A Primer on IT Consolidation BY NADEEN BIDDINGER

A Primer on IT Consolidation BY NADEEN BIDDINGER

Technology decisions are often driven by cost concerns, including the need to reduce information technology budgets. In fact, most long-range predictions for state and local information technology (IT) budgets suggest spending growth of just 3 percent per year through 2015. 1 IT executives have tried a number of ways to stretch those scarce resources while still delivering necessary services. Some Benefits of Consolidation n Decreased management complexity n Improved ability to deliver more services, more quickly n Elimination of duplicate data n Lower power and cooling costs Over the last three to four years, for instance, it s become more common for organizations to use virtual servers and n Smaller physical server and storage footprint costs and often improves service other technology advances to lower hardware costs, and to provide software through the cloud or a hosted service to tion provide including a potential return of $2 for every reduce or eliminate maintenance costs (see Making Sense $1 invested over a five-year span 2 project estimates often of Cloud Computing in the Public Sector in this issue of create a stumbling block. Sometimes organizations have to Government Finance Review). They are also outsourcing spend money before they can save it, so successful consolidation requires both adequate funding and political will. help desk or network support to a third party, which cuts costs and improves service. Another common tactic is delaying upgrades or new initiatives to extend the life of CONSOlIDATION AND ShARED SERVICES existing solutions (see Cutting IT Costs: Distinguishing Shared services and consolidation often go together, but between Necessary and Discretionary in this issue of the two are not synonymous. Consolidation focuses on Government Finance Review). Governments are also recentralizing IT assets and consciously choosing hardware and how a government organizes the overall delivery of its own IT services, taking existing organizations, service, or applications and combining them into a single operation. This software that are easier to manage and control. Some organizations are going further, investigating the impact of consolidating data centers and eliminating outdated IT processes. If planned and executed properly, consolidation can decrease costs and boost productivity although concerns about security, is typically mandated by executive order. In this model, the government still owns and manages the computing environment. Shared services, on the other hand, focuses on delivering a particular service or services in the most efficient and effective way, generally by privacy, and the availability of combining the delivery with another information have to be addressed. If planned and executed governmental unit. The difference is Organizations also usually face some properly, consolidation can subtle, and it is certainly possible to resistance from individual departments about data ownership and con- decrease costs and boost do both at the same time. 3 trol of information. Fears of declining responsiveness, flexibility, and concerns about security, productivity although Service-level agreements factor into both consolidation and shared services models. Pricing services based on customer service to departments are privacy, and the availability of uptime or response time agreements some of the reasons why IT services is often a poorly understood concept; careful consideration is needed began and flourished in a decentralized environment to begin with. addressed. information have to be to provide the proper incentives to Another issue is that despite the benefits consolidation and optimiza- make sure the provider of the services meets its commitments. October 2011 Government Finance Review 35

Exhibit 1: Characteristics of Consolidation Cost Considerations Challenges Level of Flexibility Concerns Key Factors Lowest cost solution Centralized procurement Standardization decreases options, maintenance, and support Process takes a long time to implement The process is continuous Being detached from business units limits understanding of business needs Sometimes viewed as unresponsive to specific agency needs Highly standardized Often mandated Agencies have limited influence Can t be changed quickly Funding model issues Governance Common objectives Communication Changes to business processes The decision to consolidate or offer targeted shared services depends on political factors, economic factors, the current technology infrastructure and architecture, the current IT staffing model, and the needs for each individual service area. Exhibit 1 shows characteristics of consolidation. 4 environments to help predict the obstacles and to forecast savings. Staff sometimes reacts negatively because consolidation changes who controls how much (both data and applications) and implies change as well as loss of jobs. Political and financial buy-in is therefore critical to success. Typical goals for a consolidation effort include: n Greater access to information, resulting in improved decision making. n Improved economies of scale for procurement. n More affordable maintenance of infrastructure and equipment. n Enhanced delivery of services through centralized data repositories and portals. n Improved security. n Better budget control and management. When considering consolidation, jurisdictions need to perform a comprehensive study of their existing IT Sometimes organizations have to spend money before they can save it, so successful consolidation requires both adequate funding and political will. CONSOLIDATION PROJECTS Jurisdictions of all sizes have undertaken IT consolidation initiatives. The details of each project differ, but they all have one thing in common: decreased costs and increased efficiency. The State of Michigan. IT consolidation was a major undertaking for the State of Michigan, which had 800 critical business applications and desktop computers for 45,000 employees. The state reduced 40 datacenters down to three major mainframe datacenters, as well as consolidating telecommunication services. It also reduced its IT bud- 36 Government Finance Review October 2011

get by $100 million and its staff by The county is consolidating approximately 900 department servers into a 34 percent by renegotiating and The decision to consolidate bringing together all the existing or offer targeted shared central data center, with some exceptions for servers that focus on specific contracts. 5 Finally, Michigan started services depends on political providing storage as a service to key public safety functions. Once the state agencies. factors, economic factors, the 6 consolidation is complete, a plan The initiatives provided a number current technology infrastructure will be drawn up for making the transition to a private, secure cloud of benefits. The state was able to and architecture, the current environment. Projections for cost savings after the reorganization and full strengthen its relationships with its IT staffing model, and the needs business partners, including vendors as well as other units of government. for each individual service area. migration are estimated to be $10 million over a five-year period. 7 Network security was also greatly improved, and the streamlined systems are monitored constantly for Marion County, Indiana. City of Indianapolis/ vulnerabilities. The consolidation allows for increased The City of Indianapolis/Marion County is implementing an enterprise resource planning (ERP) sys- visibility and control of IT spending, as well. And from the perspective of citizens, the vast array of agency websites tem. Many city and county departments have been has subsided, making online interaction more of a singleentity environment. and once the ERP application is implemented, only a consolidating and reorganizing their business processes, limited number of other applications will remain on the The state did face issues as a result of the consolidation, mainframe still in operation. and staffing was a big one. About 15 percent of employees opted for early retirement because of the initiative, and since the state was in the midst of a hiring freeze, there was no way to replace these lost staff members. There was also some resistance to consolidation on the part of IT employees who identified closely with the agencies they had supported and were not excited about a central IT environment. Operating efficiencies have allowed the state s data center to return more than $46 million to agency clients over the past five years. The state is also able to provide agencies with a virtualization environment, advanced storage networks, cloud computing, and disaster recovery cloud services, all at no additional cost. King County, Washington. The county which includes the City of Seattle is reorganizing and centralizing IT staff and servers while moving toward cloud computing. Original planning for the project began in 2004, focusing on centralizing IT services away from departments into a single enterprise-wide IT department. October 2011 Government Finance Review 37

example of that is in Charlotte, where the city s Business Support Services department also provides services for the city and for Mecklenburg County, as well as other counties and municipalities in the region. The shared services include procurement, fleet asset management, and public safety radios. 8 A few blocks down the street, the state s IT organization which has been successfully hosting applications in a central environment for many state government offices (allocating the shared costs to the various entities) agreed to host the remaining mainframe applications for the city and county. The chargeback for this service will be considerably less than the cost of maintaining the environment at the city/county facility, and the city and county will be able to remove all mainframe servers and an antiquated system that stores and loads tapes onto the mainframe for backup purposes. The anticipated savings from reduced maintenance costs is approximately $750,000 per year, before calculating any reduced utility costs once the equipment is gone. The City of Charlotte, North Carolina. Local governments tend to pursue shared services as part of their IT consolidation efforts. One CONCLUSIONS There is no one best way to provide efficient services for employees and citizens. Jurisdictions that are considering consolidation need to evaluate the overall cost benefits, along with the anticipated impact on the departments that would be included in the consolidation efforts. There is no one best way to provide efficient services for employees and citizens. Jurisdictions that are considering consolidation need to evaluate the overall cost benefits, along with the anticipated impact on the departments that would be included in the consolidation efforts. Doing so will help the IT governance body determine whether the upfront expenditures and efforts required in a consolidation are justified by lower future IT costs across the enterprise. y Notes 1. A New IT Consolidation Mantra, i360gov.com, Special Report, June 2011. 2. John Moore, The stumbling blocks of IT consolidation, Government Computer News, May 25, 2011. 3. Definitions derived from the work of NASCIO s 2004-05 IT Governance and Service Reform Committee and NASCIO s 2005-06 Enterprise Infrastructure and Services Committee. 4. IT Consolidation and Shared Services: States Seeking Economies of Scale, NASCIO Issue Brief, March 2006. 5. Wayne Hanson, Teri Takai: Survival Guide to IT Consolidation, Government Technology, September 26, 2005. 6. Michigan s Data Center Consolidation Saves Big, i360gov.com, Special Report, June 2011. 7. Sarah Rich, King County, Wash., Consolidates IT Services, Plans to Go to Cloud, Govtech.com, July 19, 2011. 8. John Moore, The stumbling blocks of IT consolidation, Government Computer News, May 26, 2011. NADEEN BIDDINGER is a senior manager in the GFOA s Research and Consulting Center, located in Chicago, Illinois. She can be reached at nbiddinger@gfoa.org. 38 Government Finance Review October 2011