February 9, 2006 By Wayne Hanson
CIOs know it and their bosses know it. The solution is reorganization and consolidation. The federal government is doing it, and local governments are doing it. But at the state level, consolidation seems to be a religion of sorts. From California to New York, CIOs and their staff slash away at the bloat and inefficiency. Savings of $30 million, $50 million -- even $100 million -- have been reported. State governments that were financially bruised a few years ago have become relentless in terms of squeezing savings out of the 1 percent to 2 percent of the budget that goes toward IT.
But as Paul Taylor, chief strategy officer of the Center for Digital Government, wrote a while back, talk of consolidation "scares people, because it changes who controls how much -- classic bureaucratic indulgences over turf and control the public treasury can no longer afford."
When it comes to consolidation, Michigan CIO Teri Takai knows about the fear factor, as well as the failure and success factors. In September 2005, she spoke at length about her experiences before an audience of fellow CIOs and IT industry executives in Albany, N.Y.
"Technology is not the issue here," Takai said. "What we're talking about is what's traditionally called organization. How do you change mindsets around the way people look at the way we use and implement technology?"
Takai explained that consolidation in Michigan was unusual in several respects. It began under former Republican Gov. John Engler, and was then continued through a change of administration and political party to Democratic Gov. Jennifer Granholm.
Takai's Department of Information Technology (DIT) is funded by the agencies -- with no independent budget of its own -- but she does have control of the money. "All IT spending comes through me," she said. "I can make the decisions. The tricky part is that you have to do that very carefully, because of who you make angry." Takai also said that the CIO must understand the budget very well to shut down a spend, or tell an agency it can't buy something.
The DIT has about 1,700 employees, runs the state's 800 critical business applications and handles 55,000 desktop computers. "We have 19 state agencies, two of those are led by elected officials: our attorney general and secretary of state," she explained. "I don't provide any services to our university system or the Legislature.
"From a services standpoint, we touch all state services -- a citizen files a tax return, pays or receives child support, wins the lottery, researches schools, applies for a driver's license, or gets pulled over by a state trooper," Takai continued. "When the trooper goes back to check the license, that goes on a system we are running. Clearly we feel that we are at the heart of making state government happen."
Let Consolidation Begin
Consolidation begins by taking advantage of technical resources, according to Takai. "We have three major mainframe data centers, and we have consolidated all our telecom," she said. "All of that happened before the Department of Information Technology was formed, so people got used to the idea that they gave up their mainframes and were no longer running their own telecom.
"We've consolidated all of our desktop resources, server resources and are in the process of taking out servers. I have some 20 small data centers scattered around the state capital, and we're bringing those into our robust data centers," Takai said, adding that a couple of data centers have been strengthened by using Department of Homeland Security dollars to protect the state's data. "The rationale was that if we got the money to strengthen our data centers and security, it would benefit all the agencies. So we used [the money] for emergency generators in some of our backup sites, and also to buy security hardware and software for the network.
"The agency-specific resources report to me," she continued. "All agency CIOs report to the Department of Information Technology. But we made a deliberate decision not to try and co-locate them into an IT building." Takai feels it's extremely important that those application resources reside with the agencies so they can better understand the business drivers and issues. "It's a real challenge," she said. "They are still servicing that same agency, but report to us. So we had to work really hard to establish a culture and a departmental organization, but we feel very strongly that it's important that we continue to understand the business and have those strong ties."
Takai said the state renegotiated and brought together all of its contracts, and the budget went down $100 million, with a 34 percent reduction in staff. "I walked in the door with a 15 percent reduction in staff, because of early retirement, so it was a major challenge just getting the organization off the ground," she said. "We had so many moving parts, it's been tough for us to maintain service levels in the face of staff reductions. And then we never wanted to just keep running in place. The purpose of this isn't just to save money. The purpose is to save money and advance the technology agenda in the state -- how do you make sure we are moving forward, and looking ahead without getting caught up in the day-to-day?"
Better Practices, Better Processes
The first reason for consolidation was to implement common and best practices across agencies, explained Takai. Prior to the DIT's creation, each agency had its own IT group, with larger agencies such as Health and Human Services employing 300 IT people or more, while smaller agencies had, at the most, five or six employees.
"When they bought their technology, there was a huge disparity in what was done," she pointed out. "And a lot of that technology was being implemented by people who were not necessarily IT professionals. They were often folks who had come up through the ranks, but did not have a technology background. This impeded our ability to get out and use best practices, to treat the department as a professional IT organization and in how we handled services, as well as our employee career path."
Takai said the second reason for consolidation was to make better use of technical skills and spending. "We had multiple solutions doing the same thing. We had five versions of credit card-processing applications across the state. We had three or four agencies working independently on kiosks," she explained. "Clearly that was not the best use of state money, and it becomes an even less good use of state money when you are in a situation like Michigan where you are seeing shrinking budgets."
Last, Takai pointed out, consolidation strengthens relations with business partners and other units government -- not just with vendors. "When you have an economic development dilemma as in Michigan, everybody is hurting for revenue -- everyone is being forced to look at how they are spending on technology," Takai said. "If we looked at how technology was used across all areas of government, we would be able to reduce the total spend on information technology and improve the services."
The amount of paper passed back and forth between the state and counties is pretty scary, Takai added. "Look at birth and death records: That's an example of something paper-intensive and very inefficient at this point. The more we look at security and the terrorist threat, it becomes more important for us to be able to move those pieces of paper much more rapidly with much better quality. Again, it's about getting more for your money."
How Much Did You Save?
It's one question that always comes up.
"Our initial thrust was to go out and look at areas of inefficiency," Takai said. "We need to drive the cost down. We have taken about a quarter of our IT spend out -- about $100 million. We've done that in a variety of ways.
"In some cases, we've had to tamp down the amount of work we do, but another area is just going after contracts, how we spend money, consolidating contracts so that we have a single face, making sure we were making use of all the things we were purchasing. Just continuing to look for those opportunities, we've taken out a lot."
The DIT also started looking at its contract personnel.
"Rather than outsourcing, we have done selective insourcing," she said. "We had contract personnel who had been in the state longer than some of my employees, and at about double [the rate] it was costing for state employees. So we selectively went out and brought that expertise in so that state employees could do that."
How Much Did You Spend?
"I've also been going out into the agencies and suggesting they need to understand how their money is being spent. Very often the IT money is disbursed into various program areas in the agency." Takai said the key questions to ask are:
Part of effective spending, Takai said, is to make sure there are no runaway projects -- that projects are managed with discipline. "We are requiring that large or difficult or cross-agency projects be broken into several pieces," she said. "Part of that is handled by the Project Control Office, which is independent of the way we manage the project, so we can be sure we have the right parties there, and that we are concentrating not only on technology implementation, but also the business implementations. It's really all about control -- make sure we are spending money in the most effective way."
Takai is the first to admit she has considerable challenges ahead. It's human nature to want control, she said, and some of the agencies are not happy about giving money and control to a single IT organization. "This is not a construct in state government that people are used to. It's important that we recognize that, and that we continually work with the agencies to make them more comfortable with us. [We want to assure them that] in the end, we are delivering valuable services and saving the state money."
The first challenge occurred during the transition in governors. "In the last few months before the new administration, all the IT folks went into hiding, figuring that if they hunkered down, the new governor would come in and put IT back in the agencies, and everything would be like it was. So there really was no activity for the last couple of months. But what Gov. Granholm decided that this was something that would work.
"When I was appointed, the shoe dropped," Takai continued. "There was going to be a CIO, and that CIO was going to be on the Cabinet. All their hopes crashed at that point. So then they tried to do what they could to avoid the consolidation. It was very scary to people."
Another problem was the lack of a legislative mandate. Everything was done by executive order. "That was a real challenge to us -- to get the Legislature to really understand. So when we came in, the number of legislators who had no idea of who we were or what we were supposed to be doing was an ongoing challenge to us."
Work force issues in Michigan have been huge. "We had about 15 percent early retirement, and then we had a hiring freeze," explained Takai. "So we lost people, and we couldn't replace them. Employees also resisted the need to consolidate. They identified with their agency. They didn't know who we were or what we were about. Efforts to bring the employees together were sometimes done in less than thoughtful ways, and so people were not necessarily treated as well as you would like to have employees treated. We even had a Web site called 'DIT Did It to Us' with [postings of] really vitriolic statements about things that were going on."
Entire agencies also resisted, Takai said. Agencies were forced to consolidate -- they were asked to serve up their numbers, and resources were taken away from them.
"We had very informal operating processes," she added. "Not much was written down. There was no data on service levels. Server folks in Human Services didn't know how to work with server folks at State Police. They never had to do that before. And now we were asking them to work together for a consistent level of service, but we had nothing to hand them, to tell them how to do this. Even today I have people doing the same job, but they are at different levels, depending on what agency they worked for, and how literal or how strict those personnel policies were. That is a huge source of dissatisfaction."
The last challenge was a transition to CIO. "The CIO before me was a contract employee, and that person came in knowing that they had only a year in the job. And that person had the unhappy task of making all this happen. All of the venom was focused on him. He had a difficult time."
What We Did Wrong
Takai isn't reticent about the mistakes made during consolidation. First and foremost, the DIT underestimated employee resistance to the initiative.
"We did a lot of talking about getting to cross-training -- [telling them] 'You'll have a career path between agencies' -- but we underestimated the amount of communication we needed to do. And we underestimated the agency resistance. I have agencies today that are working the Legislature about what's wrong with what I'm doing. So we ended up having to go back in and get the leadership to agree that this was a good idea. We did not put the kind of lobbying in place that we needed to."
Takai said the DIT also underestimated the need for formal processes, and as a result, IT went back in to do process engineering in its first year, which allowed specific and formal processes to follow.
IT also proceeded without an adequate funding model. "We spent the first year sorting the mechanisms so agencies could see what they were getting for their money. People say, 'I'm paying this bill each month, what am I getting for it?' They didn't know how much they were paying before, but when it came to paying that to another agency, it was a totally different dynamic."
Takai's office centralized its technical staff too quickly. "That was very true of the desktop staff that service outside the Lansing area. We had a wide variety of technical platforms. I'm just now in the process of moving the state off 70 versions of two e-mail systems. You can imagine that when a tech person goes out in the field, he doesn't necessarily know what the technical environment is in the State Prison. They are not going to give service so quickly so it causes service level problems."
Lack of experience at the executive level was another problem. "Because of the personnel rating system, we had individuals who went from managing 10 people to managing 80 people. And there was really no mechanism to teach them how to deal with that broader team," Takai said. "Many of those folks were technical people who had risen through the ranks. They never really wanted to manage people in the first place. It was a way to advance their careers. And now they had to manage 80 people through a very difficult time."
On top of that, resources were cut too quickly. A 15 percent staff reduction with a hiring freeze was a double whammy.
"And finally, we did a lot of, 'Ready, fire, aim!' That meant, 'We need to have this done, we'll do it and figure it out afterward.' But afterward was painful."
What We Did Right
Takai's consolidation campaign also scored some significant victories for Granholm's administration. At the top of the list is cost control.
"We got control of IT spending," said Takai. "If you don't control the money, you can't bring the hearts and minds with you. When we controlled the money, the agencies didn't have anyplace else to go. Agencies realized it was important to work with us.
"We got control of projects. We went after a couple of problematic projects very quickly, we got those under control -- the Governor's Office appreciated that -- and we gained credibility with the agencies and the Governor's Office."
The DIT also made service delivery a priority. "Make the customers happy. Do it the old way, or the new way, but make sure the people you talk to -- and the agencies you service -- are happy," Takai said. "We didn't want to get so involved in our internal issues that we weren't focused on how we were going to deliver those technology services to the state."
Employee morale was a focus. "I invited IT employees to a sort of town hall so they could complain directly to me about what was wrong, what they didn't like, and they could know that we were listening and it was important to us. [We implemented a] massive employee communications effort -- newsletters, e-mails, Web sites -- so they would know they were not abandoned by the consolidation."
The DIT also focused on financials. "We got our rates and billing done right, so we could justify the dollars spent,'" Takai said. "We also worked hard on cultivating direct relationships with agencies. I visited each of the directors, and my first question was, 'How's our service?' The first few times I asked, it was so depressing, I could only do one meeting a day. It was an awful experience. They piled on with everything we were doing wrong. A measure of the success we are having is that I don't have those kinds of visits now."
Now, Takai said, the question is, "'How can we find the resources to do this better?' I still have a couple [of agency heads] who are mad at me, and some are justifiably mad at me -- we had a service interruption, etc. But now we are working together. A new Civil Service director wants to get together monthly as he sees technology moving his agenda forward.
"We established a strong relationship with the governor and her staff -- a big difference with the agencies, as the governor is very supportive of this organization. If we have a project not going right, I will tell the governor. She expects me to do that, and agency directors know that."
The DIT also developed an IT Strategic Plan, which tells employees, vendors, the governor, etc., where the department is. "I ask them to read the strategic plan if they haven't done it. Somebody says, 'Teri, can you tell me what your priorities are?' I tell them they need to read the plan."
The important thing to remember, according to Takai, is not to give in. "Everybody is waiting for a chink in the armor. If it looks like you are not going to follow through, everybody goes into wait mode, [thinking] 'Things will change, she'll go away.'"
Takai is very clear on what is needed for a successful consolidation. Of course, it starts with money. But it also requires a reporting structure for employees and an assessment of culture impacts, employees and agencies.
Consolidation needs both executive and legislative support. The governor needs to understand the impact of consolidation as well as its benefits. Legislators need constant educating, especially in jurisdictions with term limits. "Remember, they've never seen a data center," Takai said. "They think your job is only to keep desktops running."
Consolidation also needs a staged plan. Bringing everything together at once is difficult. And it needs a solid funding model -- agreements with agencies so they know what they are paying for. And be sure to put in place a strong governance model, with project reporting and balanced scorecard reporting, so they can see what you are doing for them, said Takai.
Be sure to build a strong leadership team. "Look at the senior members that you are bringing in and recognize that some of them will need to grapple with organizational change."
Finally be aware of alternative employment and have an updated resum
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