The federal government is counting on huge long-term savings from the consolidation of IT infrastructure, but as other jurisdictions have demonstrated, there’s no guarantee

Potential bumps in the road to shared services

On Aug. 4, the federal government announced a new agency, Shared Services Canada, charged with cutting government IT costs by rolling more than 100 e-mail systems into one and more than 300 data centres into 20 across 44 federal departments. The agency’s $2-billion annual budget equals about 40 per cent of Ottawa’s yearly $5 billion in IT spending.

Consolidation and standardization seem like good ways to reduce IT costs. But the plan, announced by Treasury Board President Tony Clement and Minister of Public Works Rona Ambrose, is still vague.

A report prepared for the government by consulting firm PriceWaterhouseCoopers for Public Works and obtained by The Canadian Press under access to information legislation says the $278 million in new spending needed to set Shared Services Canada up and the years it will take to consolidate federal IT mean any net savings are years away.

The government has moved slowly in this direction for two decades. In the 1990s it created the Government Telecommunications and Informatics Service (GTIS) to provide technology services to some departments as requested. The original IT Shared Services Organization began in 2003, providing a broader range of services but still on request. “The challenge was it was as requested,” recalls Ken Cochrane, who headed that effort, and later was the government’s chief information officer from 2006 to 2009 and is now a partner at consulting firm KPMG LLP. “You had to go out and sell the idea to departments.” Because departments have no choice now, Cochrane believes the new Shared Services Canada can do more. But, he adds, “I’m not saying it will happen easily just because there’s a mandate.”

Liseanne Forand, the first president of Shared Services Canada, isn’t saying it will be easy either – or that it will happen overnight. Like all federal departments, she said in a keynote address at the GTEC conference in Ottawa in mid-October, SSC must submit a deficit reduction action plan for the next three years. She believes completing the consolidation of federal e-mail systems in the next year to 18 months can meet those initial obligations. “Data centres and networks are a longer-term project,” Forand said at GTEC. “It will take somewhere between six, eight, 10 years to complete the full transformation.”

Forand cited a small but pithy example at GTEC. She recalled touring a data centre divided by a chain-link fence – because it contained servers belonging to two departments. All servers operate 24 hours, seven days a week, she said, so four employees are on call in case of problems – two for the servers on one side of the fence, two for those on the other side. “It’s not going to bring in $100 million to fix that kind of thing,” she said, but it’s one example of inefficiency.

E-Ontario is in many ways a smaller version of what Shared Services Canada is meant to become, operating a government-wide e-mail system, data centres and IT help desks. E-Ontario launched in 2005, but starting in 1998 the province had moved IT operations from individual ministries into nine clusters. David Nicholl, Ontario’s chief information officer, says that broke down the silo mentality, laying groundwork for E-Ontario to move IT infrastructure into one organization.

Over about three years, he says, E-Ontario realized annual savings of $100 million, confirmed by internal audits. That represents about 10 per cent of Ontario’s IT budget. If the federal government could match that, it would save $500 million a year.

Of course, there’s a difference. “They’re bigger,” Nicholl says. “That matters.” Ottawa is starting with most departments running their own IT, not the cluster structure Ontario had in place in 2005. So don’t expect 10 per cent savings in three years.

But in the longer term, “I would hazard a guess it’s above 10 per cent,” says Cochrane.

Some savings may be redirected into new IT initiatives. Corinne Charette, the federal CIO, told a keynote audience at GTEC the aim is “to help consolidate where we spend on redundant, duplicative solutions so that we can redirect money to what is net new.”

Cost savings aren’t necessarily the only goal. Handing over basic infrastructure to SSC will free other departments to focus on their own mandates, Forand said in her GTEC presentation. A proliferation of small data centres is tough to manage, Cochrane says. “The fewer I have, the better my ability to focus my attention on quality, safety, security.”

So there are good reasons for consolidating federal government IT. But as other jurisdictions have found, there is plenty that can go wrong, and timetables are apt to slip.

Early in 2009 Massachusetts began a project similar to Ottawa’s. The state wanted to move all employees to a common e-mail system called Mass Mail, consolidate its 60 data centres into two and streamline other operations.

The original target was the end of 2010. In June 2011, the state issued a progress report. In about two and half years, it had closed nine of the 58 data centres it aimed to eliminate. At the beginning of the project, 68 per cent of state employees were already using Mass Mail, but by this June that number had increased to just 70 per cent. Help desk consolidation went faster – starting with 43, the state was down to 19, with a final target of nine.

It’s not a failure. But it is, comments Andy Woyzbun, lead research analyst at Info-Tech Research Group in London, Ont., “extremely slow progress.”

Western Australia’s project was a failure. Launched in 2003, it was to save the state A$56.6 million a year, Instead, this year the state’s Economic Regulation Authority reported it had cost about A$401 million and that 91 per cent of government agencies it served said service levels had deteriorated. The project was cancelled in July.

At GTEC, Forand acknowledged the doubts Western Australia’s failure has raised about SSC. “We did learn from that,” she said. “It’s actually quite a bit different from what we’re talking about.”

So it is, in that one problem in Western Australia was customizing Oracle Corp. software to meet the different human resources and financial needs of participating departments. Canada’s plan doesn’t involve consolidating HR, finance or Enterprise Resource Planning (ERP) software. “Those initiatives are inherently difficult,” Forand said at GTEC.

Still, the Economic Regulation Authority report also said Western Australia’s Department of Treasury and Finance Shared Service Centre (DTFSSC) delivered poor service because it was “a monopoly provider, with a mandated client base and a lack of meaningful service level agreements.”

Shared Services Canada will have similar monopoly status. So does E-Ontario, and Nicholl says service levels are critically important. E-Ontario has service level agreements with departmental IT clusters that use its services, Nicholl says, and discussion about expected service levels and timetables to achieve them was key to its success.

Woyzbun says resistance and dissatisfaction within is one main reason government IT consolidation projects stumble. Government agencies aren’t likely to embrace efforts to take their IT operations out of their hands, he says. “If you have your own captive data centre for an agency or a department, what’s in it for you?” To succeed, Shared Services Canada must overcome that reluctance.

It may do so, Woyzbun says. “Judging by the way that the government operates in general, they’ll probably push pretty hard and they will not tolerate any pushback.”

But there’s a wide grey area between resistance and enthusiasm. “It’s one thing to have the mandate,” Cochrane says, “but do you actually have the hearts and minds of the people that are responsible within the different organizations?” Forming people from different departments into an effective team is complex, he says.

“We’ll need to listen,” Forand acknowledged at GTEC. “We’ll need to engage and we’ll need to support those who might be struggling to adjust to new ways of doing things.”

If IT workers see SSC as a threat to their jobs, support will be hard to muster.

The impact on employees is a big issue for the Professional Institute ofthe Public Service of Canada (PIPSC), which represents those employees, says Shannon Bittman, vice-president of PIPSC.  Bittman maintains SSC needs IT staff’s expertise to succeed. “Our IT professionals are doing the job. They know intimately the issues that could be faced with a consolidation,” she says.  “If (SSC doesn’t) leverage the knowledge of their IT specialists, there won’t be any long-term savings.”

Consolidation needn’t mean job losses, Bittman says. “Our challenge to the government is that done right, with the appropriate planning, the government could substantially reduce their reliance on IT contractors.” And moving work in-house will save more money because it eliminates middlemen, she says.

What Bittman suggests is what E-Ontario did. “We went after this very much from a non-staff cost perspective,” Nicholl says. Rather than cutting staff during the initial consolidation, Ontario reduced use of outside contractors, yielding substantial savings. Since then the province has cut staff across the board – not just in IT – by five per cent, he acknowledges, and the E-Ontario consolidation made that easier in IT.

Still, that only serves to point out that internal IT staff aren’t the only ones with something to lose. Outside contractors, consultants and suppliers will also be affected.

Right now, many suppliers are holding their breath. “We don’t know of any plan,” says Serge Buy,director of government relations with the Canadian Business Information Technology Network, which represents around 100 IT services suppliers.
While “a certain amount of rationalization of things should work,” Buy says, if the government shifts too far to big contracts with large suppliers it will kill small businesses, reduce innovation and not save money. Large contracts are harder to manage and government risks becoming dependent on single suppliers, he argues. And so far, Buy reports, his organization’s efforts to talk to SSC about its plans have gone nowhere.

As with internal IT staff, SSC must talk to those suppliers. Suppliers, Cochrane notes, “can become extraordinarily disruptive to government.”

There is also the issue of existing contracts. Shared Services may wish to consolidate similar IT operations in several departments in one place, but each department probably has multi-year contracts with different suppliers, expiring at different times. The choice becomes to pay penalties to end some contracts earlier, negotiate interim contracts or cut over different departments’ operations at different times.  “This is a very, very complex undertaking,” Wozybun says.

Possibly in an effort to grapple with that problem, departments undertaking new procurement projects are being asked not to commit to contract periods longer than two years, according to a document obtained by ITWorld Canada.

In Ontario, Nicholl says, contracts don’t usually run more than three years. And usually suppliers have other government contracts and are open to negotiating a solution. “You just sit down and have a sensible conversation with them.”
Woyzbun believes SSC’s over-all objective is right. Government  IT operations shouldn’t have become so compartmentalized in the first place, and reducing duplication can save money. But, he says, the key is to focus on real savings opportunities, not on metrics like the number of data centres.

“Some of these servers are probably run on a shoestring,” says Wozybun. Merging a small, economically run data centre into a larger one that may have higher overheads may save little or nothing – but the temptation will be to look for quick results, not the greatest potential savings.

“If I were the boss what I would do is I would say we’re going to do a high-level financial analysis on each e-mail instance and each data centre,” Wozybun says. Then the government should employ triage, concentrating consolidation efforts on the “low-hanging fruit” promising the greatest savings.

Shared Services Canada may do that. Exactly how consolidation will work is still far from clear – which is causing anxiety for government IT staff and everyone who deals with them. A bit like early explorers, the government has begun a journey toward an attractive destination, but through imperfectly charted territory with many dangers along the way.

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