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Chapter 10 • Global, Ethics, and Security Management 267

CASE 10-1
Opening Case
Outsourcing at FERC

Source: Based on McKenna, E. (March 5, 2001). Enterprise Computing Rings in a New Era, Washington
Technology.
The Federal Energy Regulatory Commission (FERC), an independent regulatory agency
within the Energy Department, was one of the first federal agencies to use an integrated
enterprise resource planning application from start to finish, including human resources,
base benefits, time and labor, and payroll. In October 2000, FERC implemented PeopleSoft
Financial Management for Education and Government software, including the general
ledger, payables, and purchasing modules. The two systems cost about $5 million for
implementation and maintenance. According to Janet Dubbert, FERC’s director of
management administrative and payroll support, the agency’s decision to acquire the
systems was prompted by a couple of issues. First, the Department of Energy would no
longer support FERC’s human resource, time and attendance, and payroll functions. The
department made the move as part of its efforts to streamline operations under the National
Performance Review. Second, the ERP systems allow the agency to add functionality at its
own pace. Because the systems are integrated, they provide real-time management infor-
mation to help with workforce planning efforts.
In 2001, FERC decided to outsource the ERP system to the private sector. Dubbert
said, “FERC will pay less than $2 million for the hosting and day-to-day management
of its human resources and financial operations, including transition and production costs,
under a five-year contract.” The key reasons to outsource were to relieve FERC from
maintaining, upgrading, and distributing software and services to its customers, who pay a
periodic fee. FERC moved to this arrangement after it began re-engineering its operations
using PeopleSoft Human Resources Management for the U.S. federal government. After
contracting with PeopleSoft, Inc., the organization went live with the human resources
application in less than six months. With outsourcing, FERC hopes to focus on its core
functions of adding new human resources and financial features, such as training and
budget and accounts receivable.

•Do you agree with FERC’s decision?
•What other benefits can FERC achieve with this outsourcing agreement?

PREVIEW

The rationale for outsourcing is compelling. As seen in the FERC case, outsourcing an ERP
environment is not new. The key benefits of outsourcing for FERC were a predictable monthly
payment and the avoidance of the headache of running the application. From the FERC perspective
this was therefore a good decision. In general, outsourcing helps organizations to lower the high
software ownership and maintenance costs; simplify, or eliminate, or both, the traditional
difficulties in implementation; and avoid the problems of hiring and retaining IT staff to run the
applications. Today, more and more organizations find outsourcing to be a better strategy for low-
ering the maintenance costs of ERP systems. For example, three months after the implementation