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Following is the speech (English only) by the Secretary for Information Technology and Broadcasting, by Mr K C Kwong, at the luncheon meeting of The Hong Kong Management Association today (Thursday) :

Mr Conway, ladies and gentlemen,

Thank you for inviting me to today's luncheon. About a month ago, I was invited to the Award Presentation Ceremony of the Marketing Excellence 1998 which was also organised by the Hong Kong Management Association. On that occasion, I shared with you my views on the revolutionary changes in the role of the intermediary brought about by the increasing popularity of the Internet and on-line business. These changes, of course, affect not just the private sector.

Computerisation within Government

Within the Government, we have been actively promoting the use of IT to upgrade the quality of our services to the public. Notwithstanding the falling prices of computer hardware, Government's annual spending on IT has been on a continuous upward trend for the past six years, and stood at $1,870 million in 1997/98. The consequence is that practically all our public service delivery has been computerised. And we now have some 400 workstations for every 1,000 civil servants.

Like many other large corporations in Hong Kong, our computer applications are mainly developed in-house, by the Information Technology Services Department (ITSD). This is not difficult to understand. First, there is a common belief that tailor-made applications tend to serve one's needs better, and that only in-house staff will understand fully one's needs. Secondly, Government is particularly sensitive about the security and integrity of data kept in Government computer systems. There is also a common belief that security could be put at risk if one delegates the work of IT application development to people outside the organisation.

The uptrend in Government IT spending reflects the continuing efforts by departments to try to improve their services to the public and to increase productivity through the greater use of IT. The consequent rise in demand is however so great that our in-house staff are simply no longer able to meet it adequately and in a timely manner. This phenomenon is not unique just to Government and the only practical solution, which is becoming increasingly popular, is outsourcing. Global spending on IT outsourcing was estimated at $379 billion in 1996, and is expected to exceed $671 billion by 2000.

Why Outsourcing

Turning back to the situation in Hong Kong, Government's outsourcing programme is, in addition to the question of limited capability, also driven by our expanded role in the development of the IT industry in Hong Kong. Thus, we have decided to adopt a more aggressive outsourcing policy so that we can create a sufficiently large IT market to facilitate the further development of and investment in the local IT industry.

Government's Outsourcing Strategy

Aggressive outsourcing is a new direction for Government's IT activities.

Our outsourcing strategy will have to be based on partnership with the private sector. Rather than the traditional "client" and "contractor" relationship, where one tends to stipulate in every minute detail how things should be done, the partnership approach means that we would try to agree with the suppliers how they might best be done - in the interests of both the users and suppliers. We will exploit the strengths of both our own IT professionals and the wider IT services community to approach issues jointly, resolve problems together and achieve success mutually. We will give suppliers the flexibility to do what they do well. We will not try to place unnecessary controls or restrictions on how they should do thing. Instead of focusing on inputs, we will turn our attention to outputs and will establish jointly agreed service standards as output deliverables under contract.

I believe that many of you here may well be interested in partnering with us in this new approach. While you may be excited about the prospects that it will bring, you may also have some apprehension about how it will work out in practice. This almost exactly mirrors the mixed feelings of many of our colleagues within the Government. We are working closely with them in order to make them understand better the new arrangement and to instil in them confidence in this new way of working. We are establishing a modified IT management framework and training our people on the new skills required under the outsourcing environment in order that they can take control of their business and work in partnership with outsourced service providers. We are convinced that once the benefits are demonstrated, apprehension will give way to enthusiasm.

Our strategy for outsourcing will focus on a number of issues. The first is the need to manage risk at an appropriate level by adopting a "hands-off but eyes-on" approach. The second is the need to have quick wins to demonstrate the benefits. Thus we intend to start with a number of departments which are ready and willing to take on the challenges of outsourcing. The third is the selection of priority projects for outsourcing in order to test out the strategy. For this purpose, we have decided that the application maintenance of existing systems and application development of new systems should be considered first. The fourth issue, to which I have referred earlier, is the need to establish the right IT management framework for outsourcing, a framework which will allow the suppliers to deliver services to the users direct and empower the users to take day-to-day control of the management of these services. The last, but not the least, issue is to formulate a programme for outsourcing our IT activities. Our plan is to start outsourcing the application maintenance activities currently performed in-house by ITSD in 1999/2000. Our target is to outsource over two-thirds of all new IT projects in Government by 2001.

As I said earlier, enlarging our delivery capacity for IT applications and services is not the only objective behind our outsourcing strategy. What is more important is that with this strategy, we hope to be able to create a market of sufficient size to encourage the further development of local IT industry and to attract more investment in the industry. We look forward to working in partnership with the private sector to make this happen.

Thank you.

End/Thursday, November 5, 1998

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