Shared Services, Consolidation, Bulk Purchasing Help Ease Budget Pain

State budgets aren't in crisis yet, but SOA, consolidation and procurement changes can boost efficiency, CIOs say.

by / May 6, 2008

State budgets across the country are being cut at an alarming rate. From Alaska to Florida, funding shortages threaten to cripple government agencies that provide the services people depend on. "Crisis" is the unspoken word of the day, especially in IT shops where diminished resources may be insufficient to cope with the looming onslaught of work as agencies beg for technology to save them from a fiscal nightmare.

Does that sound about right? Or does that sound less like reality and more like sensational reporting? Everywhere you look, it's supposedly doom and gloom - the economy is headed toward recession, and states' only hope for prosperity is an Indian casino on every street corner.
There are so many stories about budget crises that it becomes easy to just assume it's all true.

But is it? What is the financial reality for state IT? What strategies are being investigated and deployed? And most importantly, is the sky really about to fall - or is it just another storm that must be weathered?

Silver Lining

It's hard for anyone to claim the economy is doing well, but that doesn't mean it's time to declare DEFCON 1. Most people would agree the economy has taken a downward turn due to the weakened U.S. dollar and the housing market collapse. Not surprisingly, the way that carries over to state budgets differs from state to state.

Last year wasn't so bad for state budgets, according to The Fiscal Survey of the States, a December 2007 report by the National Association of State Budget Officers and the National Governors Association: "State fiscal conditions remained strong for most states in fiscal 2007, but overall growth slowed slightly from the robust conditions of fiscal 2006. Revenues were generally stable, and only one state was forced to make midyear budget cuts."

That description does not jibe with the supposed budget calamity that states are bracing for. Some states, such as Missouri, actually are in good shape going forward.

"In Missouri, for the current fiscal year and the next, the consensus revenue estimate is that barring a crisis, the revenues will be aligned with the budget," Missouri CIO Dan Ross said. "So we're not seeing [shortfalls] on the immediate horizon, anyway."

His account is jarringly pedestrian. It turns out that while things aren't great, the budget picture is OK. For CIOs like Ross, that's the way it usually is - small budget reductions come annually, sometimes 10 percent and sometimes less. Each cycle forces his IT shop to be more agile to compensate.

Ross is a big advocate of IT consolidation. It has helped his agency through the lean times, he said, and also generated tangible savings that were reinvested in service delivery. That reinvestment in technology is a critical part of his strategy for Missouri.

"IT consolidation has really helped Missouri, and I would highly recommend it as a way to stave off those kinds of reductions in resources. There are so many opportunities to achieve cost savings, efficiencies or cost avoidances," he said. "It's imperative that funds be invested in [technology], because if we fail to do that, we'll face service interruptions and speed and capacity issues. So while technology has stood in the gap these last several years, there's a great need to reinvest to keep that technology current."

Ross also points to other techniques that he uses to keep his agency above water: Developing common architecture standards and instituting bulk buying saved money for Missouri. Establishing service-level agreements and building good relationships with vendors also helped take the sting out of diminished resources.

One area that is often targeted for cuts, especially in IT, is employee training. Ross is adamant that these cuts are self-defeating, particularly with a massive loss

of institutional knowledge looming on the horizon as a wave of IT workers near retirement age.a

"I would not throw out training," said Ross. "I think that's an investment, and your ability to deliver products and services depends on keeping your staff sharp. While for some that would be one of the first things they would cast out, we hung onto the budget for providing either formal degree training or technical training to keep our tools sharp."


Phoenix Rising
Maybe you're not convinced. Maybe you think Missouri is an oasis in a desert of economic despair. It isn't. In the arid Southwest, for instance, the heat is still more oppressive than the fiscal situation. Arizona was hit rather hard by America's housing mess because of the state's dependence on construction and real estate for its economic lifeblood.

Arizona CIO Chris Cummiskey said Arizona's sales tax revenues have been impacted and economic growth has slowed from 8 percent or 9 percent in fiscal 2007 to just 3 percent or 4 percent in fiscal 2008. The state's executive leadership has placed a premium on enhancing productivity and efficiency to offset lost revenue. Cummiskey said that challenge can be met with some effort and ingenuity.

"We try to find ways to create programs that can benefit in a shared services kind of environment," he said. "Things like project management certification programs or ways of expanding Web conferencing tools for better efficiencies and cost savings. That's what we're working on: how to put programs in place that will benefit all 115 agencies, boards and commissions in a way that is smart going forward."

Cummiskey has additional strategies to help his agency thrive even when budgets are lean. Enterprise licensing arrangements, for example, are simple ways to cut costs. Instead of the state's 60-plus agencies purchasing software licenses on their own, Cummiskey's enterprise approach generates significant savings.

Cummiskey also is looking seriously at service-oriented architecture (SOA). Though transitioning to SOA isn't an immediate solution for current issues, it could position the state to meet future challenges while continuing to deliver services.

The budget crisis may not be as dire as some make it out to be, but budget cuts will be unavoidable because many states are feeling a pinch. However, there are good and bad ways to approach these reductions. Ross and Cummiskey contend that traditional, across-the-board budget cuts do more harm than good. Bill Eggers, the global director of Deloitte Research-Public Sector, has long argued this point and notes that sweeping cuts don't take into account IT's ability to help the enterprise do more with less.

"IT budgets shouldn't be exempted from budget cuts, but there's a right way and a wrong way to cut IT," said Eggers. "The wrong way - but also the most popular way - is across-the-board cuts. As with a starvation diet, such slash-and-burn cutbacks are usually undone as soon as tax revenues begin flowing back into government coffers. Instead governments should take a more tactical approach by driving out excess costs and creating additional value by transforming their IT cost base, structure, priorities and infrastructure."

In Arizona, Cummiskey said Gov. Janet Napolitano has adhered to the strategy Eggers described. Instead of cutting all agencies' budgets without regard to their capability, Arizona's governor opted for a more exacting approach.

"The governor has actually promoted a balanced approach to bridge to better economic times," Cummiskey said, "which is to say some agency cuts and reductions are targeted, not across-the-board, and really go in surgically and look at areas where we can realistically make reductions."


Is California Still Golden?
In California, dire budget projections have been a topic of discussion for the last decade.

This time the state may be in a genuine budget crisis, with a $14.5 billion deficit estimate for 2008. However, leadership in the state's Department of Technology Services has remained strong, and new CIO Teri Takai is confident her agency can help the state through its economic woes.

Takai, former Michigan CIO, is just a few months into her new position, having taken the reins from Clark Kelso, who now serves as the federal receiver overseeing health care for California's prison system.

"Clearly we are spending dollars on IT, and we have to make sure we're looking at those dollars and channeling those to the highest-priority projects," Takai said. "The second thing we want to do is take an enterprise look at what we're doing because it could very well be that, if several organizations work together to put an application out, there may be a way to use the monies more effectively."   

For Takai, dodging the budget crunch is all about IT optimization, which is another strategy Eggers has consistently championed.

In a Deloitte report, Cutting Fat, Adding Muscle, Eggers writes that states should "wring savings out of current governmentwide technology spending by optimizing IT operations and use it to invest in cost-cutting and revenue-producing information technology projects. This approach offers the best hope for reducing IT budgets without cutting into core IT services or impeding the ability of governments to continue to invest in IT projects that can help reduce the costs of government programs and business processes."

The report offers several examples of how to optimize IT. The underlying principle: Building an IT infrastructure that is tailored to the needs of the state as an enterprise enhances IT effectiveness, resulting in the ability to do more with the same or less. This principle is reflected by the efforts of Ross and Cummiskey. It's also an approach Takai intends to continue in California.

Takai said she is encouraged by the posture the state's executive leadership has taken on IT. She said one of Gov. Arnold Schwarzenegger's objectives is to treat IT resources within the state as part of California's critical infrastructure. It sounds so obvious, but those who are familiar with government IT know that moving people from an agency-specific perspective to one that is enterprisewide is perhaps the biggest challenge a CIO will face.

Like Ross in Missouri, Takai said some of her key strategies for helping California thrive in the long run involve committing the state to attracting and retaining a high-quality IT work force. In addition, SOA looks to have an assured place in the state's future.

"There's been a lot of great work done, started by Clark Kelso, on looking at improving the skills and making sure we have great succession planning for our skilled IT work force," Takai said. "There's been some great work done on enterprise architecture, some great work done around SOA. We have great IT leadership in the state. We need to come together and make sure we're operating as a complete organization across the enterprise and we're making the best technology decisions for the state."

There is a partially inaccurate yet still compelling bit of wisdom people recall during times of trouble. They say the Chinese use the same word for crisis as they do for opportunity. Homer Simpson once incorrectly guessed the word to be "crisitunity." The real word, wei ji, actually means something more like "uncertain moment," but it's hard to argue against the insight of the adage.

In Minnesota, CIO Gopal Khanna has been through the ups and downs of state budgets and has ridden them all out. Khanna attributed part of his success to several "crisitunities" of his own.

"Economic downturns should be seen as an opportunity to create efficiencies and economies now in the operation of our existing IT environment so that we can set the stage for wise development and business process transformation or renewal in good times," he said. "The effective use of business process re-engineering tools, the minimizing of redundancies through consolidation, and the identification of new funding strategies for long-term infrastructure investments not only address our current economic environment, they will result in building a viable government operations infrastructure for the future."

Khanna said his state faces many of the same financial challenges others do, but he did not call Minnesota's situation grim. Instead he said it's a chance to crank up the creativity and take decisive action. Lean times, he said, present IT with challenges - and the ability to change for the better.

Budget issues are "a challenge to keep value high for our customers in the services we deliver," he said, "and an opportunity to make fundamental changes to how we manage IT as an enterprise to take advantage of contemporary trends in information management, such as shared systems, asset consolidation and centralized procurement. We are working to meet both the challenge and the opportunity."

Economies are cyclical and budgets will always have to deal with feast or famine. It is probably premature to label current conditions a famine, but things are certainly leaner in many places. These examples underscore the value that IT brings to states. With state leadership growing more aware of this value, hack-and-slash budget cuts may be a thing of the past, to be replaced by intelligent, thoughtful budget strategies that truly take advantage of the resources of an enterprise.

Chad Vander Veen

Chad Vander Veen is the former editor of FutureStructure.