the adoption of an outsourcing model originally suggested in a 1997 ITTPAC (Information Technology and Telecommunication Policy Advisory Committee) report. The cluster model, proposed by US-based consultancy firm Boston Consulting Group for the tidy sum of $6.5 million, was criticised by many in the local IT industry for favouring large US-based companies.
Peter Kazacos, managing director of ASX-listed outsourcing company KAZ Computer Services, describes the changes as "good news".
"The model that was in place was the all-or-nothing approach. It favoured the multinational companies, with only small bits of business farmed out to Australian players," Kazacos said. "Under the new scheme, we are far more likely to be able to compete for a tender."
In fact, Kazacos believes the policy changes have now placed the multinational outsourcing companies on the back foot.
"They will have to prove that they can compete on a different level if they are going to continue in the race," Kazacos said.
As with many in the channel, Steve Dixon, managing director of mid-size integrator Full Spectrum, believes the Government's cluster approach to outsourcing was particularly detrimental to Australian small and medium IT providers.
"The Federal Government's outsourcing policies have had a negative effect on business across the board, except for the big American companies." Dixon said. "There has been no return to Australian business - we have just lost business everywhere."
Max Goldsmith, general manager of storage integrator Powerlan XSI, said his company was one of many small Australian IT companies that lost business through the implementation of the Government's outsourcing policies.
XSI had enjoyed a strong presence in the Canberra market, but the Government's failure to renew its IT supply contracts dealt the company a heavy blow. According to Goldsmith, most Government business has now gone to large multinational companies.
"XSI specialises in data storage and the Government wants to outsource to a company that can organise all of its IT needs," Goldsmith says.
XSI was told by the Federal Government that it could do nothing to help them and was advised to contact outsourcers in the process of bidding for tenders.
According to Goldsmith, these large companies "don't want to know about a small Australian business", regardless of its expertise or track record, preferring to deal with large international companies.
"If they want storage they go to EMC's Australian branch. They like to stick with the multinationals where the relationships are international," Goldsmith said. "They just don't want to take the risk on a small company even though we have been in business for 17 years and have an excellent reputation."
Full Spectrum's Dixon was made painfully aware of the fickle nature of the relationships large outsourcers established with local companies when their contract with EDS was terminated shortly after it won a Federal Government tender.
"The big companies have to be seen to be working with the locals in order to fulfil their initial tenders," Dixon said. "But, as soon as the paper work is out of the way, they stop sending you business."
Maryanne Taylor, EDS's senior executive of global advertising marketing communications, defended the position of multinational IT outsourcing and service providers.
She explained the company has contracts with a number of Government departments such as the Australian Taxation Office (ATO). As part of its ATO agreement, EDS must contract out the work to more than 29 per cent of Australian SMEs. She says this is over and above what was initially agreed.
"We put a lot of resources back in to the Australian community and SMEs. We really promote Australian SMEs . . . and EDS primarily employs Australians, so we use their skills."
Photograph: Full Spectrum Managing Director Steve Dixon.