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The Disappearing Data Center: Government Consolidates Big Iron

The number of data centers in state and local government is shrinking rapidly, but that doesn't mean the days of mainframe computing are over.

New Jersey had six, now it has one. South Carolina has 11, but soon will have just one. Missouri also has slimmed down from six to one. Pennsylvania has a whopping 18, but plans to have just one.

What are these states in such a rush to eliminate? In two words: data centers.

Like the merger mania that has taken over the corporate world, state and local governments are consolidating numerous data centers into just one or two supercomputing facilities. Taking advantage of powerful mainframes
Thomas G. Paese, secretary of administration to the governor of Pennsylvania and F. Donald Wenstrup, assistant to the director of the Pennsylvania Tech Center.

in smaller boxes, high-speed data communications and sophisticated systems-management capabilities, governments are shutting down old centers as fast as they can unplug the aging machines.

The effect of consolidation can be significant. Most governments are projecting multimillion-dollar savings, greater operating efficiency, more opportunities to launch new IT projects and, in some cases, a centralization of independent applications.

"Our government wants to modernize the state of South Carolina, but it doesn't make sense to try and modernize 11 data centers when everyone else in the private sector is consolidating and saving money," said Ted Lightle, director of the state's Office of Information Resources.

South Carolina isn't the only state that finds itself with too many data centers. For the past 15 years, Pennsylvania has allowed the management of information technology to become heavily decentralized. Agencies have built data centers according to their individual constituent needs, resulting in a diverse number of IT architectures. Today, Pennsylvania has

eight agencies using IBM mainframes;
nine agencies using Unisys 2200 or A-Series mainframes;
eight agencies using DEC and/or UNIX;
12 agencies using IBM's midrange systems; and
five agencies using aging minicomputers (Wang, NCR, etc.).
By 1995, Pennsylvania was spending $268 million annually to run its data centers and acquire and deploy information technology. According to Curt Haines, director of the Bureau of Consolidated Computer Services, significant state funds were tied up in operating data centers, many of which were running redundant systems or were too small to achieve any economies of scale. "We look at consolidation not as a cost-saving initiative, but as a cost-redistribution initiative," he said. "We want to free up both cash and staff resources and to redirect them toward new technologies."

In South Carolina, the price and performance improvements in large mainframe computers have driven the state to rev up modernization plans for its IT architecture. The Outsourcing Option

Of all the government data-center consolidation efforts, Pennsylvania's stands out as unique. Last year, the state announced that it was negotiating with Unisys Corp. to consolidate and manage the state's data centers. Prompting this unusual move was an independent study by KPMG Peat Marwick that concluded outsourcing in Pennsylvania would result in greater benefits than in-house consolidation.

The projected benefits include greater cost savings and placing the state's information processing in the hands of competent, experienced professionals whose full-time business is information technology. Outsourcing would also reduce demands on staff resources by 80 percent. Peat Marwick projected savings of $127 million over five years; Unisys believes it can save $140 million during the same period. The contract is expected to cost the state $410 million.

The decision to outsource was not based on cost savings alone, emphasized Curt Haines, director of the Bureau of Consolidated Computer Services. "The most important reason [we are outsourcing] is to free up resources for emerging technologies. We want to free up both cash and staff resources and to redirect them to new opportunities, such as Web services, electronic commerce and knowledge-based applications."

Haines added that outsourcing data-center operations is not unprecedented. Over the past 10 years, a number of major companies, from Kodak to McDonnell Douglas, have outsourced their data centers. In addition, the state forecasts that only 208 state workers will be affected by the contract -- not the 500 originally reported -- and all will be offered training to revitalize their careers. As for the data, Haines said that the state will have proper safeguards in place to protect the state data from outside tampering. Haines' department will manage the contract.

Is Pennsylvania getting out of the computer business? Definitely not, replied Haines. The state is not outsourcing its entire information technology operations, just the 18 data centers the report recommended. The others, mostly smaller DEC systems will be consolidated and run by the state.

"The only thing that didn't make sense was for the state to operate multiple data centers," said Haines. "We will be investing the mainframe savings [from outsourcing] into other IT disciplines. We are not looking to get out of the business of computer operations."

"When I started working for the state in 1982, it cost $4 million for a mainframe with 10 MIPS [millions of instructions per second]," recalled Lightle. "Today, we can purchase mainframes that cost $2,000 per MIPS."

But for some states, there's a more urgent reason for data-center consolidation. Private-sector competition has created an exodus of workers from government IT positions, stripping data centers of some of their most valued workers. With a shrinking staff base, some governments have no choice but to consolidate. "Our challenge is to remain competitive in this marketplace," said Peter Poleto, co-chairman of New York state's data center consolidation program. Poleto, speaking at the Government Technology Conference in Albany, N.Y., last year, explained that the state's highly skilled staff have been strongly sought by a private sector eager for experienced workers to fill their ranks. "Many of our colleagues are leaving for six-figure salaries," he said. "Our only strategy is to consolidate our resources in the face of these market pressures."

More MIPS, Fewer Folks

If staff departures have strained data-center resources for New York, the state has only to look at what Hewlett-Packard has done to remind itself of consolidation's benefits. HP has 300 servers and 10 terabytes of storage at its 28,000-square-foot Atlanta data center, which supports 18,000 workers and 220 field offices. The entire facility is run by a staff of five.

Bottom line: Large-scale data centers are less expensive to run. Lightle figures South Carolina will save $30 million over 10 years and will need 100 fewer people to manage one center instead of 11. Missouri expects to save between $3 million and $5 million annually.

Pennsylvania also plans to cash in on the consolidation bonanza. In what is turning into one of the more unusual approaches to consolidation, the state is outsourcing its data-center operations to Unisys Corp. Under the vendor's proposal, the state could save up to $140 million over five years by turning over operations to the private sector. One reason the state opted to outsource: An in-house proposal for consolidation projected savings of only $13 million for the same period.

The state intends to use the savings to invest in emerging technologies, such as Internet-based applications and electronic commerce, as well as retraining present staff. Some 370 IT staff will be affected by the Unisys agreement.

New York also sees consolidation as the open door to new IT opportunities. Poleto listed data warehousing, Web enablement and three-tier client/server applications as some of the possibilities that will come with consolidation. Another improvement is service quality. "Twenty years ago, 24 [hour], 7 [day] operations didn't happen. Some incident routinely interrupted services," said Poleto. "Today, however, the need for true uninterruptable, redundant and hardened service has become a demand."

Today's consolidated centers also offer better security than in the past. With the proliferation of Web applications that rely on legacy data, as well as the overall importance of information processing in all fields of government, the need for security will never be higher. In addition, Poleto pointed out that today's consolidated data centers are able to meet federal rules that require encryption of mainframe data while it's transmitted across networks.

One possible outcome of all this consolidation in state and local government is the recentralization of agency applications. Not so long ago, most efforts at application development seemed to occur at department or agency level. But thanks to "enterprise computing," today's buzzwords in both the private and public sectors, the newly consolidated data center is seen as the best place for such enterprise applications to occur, according to technology experts such as the Gartner Group. Because of the difficulties of running applications outside the data center, many agency directors have a new respect for the glass house.

"The client/server environment no longer provides all the answers," Lightle said. "We will be bringing some large client/server systems into the data center. The emphasis in South Carolina is on the enterprise environment."

It's a Utility

If data-center consolidation is so beneficial, why has it taken so long to happen? Consolidation may be the stake in the heart of decentralized computing in state and local government, but it's going to take a lot of pounding to drive it in. Consolidation inevitably means the loss of autonomy or even elimination for smaller data centers, which can be hard for their directors to swallow.

"Every [data center] leader thinks they shouldn't be subject to consolidation," explained Gerry Wethington, director of the Information Services Division of Missouri's State Highway Patrol and chairman of the state's consolidation steering committee. "We had to work through a lot of turf issues. Everybody thought they were unique and shouldn't be consolidated. They couldn't get past the point that computing power is nothing more than a utility."

In the end, Wethington said, everybody came around and agreed that consolidation was in the best interests of the state. In South Carolina, the governor has been behind the effort to modernize and has pushed for enterprise computing, including consolidation, so turf issues were less of a problem.

Wethington believes that the hiring of a consultant helped to absorb the anger and resentment aimed at the consolidation effort. "I really believe that the biggest service they brought to the project was taking the brunt of the anger," he said. "That's a role for the consultant that goes beyond their field of specialty."

Another problem that has cropped up in consolidation projects is, ironically, unexpected costs. It turns out that independent software vendors penalize centers that purchase large-capacity mainframes. Historically, mainframe users paid for software based on the size of the system the application is running on. This pricing surcharge hadn't been a big issue until state and local governments began purchasing larger-capacity machines for the consolidated data centers.

South Carolina has expanded the MIPS rate in its central data center through consolidation from 25 to more than 300. According to Lightle, hardware costs actually dropped with the expansion, "but the independent software vendors are raising their prices."

Wethington concurred. "The independent vendors are not giving us a good price."

Fortunately, customer complaints are beginning to be heard. IBM recently sent a shot across the bow of the independents by altering what it charges for mainframe software. Recent changes of the mainframe manufacturer's pricing structures could lead to significant savings. Other vendors are beginning to follow suit.

To most data-center directors and CIOs, the software pricing issue is a mere bump in the road to consolidation. The benefits far outweigh any shortcomings, they say. South Carolina cites six key advantages: modernization, better management, more efficient use of resources,
technological compatibility, better security and financial rewards. Of all these benefits, Lightle said modernization is the key reason consolidation is so important today.

"We're expecting the use of our consolidated data center to grow in the coming years as demand for cross-agency solutions increases," he said. "Consolidation is one of the building blocks on which we will build our enterprise system for the state of South Carolina."

The same can be said for the rest of the consolidation efforts now under way.

Tod Newcombe is author of "Electronic Commerce: A Guide for Public Officials," published by Government Technology Press. Additional information is available online at or by contacting Lucinda McKevitt at 916/363- 5000 or via e-mail.
With more than 20 years of experience covering state and local government, Tod previously was the editor of Public CIO, e.Republic’s award-winning publication for information technology executives in the public sector. He is now a senior editor for Government Technology and a columnist at Governing magazine.