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Failed Deals in Outsourcing of State Welfare Benefits Administration: Anatomy of Unsuccessful Business Process Transformation
In October 2009, the State of Indiana terminated a ten-year $1.34 billion outsourcing agreement with IBM for the administration of the welfare benefits. This followed a 2007 termination by the State of Texas of a similar privatization of State health and welfare benefits administration, including eligibility determinations, food stamps, Medicaid and the Temporary Assistance to Needy Families program.
These failed outsourcing deals offer lessons for public and private enterprises that want to hire outside contractors to automate procedures that are inherently difficult to automate due to the need for ongoing face-to-face customer relationship management for clients or customers who are not able to easily manage self-service and automation of complex programs. In essence, these deals were sold as process improvements with cost savings, but the face-to-face personal touch was lost.
Indiana History. The State of Indiana hired IBM as lead contractor in 2007 to administer welfare benefits programs. Administration of state welfare benefits such as social services and food stamps requires significant ongoing direct contact with welfare clients. When the “business process transformation” of providing IT-enabled welfare benefits confronted welfare recipients who needed personal attention, the State terminated the contract, claiming that IBM failed to maintain documents, delayed approvals of benefits to qualifying individuals and gave “poor service.”
Lessons for Government Outsourcing. Governmental officials seeking to cut costs and improve the quality of service can learn several lessons from these failed deals. Due to the direct customer interfacing, remote computing and automation do not always improve certain customer relationships.
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