Public Sector CIOs Cash In, Become Outsourcing Consultants

Over the course of two days, three former public sector CIOs have resurfaced at outsourcing advisory firms.

The names will be familiar to anyone who watches the outsourcing space. Michael Moore, former CIO for the County of San Diego, and Larry Olson, former CTO for the State of Texas, joined TPI, the largest outsourcing consultancy in the country. And Karl Kaiser, who recently resigned from his position as CIO and Assistant City Coordinator for the City of Minneapolis, Minn., joined EquaTerra’s public sector advisory group. The three are members of a thus far tiny club of public sector IT leaders who instigated large outsourcing deals aimed at transforming IT services delivery in their respective governments.

The announcements from TPI and EquaTerra (which was formed by former TPI executives) came a day apart.

Coincidence? Perhaps. Surprising? No.

Back when I was reporting a story about how big outsourcers were trying to thwart their customers’ attempts to benchmark their prices, I was hoping to speak with Olson. The state of Texas had recently inked a contract with IBM that included what appeared to be a pretty strong benchmarking clause. During my reporting, Olson resigned. I spoke with his successor and got some good information for the story. But I wondered about the timing of Olson’s departure. Was the deal in trouble? That didn’t make much sense; the ink was barely dry. But as I continued reporting, one benchmarker/outsourcing advisor told me, “Just watch. He’s going to TPI.”

Sure enough, six months later, I get the announcement from TPI in my inbox.

That same prescient source has his own theories about CIOs who go to work for outsourcing consultancies. It’s an open secret in the outsourcing community that these companies make their real money not on shepherding the outsourcing deals themselves, but on getting their consultants hired on full time (and for a long time) to manage the relationship for the customer. It’s coarsely referred to as the “butts in seats” model. At one time, says the source, more than a third of one outsourcing advisor’s workforce was managing the GM-EDS deal.

According to this source (who, it must be stressed, will not say this on the record because he, too, works in various capacities on these same deals), the hiring of Olson, Moore, and Kaiser is just another part of the

outsourcing advisory business model. “It’s not about, ‘Hey, you wowed us, we want to hire you,” he says. “It’s part of their plan to cement long term relationships. The real money isn’t made helping people outsource, the real money is in being there forever.” So, says the source, the outsourcing advisor woos away the one person who knows more about the deal than anyone (the CIO who signed it), thus insuring the IT organization’s need for continued consultation from the advisory firm. (Which, getting back to the GM, makes you wonder why these guys haven’t stolen Ralph Szygenda away. But I digress.)

Whether you buy the theory or not, the business logic behind it seems to check out. And even if you don’t, it’s no surprise that outsourcing advisors want to bring in CIO talent. They can be as valuable as the ex IBM-ers, EDS-ers and outsourcing lawyers that tend to populate the advisory firms. “The consulting practices have for years attracted a good many CIOs, or immediate subordinates of CIOs,” says George Kimball, a partner with law firm Baker & McKenzie who represents outsourcing customers. “Many of them make excellent consultants. Their experience can be very valuable to clients.” And their contacts are gold to outsourcing consultancies: every CIO brings his own network of CIO peers.

Of course, TPI and EquaTerra’s big public sector hires reveal as much about the presumed direction of the outsourcing market as anything else. Public sector outsourcing is the new thing. Again.

“One of the hot market areas is going to be state and local and federal outsourcing,” says Daniel Masur, a partner in the IT and outsourcing practice of Mayer, Brown, Rowe & Maw. “There have been only a handful of these deals to date, but there have been some very successful ones.” Masur says he’s heard rumors of a number of other public sector IT organizations actively pursuing the outsourcing option. “We are all fighting for talent, and technology changes faster that we can move our organizations,” admits Gary Clarke, CIO for the State Bar of California. “The costs of IT and risks of failure are increasing, and outsourcing helps.”

Thus, “every resourceful advisory firm is adding people who have credibility in that community,” says Masur. They can use all the help they can get. Public sector outsourcing is whole different proposition than its private sector

cousin. And for each of the handful of successful deals Masur refers to, there’s a cautionary tale. When it comes to public sector outsourcing, the pendulum seems to swing back and forth. In the pages of CIO magazine, we have followed the San Diego County deal first as a sign of things to come, then as a debacle, then as a potential turnaround tale.

But Masur and others insist, this time it could stick. “There’s a fundamental paradigm change going on at the state and local level,” he says. “They’re working to adopt more commercial practices.” We’ll have to wait and see what happens at the federal level. “The federal government traditionally has not done very well on outsourcing,” admits Masur.

Then there’s the career path for the public sector CIO himself. There’s no denying the challenges facing an IT leader in government. “As a state or county CIO, you are under a microscope, your income is governed, and there are very few, if any, perks,” says Clarke of the State Bar of California. Burnout is almost assured.

But where do public sector CIOs go when they want out? You can do the obligatory year or two in government channel work at a software or hardware house, says Clarke, “but the real opportunity for growth has to come from sourcing providers and sourcing consulting.”

And then there’s the payday. Says another outsourcing consultant (who works for neither TPI nor Equaterra): “They are probably throwing a LOT of money at these guys.” Will the CIO of Virginia be next?

Stephanie Overby

Senior Editor

CIO magazine and CIO.com