When Outsourcing Didn't Work, This School Canceled the Contract

It's a tough place to be. Outsourcing your IT systems can help you save on expenses, time and effort; but it also removes you from the day to day development of your IT strategy. Although it's possible to work with your service providers to develop new products and services, sometimes you won't be able to move as nimbly or be as flexible as you could be on your own.

The issue becomes even more complicated if you're tied to a government budget and subject to government regulations, like Katy Independent School District in Katy, Texas. If companies make the wrong IT moves, they have the chance to make those losses back down the road. But if a school district makes the wrong choices, there's no hope for a big quarter that can make up the difference.

"There's a whole lot of dynamics in the education environment," said Lenny Schad, deputy superintendent for information & technology services for the school district. The school counts 45,000 students and 6,000 staff members in 44 schools across 60 locations and has an annual budget of $365 million.

The district faced the to-outsource-or-not question in 2003. The previous year, the school signed a $1.5 million IT outsourcing agreement with HP. The deal, renewable annually, included technical support for the district’s existing equipment as well as consulting and system integration, customer support and overall outsourcing services. HP, which at the time was working to expand into the education market, said the agreement would help Katy "design, deploy and manage its IT environments."

Fast forward to 2003. Katy faced two major issues. First, HP wasn't providing satisfactory services. Second, the school's superintendent decided the district needed to completely overhaul its IT infrastructure, systems and processes. The combination of these two issues caused the school's senior leadership to reconsider its initial decision to outsource.

TIP #1. Make sure your service provider really does understand the nuances of your environment — especially those that affect service delivery.

As for HP, Mr. Schad said the company's offerings were geared more toward the corporate world than the education world. For example, he said HP used a business delivery model that assumed its customers (such as the school district's teachers) would be accessible via phone throughout the day for follow-up calls, extra training or questions. Obviously, teachers can't set aside an hour for a training session or answer a phone call if they have 30 students waiting to learn about history or math. Mr. Schad said HP wasn't "user focused," meaning that it didn't take into account the needs and desires of its user base. Service providers need to be aware of the special needs and requirements of their chosen markets, Mr. Schad said.

"You have a workforce who cannot be pulled during the day, a workforce that goes away for two consecutive months in the summer, as well as [being] under contract for specific hours each day," he said. "All of these factors play a significant role in utilizing subject matter experts, implementation and training."

TIP #2. If your organization is undergoing a major transformation, consider whether the service providers you're working with will help or hinder the goals.

As for the overhaul of the school district's IT system, the school's senior leadership wanted to make computers an integral part of the education process rather than a tool only used during breaks. It's a major task for any entity, but an especially daunting one for a school district.

"When we started on this, we decided we needed to change the face of technology in the district," Mr. Schad said.

Specifically, the district wanted to renovate its fiber optic network completely, switch from Novell to Microsoft software, and implement a managed service environment. Under the new managed service architecture, software updates could be pushed to all of the district's 15,000 computers overnight instead of having HP technicians install the software on individual computers. The architecture also locked the computers down to protect them against from unauthorized software installations (such as a student installing a virus).

"We just completely redefined what our support system needed to be," Mr. Schad said.

However, the key part of the problem was that the school district didn't really know exactly what it wanted the updated system to look like. Although Katy had some broad goals it wanted to meet, it didn't know just how it would implement them. Mr. Schad said IT in U.S. schools lags at least 10 years behind that of the corporate world, which meant that the school district would be treading relatively virgin territory. There was no template to follow; Katy would have to make it up as it went along.

"It didn't make sense for me to negotiate an outsourcing deal when we were still trying to figure out how the organization was going to be structured," Mr. Schad said. "If you continually have to redefine the scope and service levels within an outsourcing agreement, you will not save money. I'm real apprehensive of a core outsourcing agreement."

Mr. Schad warns that you have to have a good idea of what you need from an outsourcing vendor before you go about putting ink to paper. A successful IT outsourcing situation is usually based on stable IT needs. That necessitates figuring out your IT strategy before you bring in someone else to handle it.

TIP #3. Make sure you have the leadership in place in-house with experience applicable to the challenges you'll be facing in making the transformation.

After crunching the numbers, evaluating its options and discussing the issue internally, the school's senior leadership finally made its decision: bring the IT functions back in house. Katy then hired Mr. Schad, who hails from the corporate world, to help with the process. Mr. Schad had no previous experience in education, but had worked on previous corporate outsourcing agreements, shared services and the re-integration of formerly outsourced employees.

TIP #4. When writing your contracts, consider the termination aspects — no matter how short the term.

Once the school district decided to bring its IT back in house, the question then became how to do it. Mr. Schad said the initial process was relatively painless. The HP outsourcing agreement provided for a 90-day notice of termination clause, and Katy simply opted to terminate. The district rehired about a dozen former field engineers who had moved to HP as part of the original 2002 agreement and took over the outsourced help desk and field service functions. All of the former staff returned to Katy and retained their former salaries. Mr. Schad said they didn't have to relocate.

"It was a logical break," Mr. Schad said. "The [HP] contract was really just for support."

However, Mr. Schad said the real challenges began when Katy started working on its revamped IT architecture. The work was difficult and complicated — and too much for Katy's IT engineers. The solution? Contract workers.

TIP #5. Backing away from outsourcing in one form doesn't preclude outsourcing in another form.

Mr. Schad said Katy hired consulting firm Xpediant Solutions to help upgrade its IT systems. The school's deal with the firm includes several dozen contract workers who can handle issues ranging from servicing IP phones to working with fiber optic cable. Mr. At the time of this writing, Mr. Schad said the school district employed about 35 Xpediant contract employees (mostly systems or network engineers) and about the same number of in-house IT staff (mostly field engineers and management).

Mr. Schad said the school district selected Xpediant from among a number of companies bidding for the school's business because it could offer a service contract rather than the standard per-person type of contract. Under the terms of the service contract, Xpediant would provide all the necessary help Katy needed, be it one or 100 workers. Katy paid the same rate regardless and doesn't have to pay for overtime. The contract staff consists of full-time Xpediant employees, and Mr. Schad said they are on-site at the school district every day.

"This type of contract is ideal for organizations that have many projects under tight timelines and are in the midst of rapid change," Mr. Schad said. "If an organization is not in the midst of rapid change and does not have many projects in the works I would suggest looking into the standard per-person type of contract."

Contract workers can "help you get it done right and quickly," Mr. Schad said.

TIP #6. Part of the role of contract help should be coaching internal staff.

Katy's goal is to use the contract workers to educate its in-house staff, thus limiting its reliance on the outside help. Mr. Schad said such training occurs on a daily basis in all parts of the operation. He said Katy might also hire on some of those contract workers, making them part of the district's permanent staff, but that the details of such a transition are still being ironed out.

As part of its IT overhaul efforts, Mr. Schad said Katy ISD is using what it calls Instructional Technology Facilitators in each of its different campuses. These ITF employees work with teachers to implement new technologies. Mr. Schad said they have an understanding of the "personality" in each campus, and can therefore better help and train teachers. Mr. Schad said this hands-on, personal approach is far superior to HP's corporate-focused tactics.

However, not everything has gone smoothly.

"We are very aware of change and how much the campuses can absorb at one time," Mr. Schad said. "In my first year we pushed too many new systems and processes and struggled the entire year."

Contract personnel can help you smooth the transition from an outsourced to an in-house operationÑat least until you can get a handle on things. However, Mr. Schad advises that you not entrust your contract help with too much responsibility if the ultimate goal is to bring most of those operations in house. He foresees a time down the road when Katy Independent School District could again outsource some or all of its IT operations. But it would need to be in a stable place to do so, and it would need to find the right partner to do it.

Useful Links:

Katy Independent School District
http://www.katyisd.org/

Link to "Taming the Technology Tiger," a presentation Lenny Schad presents on his school district's technology evolution:
http://www.katyisd.org/files/services/technology/KISD_
NSBA_Taming_Technology_041605.ppt#256,1,Taming the Technology Tiger

Technology Evolution Scorecard, a chart that allows you to give a report card evaluation of the current state of your technology (applicable to any kind of organization!):
http://www.katyisd.org/files/services/technology/
TechnologyEvolutionScorecard.pdf

Xpediant Solutions
http://www.xpediant.com/