When it comes to technological innovation, a government agency is probably the last thing to cross your mind. After all, Harvard dropouts and Silicon Valley whiz kids are best known for blazing new technology trails, not public officials. The same rule applies to stirring competition — a strategy thought to be best employed by deep-pocketed private enterprises rather than stodgy state agencies. But if Adrian Farley gets his way, such antiquated notions of government will be a thing of the past.

That’s because Farley, California’s CTO and acting director of the Office of Technology Services (OTech), is spearheading an effort to build a federated, state-run data center where individual state agencies are welcome to lease space within OTech’s data center while keeping their operations autonomous.

The Federated Data Center

Dubbed the Federated Data Center (FDC), the facility is located at the OTech Gold Camp data center in Rancho Cordova, Calif., and serves as a physically partitioned-off facility shared by state agencies. Current inhabitants include the California Department of Health Care Services and the Department of Corrections and Rehabilitation.

It’s an unusual and innovative approach to cost cutting and resource pooling that’s drawing the attention — and budgetary dollars — of a growing number of state organizations. After all, 10 years ago, Gold Camp was just a mainframe-centric data center laying claim to fewer than 50 server racks and without a co-location area.

Fast-forward to today and Gold Camp is now a Tier III data center boasting 665 server rack spaces and a co-location environment supporting 27 state agencies. By converting 4,000 square feet of office space into the FDC, Farley and his team have created a sophisticated facility that provides state agencies with services including local area network capabilities, security and storage.

The timing for a shared facility aligns with the state government’s larger goals. In February, Gov. Arnold Schwarzenegger issued an executive order mandating that each state agency reduce the size of its data center floors used by 25 percent by July 2010, and by 50 percent by July 2011. In addition, the order required agencies to reduce energy consumption of their IT and telecom infrastructure by 10 percent by July 2011, 20 percent by July 2011 and 30 percent by July 2012.

“All state agencies within the executive branch are evaluating their data center environment and applications to determine what path they need to take to comply with legislation that was recently passed unanimously by the Legislature,” Farley said.

But that’s not all. The bill, AB 2408, specifies that mission-critical and public-facing applications must transition to Tier III data centers designed by the California Office of the State CIO, and that all other existing server rooms are to be closed by June 2013. All of this has created an opportunity for Farley and his team to provide state agencies with computing power and storage capabilities from its FDC for a reasonable price.

“If state organizations are now being mandated to be cost-effective, they’re going to have to look elsewhere [for their computing and storage needs],” said Greg Schulz, founder of the Server and StorageIO Group, a technology consulting firm in Stillwater, Minn. “That’s where OTech has to come in and be a white knight.”

That was the case for the California Department of Corrections and Rehabilitation. “Our computer room was rated a Tier I data center and would require approximately a $2.5 million to $3 million investment to bring it to a Tier III rating,” said Joe Panora, the department’s CIO. “OTech’s is already rated a Tier III data center. Utilizing the Federated Data Center space at OTech made business sense from a cost avoidance perspective.”

Already, California’s efforts to consolidate government IT have enabled the state to cut data center space requirements by 75,000 square feet over the past year. The space savings circumvented the need for a new data center facility, slashing more than $40 million in capital costs. In fact, according to a September 2010survey by the Center for Digital Government, technology used by state governments is more consolidated than ever. In 2004, 46 percent of states reported that their technology systems were highly decentralized, with individual agencies operating their own systems, many of which were duplicates. A mere 20 percent considered themselves highly consolidated. This year, those figures are reversed, with 42 percent viewing themselves as mostly consolidated and 21 percent decentralized.

“State agencies are pooling resources, they’re maximizing available resources like power, cooling, floor space and staffing by coming together as a consortium,” Schulz said.

That’s no surprise to Farley. “The key benefit [of OTech’s FDC] is a high-density computing environment so that agencies are able to reduce the footprint of their data center, thereby reducing facility costs,” he said. What’s more, unlike data center solutions provided by big-name vendors, such as Amazon and Google, Farley said OTech’s FDC offerings are “more tailored to the specific requirements of government agencies as opposed to being just a commercial solution.”

And not a moment too soon. “People have long argued that it’s time for government to bring their resources together,” said Daniel Castro, a senior analyst with the Information Technology and Innovation Foundation, a technology think tank based in Washington, D.C. Not only can the FDC pool together precious resources, but there are also fringe benefits to latching on to the coattails of a Tier III-equivalent facility. For example, Castro points out that with its sophisticated redundancy and data duplication processes, the FDC also “raises security levels for state agencies that might not have made security as much of a priority.”

Entrepreneurial Impetus

Nevertheless, while private enterprise has long catered to the whims and requirements of its customers, becoming a provider of optional services is a relatively new role for government — one that calls for innovation, a competitive streak, and the ability to attract and retain new business.

“It’s somewhat entrepreneurial, and it’s competitive in the managed service environment,” said Farley of OTech’s new position, noting that the organization itself is a testament to the perks of consolidated government IT. “We’re working very hard to reduce costs in multiple areas,” he said. “One of the areas that I’m proudest of is that in the last 18 months, we’ll have reduced the cost of storage by over 400 percent. That’s a key driver in our efforts to bring customers in and promote consolidation. It creates and strengthens the business case for consolidation.”

But OTech isn’t the first government agency to adopt an entrepreneurial stance within the public sector. For Patrick Quain, CIO of the Arizona Department of Administration’s Information Services Division, it all began following a multiyear, $8 million refurbishment of the state’s 30-year-old data center. The massive overhaul included the addition of powerful generators, new floor space, network and battery backup capabilities, dual-redundant firewalls — features that other departments were eager to utilize. In no time, Quain said other departments began asking to move their servers inside the facility to take advantage of the data center’s state-of-the-art hardware and potential cost savings.

“Because these agencies couldn’t afford [to build the same level of facility], they elected to move their equipment into our data center,” Quain said. “When budgets are so tight, you’re looking anywhere you can for relief, so our data center was a real game changer. … These agencies all have to report annually on how they spend their federal dollars. If they can report that they’ve completed 10 to 20 percent more work for 10 to 20 percent fewer dollars, the feds are happy with that. So our model has spoken well for the auditors, the feds and the agencies.”

Another prime example of how consolidation can become a competitive edge: California’s newly launched e-mail consolidation plan offers state agencies the choice of either relying on Microsoft’s cloud-based e-mail or using the existing CA.mail enterprise e-mail system that runs in OTech’s data center. The goal is to consolidate the state’s 130 siloed e-mail systems and the executive branch’s 185,000 mailboxes within a unified system. But while the strategy is intended to provide state employees with the option of cloud e-mail, some state officials have speculated that these two e-mail services essentially pit the CA.mail system against Microsoft’s cloud solution for state agency dollars.

That’s not to suggest, however, that fostering friendly competition and driving innovation are easy tasks. According to Quain, migrating a state agency’s servers into its data center is a delicate procedure requiring equal parts patience and understanding. “It’s hard and it takes awhile,” he said, noting that many state agencies are reluctant to relinquish their operational reins. “When we bring an agency on, the first month or so they’re over at the data center every day touching their equipment. But it eventually drops off. The fact that their servers aren’t in a closet down the hall and are now in another data center doesn’t seem to really matter after about a month.”

Not to mention the added pressure of preparing OTech’s employees to shift from a public-service role to that of a customer-centric service provider. “It’s been a challenge at times, but employees within the organization are very dedicated to the work they do,” said Farley. “It’s simply about providing them with the skills and training required to become agents of customer service. You can’t just tell somebody they’re part of the sales force without providing them with the training required.”

And then there’s the challenge of establishing a new set of priorities. Ensuring network uptime and high-level data security is one thing. However, according to Castro, successfully satisfying agencies’ needs comes down to “how effective a state’s CIO and CTO are in listening to the requests of different agencies and moving quickly and getting responses. That’s more of an organizational and leadership challenge more than it is a technology challenge.”

But that’s not all. Catering to the disparate computing and storage needs of a variety of agencies can cause an organization to neglect its own internal requirements altogether. “The risk is that [the state government’s technology office] will lose sight of its core function, mission and charter and all of a sudden become more focused on becoming a service provider,” warned Schultz. “If all of a sudden an organization drifts with the notion of becoming the next Amazon, Google or Terremark as opposed to serving the other agencies of California and its citizens, that’s a problem.”

So far, that hasn’t been the case for OTech, assured Farley. “Our primary focus is providing services to California state agencies and that will always be our core mission,” he said. “But state agencies can benefit from the size and scale that we can add to our service offerings.”

In fact, for all the changes brought about by OTech’s FDC, Farley is reluctant to classify the venture as “managed competition” — the opening of public service delivery to private enterprises. “Managed competition is primarily a framework for competition between government solutions and private-sector solutions that are managed within a very tight framework — and that isn’t precisely what we’re doing,” Farley said. “We’re creating competition among state organizations in order to drive service levels up and costs down.”

After all, there’s a fine line between consolidating IT across multiple agencies and encouraging both public and private entities to compete for the same business. “It’s one thing to say [the state government] has to be thinking about generating a profit. That can get a little dicey,” said Schulz. “But on the flip side, they do need to think about how they can do more and reduce their costs. If OTech has to go out and buy a resource, why not offer that to others to help them pay for the services they need?”

It’s an innovative arrangement that Castro believes has a bright future. “I really think the trend here will be toward even more centralization,” he said. “I suspect that if California is successful in this area, it will look into offering this as a service to nearby states and say, ‘We’re doing this well, so why don’t we consolidate as well.’”

OTech also has its eye on the future with several new developments under way including the creation of a private cloud model that will allow the agency to serve as a broker for cloud services, as well as operate its own on-premise private cloud. The thinking behind the project is that cloud computing will enable OTech to rapidly provision the capability of virtual servers and storage, as well as supply infrastructure as a service offerings to state agencies based on a consumption pricing model.

In the meantime, Farley said California’s FDC is well on its way to blazing a new path toward greater government IT consolidation with a distinct entrepreneurial bent. “We’re building a model for what we want to convert all future data centers into,” Farley said. And that might be something even Silicon Valley whiz kids can appreciate.

Cindy Waxer  |  Contributing Writer

Cindy Waxer is a journalist whose articles have appeared in publications including The Economist, Fortune Small Business, CNNMoney.com, CIO and Computerworld.