Teri Takai, CIO of Michigan, spoke at an executive luncheon last Thursday at GTC East in Albany, describing Michigan's IT centralization and consolidation in some detail. It included a straightforward analysis of what is working as well as what went wrong and why -- something she termed her "survival guide to IT consolidation."
"Technology is not the issue here," said Takai, "what we're taking about is what's traditionally called organization. How do you change mind sets around the way people look at the way we use technology and implement technology."
Takai said the consolidation and centralization was unusual in several respects. It began under former Governor Engler, a Republican, and was then continued through a change of administration and political party to Democratic Governor Granholm.
And while Takai's department is funded by the agencies -- with no independent budget of its own -- she does have control of the money. "All IT spending comes through me. I can make the decisions. The tricky part is that you have to do that very carefully, because of who you make angry," she said, adding that the CIO must understand the budget very well to shut down a spend, or tell an agency it can't buy something.
Takai has about 1,700 state employees, runs the state's 800 critical business applications, and handles the desktops for about 55,000 state employees. "We have 19 state agencies, two of those are elected -- our Attorney General and Department of Motor Vehicles director," she explained. "I don't provide any services to our university system or the Legislature.
"From a services standpoint," said Takai, "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. 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."What We Did
"We leveraged our technical resources," said Takai. "We have three major mainframe data centers, and we have consolidated all our telecom. 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, and server resources. We are in the process of taking out the servers, I have some 20 small data centers, scattered around the state Capital, and we're bringing those into our robust data centers. We have been able to strengthen a couple of our data centers by using Homeland Security dollars to ... protect the state's data. The rationale was that if we got the money to strengthen our data centers and strengthen our security, it would benefit all the agencies. 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, all the agency CIOs report in to the Department of Information Technology. But we made a deliberate decision to not try to co-locate them into an IT building. My feeling is that 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. 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.
"We renegotiated and brought together all our contracts. Our budget came 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 and getting it started. 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 out ahead without getting caught up in the day-to-day?"Common and Best Practices
The reason for consolidation, said Takai, was to implement common and best practices across agencies. "Prior to the formation of the organization, each individual agency had its own IT group, and the larger organizations like Health and Human Services had 300 people or more, and little agencies had five or six. So when they bought their technology, there was a huge disparity in what was done. 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. It was important for us to get out and be able to use the best practices, and treat it as a professional IT organization, in how we handled services as well as our employee career path."Leverage Technical Skill and Spending
The second reason for consolidation and centralization was to leverage 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 -- so 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 -- less money to do things."Coordinate Policy Decisions
Centralization and consolidation also helped coordinate policy decisions across the enterprise, especially with regard to what Takai calls "The security imperative." The state needed a standard set of policies across the entire state. Rather than have each agency create their own -- or, as she said, with smaller agencies having nothing at all.Strengthen Relationships With Business Partners
"Lastly, it was to strengthen our relationships with business partners," said Takai. Partners include vendors, as well as other units of government. "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. 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 be able to improve the services. And if you just look at the amount of paper that's passed back and forth between the state and the counties -- it's pretty scary. I know many of you look at birth and death records -- and that's an example of something that's paper-intensive; very inefficient at this point ... The more we need to 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?
One question that always comes up, said Takai, is "How much did you save?" Where is the real bottom-line benefit? "Our initial thrust was to go out and look at areas of inefficiency," she 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 on 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."
And the state started looking at its contract personnel. "Rather than outsourcing, we have done selective insourcing," she said. "We had contact personnel in the state who had been in the state longer than some of my state employees, and at about double what it was costing for state employees. So we selectively went out and brought that expertise in so that state employees could do that.
"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 dispersed into various program areas in the agency. So one key question is 'do you know what you are spending your IT money on? And where you are spending your money, is it directed to where you want the agency to go, or is it dispersed across all the individual groups?' If you drew all that money together, you might find you had enough IT money to do the things that you wanted to. Right now because of way it's disbursed, there's no way to get it together."Security
"The imperative is security," said Takai. "We all have many legacy systems that are beyond the ability to be secure. So it is very important we have a single face of security at our networks, and then we are working on how we can keep our applications secure. Once we get an intrusion, it's very easy to make [their] way around. We've brought in professional hackers to take a look at our vulnerabilities. All of us are concerned.
"We have the largest concentration of data about citizens in a single place. A private-sector company has customers, but they are dispersed. That brought home for me the importance of ... security."Effective Spending
"Part of effective spending is to make sure we have no runaway projects, that we have projects managed with discipline. We are requiring that large or difficult or cross-agency projects are broken into several pieces. Part of that is a Project Control Office which is independent of the way that we are doing the project, so we can be sure we have the right parties there, and that we are concentrating not only on technology implementation, but what are the business implementations? It's really all about control -- make sure we are spending money in the most effective way."Citizen Impact
"We've done a lot to smooth out the multiple agency face to the citizen," said Takai. "As a citizen looks at the state they are not looking at individual agencies, but they see it overall. One thing that has been a driver for Gov Granholm, is that there are no projects in the state anymore that are single-agency projects. She's a big driver of collaboration across the agencies. She wants to bring information together to drive the change that she wants. Now she can come to us as a single organization, and we are accountable to her."The Challenges
Takai would be the first to admit that she has some 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. And it's important that we recognize that. And that we continually work with the agencies to make them more comfortable with us. [And ensure that] in the end we are delivering valuable services and saving the state money."
Takai listed the major challenges faced during the centralization and consolidation:
What Did We Do Wrong?
- "Transition in governors -- 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 happened was former Gov. Engler spent time with Gov. Granholm, talking over the rationale and what he felt were the benefits of doing it. And she decided that this was something that would work.
- "I was one of the last appointees, and until that -- I came on board in February -- and when I was appointed, the shoe dropped. 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.
- No legislative mandate -- It was all 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.
- Employee resistance -- We had about 15 percent early retirement, and then we had a hiring freeze. So we lost people, and we couldn't replace them. And we had huge employee resistance. They identified with their agency, they didn't know who we were or what we were about. Efforts to bring the employees together was 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 really vitriolic statements about things that were going on.
- Agency resistance -- The agencies were forced to do it -- they were asked to serve up their numbers, resources were just taken away from them.
- Informal processes -- And we had very informal operating processes. Not much written down, no data on service levels -- they didn't know. 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 who are 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. And that is a huge source of dissatisfaction.
- CIO -- The last one is that we have 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."
Some of the things the state did wrong, said Takai, include:
- "Underestimated employee and agency and legislative resistance -- We underestimated employee resistance. We did a lot of talking about getting to cross-training, you'll have a career path between agencies, but we underestimated the amount of communication we needed to do.
What We Did Right
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.
- We underestimated the need for formal processes -- We went back in to do process engineering in our first year ... so we had specific and formal processes to follow.
- We proceeded without an adequate funding model -- It had a lot of holes in it ... we spent 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.
- We centralized our 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 myself off 70 versions of two e-mail systems. You can imagine that when a tech 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.
- We had an inexperienced executive team -- Because of the personnel rating system, we had individuals who went from having 10 people to having 80 people. And there was really no mechanism to teach them how to deal with that broader team. 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 had to manage 80 people through a very difficult time.
- 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! --'We need to have this done, we'll do it and figure it out afterwards,' and the afterwards was painful."
What did we do right?
- "We got control of IT spending -- 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.
- We made service delivery a priority -- We said first thing is 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. 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.
- We focused on employee morale -- I visited 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. Massive employee communication effort, newsletters, e-mail, Web sites, so they would know they were not abandoned by the centralization.
- Focused on financials -- we got our rates and billing done right, so we could quote-justify the dollars spent.
Things You Have to Have in Place to Centralize
- We worked hard on cultivating agency direct relationships -- I visited each of the directors, and my first question is "how's our service?" The first few times it was so depressing, I could only do one a day. It was an awful experience, a pile-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 they are much more around 'how can we find the resources to do this better?' I still have a couple 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 as moving his agenda forward.
- We established a strong relationship with the governor and her staff -- A big difference with the agencies, as the governor very supportive of this organization. If we a have project not going right, I will tell the governor, she expects me to do that, and agency directors know that.
- Developed an IT strategic plan -- Tells employees where we are going, vendors, governor, etc. 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.
- You can't 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, 'things will change, she'll go away,' one of those things."
The things that must be in place to centralize, said Takai, are:
- Reporting structure for employees
- Assessment of culture impacts, employees and agencies. Not just technology
- Executive support -- governor needs to understand the impact and benefit
- Legislative support, especially with term limits, constantly educating the legislators. They've never seen a data center. A broader concept of it in the state. Or else they think your job is only to keep desktops running
- A staged plan -- bringing everything together at once is difficult
- Solid funding model, agreements with agencies what are they paying for, what is your accountability
- Strong governance model, project reporting, red, green, yellow reporting with agencies, so they can see what you are doing for them
- Strong leadership team, have to look a senior members that you are bringing in, recognize that some of them will need to grapple with organizational change
- Alternative employment, updated résumé, the life span of a CIO is 18 months," she joked.
"Michigan One, is the final consolidating of servers, standardizing desktops, doing common enterprise monitoring, things to leverage this organization more than we have. And asset management -- know what we have. Security standards and architecture. Enterprise projects."
Governor Granholm, said Takai, is a governor who gets it. In her state of the state address, she said: "Information technology is at the heart of Michigan state government."