Lessons Learned

IT outsourcing activity in higher education in 2001 is estimated to be $782 million, compared with $57 billion for the U.S. commercial market and $6.4 billion for the U.S. federal government market. These estimates include business process outsourcing (BPO) and processing services outsourcing activities. While higher education IT outsourcing activity is forecast to grow at a compound average growth rate (CAGR) of 17 percent for the period 2001–2006, commercial outsourcing activity is expected to grow at a CAGR of 19 percent, reaching $117 billion by 2005. Federal expenditures will grow by 16 percent, to $13.2 billion. Like the government, higher education bears special burdens to assure the security and confidentiality of constituent and stakeholder records. Banks and other securitysensitive commercial organizations have succeeded in overcoming their reluctance to use outsourcing vendors, so higher education will likely become increasingly experienced and comfortable with using external service vendors as well. Importantly, higher education will need to balance the rising cost and risk of attempting to operate complex IT infrastructures internally against opposition from faculty and staff stemming from ideological differences regarding an institution’s responsibility to its employees and its noncommercial identity. These pressures may become acute in collegiate markets, particularly among associate’s and baccalaureate institutions, where IT labor shortages are already pronounced. Research universities will likely continue to enjoy a broad range of choices relating to self-operation or outsourcing. Nevertheless, they will likely continue to experiment with IT outsourcing in commodity service areas so that they can focus highly skilled internal resources on innovative—and difficult to replicate—application development activities. The challenge to IT vendors will be to learn how to meet the needs of this exacting customer in the same way that they have learned to meet the special needs of other vertical industries. Because it is relatively small, higher education’s market for IT outsourcing will remain unattractive to many of the largest and most capable commercial outsourcing vendors; so the cycle continues. The extent to which the IT vendor community assigns a priority to addressing higher education’s unique mandates will largely determine higher education’s acceptance of IT outsourcing on a broader scale. Shared IT services among colleges and universities— with or without vendor support—may be a promising strategy for addressing some of