Kansas outsourcing decision will cost jobs

A dollar bill being cut into pieces

Posted on Tuesday, December 13, 2016

State of Kansas officials have drawn criticism after it was revealed that plans to retire an IBM mainframe will almost certainly result in job losses. The move follows a state efficiency review which identified the ageing system as a major drain on IT resources and budget.

According to official state estimates, the IBM mainframe costs around $6.38 million annually - $2.4 million of which is labor. Around 40 IT workers are employed to keep the system running.

Outsourcing to the cloud

The Kansas State Legislature has decided that the best option to reduce these mainframe costs is to simply retire the machine in question. All affected agencies – the Department for Children and Families, the Department of Transportation, the Department of Revenue and the Department of Labor – will all adopt an unspecified, cloud-based system instead.

This new system is expected to save up to $1.6 million each year moving forwards. By cutting headcount, software and hardware maintenance and general operating costs (like power and cooling), the State of Kansas will apparently achieve the same IT results for less than $4 million annually.

Are these figures realistic?

These projected savings appear to be based on best-case calculations – there are no provisions for a reduction in productivity while employees get up to speed with a new system for instance. Similarly, Kansas State officials have not announced what the replacement system will be, or how it will interface with other state-owned assets.

It could be that the savings realized are actually far lower in the first year of operation, simply because no one knows where they are actually expected to come from.

Moving jobs and money to Chicago

The State government also faces criticism for their choice of outsourcing partner. Ensanto, who will be providing service and support, are based in Chicago, Illinois – so payments made to an employee will see state funds flowing out of state. There will also be a corresponding reduction in income tax take from employees made redundant as a result of the move.

Is this really the right move?

Although the Kansas announcement has focused on cost-savings made by headcount reductions, it has apparently ignored the fact that the majority of annual spend comes from other factors. IBM maintenance contracts typically cost 20% of the original software/hardware purchase price, significantly boosting annual running costs and adding to the costs reported by Kansas.

With this in mind, Kansas may have been able to save a similar sum of money each year without employee redundancies simply by partnering with a third party for maintenance services. This would then allow State bodies to keep using the platform on which their services are built, increasing return on investment, lowering the total cost of ownership and avoiding loss of productivity caused by learning curves – or product expertise. Everything is retained in house for maximum flexibility and productivity, cutting costs without losing jobs.

But a saving is a saving, right?

The Kansas state government has duty to its citizens to prevent funds being wasted. It could be argued that savings made by retiring the IBM mainframe make sense.

Others will claim that local jobs are of significant importance, that the Kansas IT department should be retaining local workers to set an example to other public and private sector bodies in the state. When other opportunities to cut costs, such as the use of non-OEM support and maintenance services for legacy hardware, these should be prioritised. Especially when the savings could be similar in scale to the planned redundancies.

A localized third party could take our support and maintenance without adding to overall costs and still see a significant profit for approved businesses moving forward. In fact, partnering with a third party like CDS could actually cut costs without making employees redundant.

Unfortunately for IT mainframe engineers employed by Kansas, this realization comes too late. The decision has already been made and job cuts are expected once Chicago takes over.

If your business is re-evaluating its IBM storage or mainframe strategy, please get in touch – CDS services are just as effective as those from the OEM, but significantly lower cost.