The New Economy: A Glitzy Future?

Michigan's massive new data center is the right technology for these tough economic times.
January 27, 2010
Jerry Mechlin
By Jerry Mechling  |  Contributor
A consultant and former faculty member of the Harvard Kennedy School

Michigan, under severe economic pressure longer than other states, has responded with some notable, leading-edge technology initiatives. While others have talked about consolidating technology services, Michigan - beginning with Governor John Engler and greatly extended under Governor Jennifer Granholm - has actually done it. Starting in 1992, Michigan became the first state to create a CIO reporting to the governor and then, via a series of often-painful moves, consolidated nearly 4,000 widely scattered servers into three sites. This freed up some 30,000 square feet of floor space and, most importantly, allowed the state to reduce their technology services staff by roughly a third. The costs of technology service went down $100 million while reliability, professionalism and customer service went up.

Under CIO Ken Theis, Michigan is now moving to create the Great Lakes Information and Technology Center, or as I like to call it, "glitzy."

The GL-ITC, a single, massive data center, will have greater processing power, stronger security, uninterrupted availability, broader scope and a significantly lower carbon footprint. The goal is not only efficiency but also job creation and advancement of the IT sector, in keeping with the state's New Economy Partnerships program.

Let's look briefly at the economics of GL-ITC, the leadership and the implications, as in "What's in it for you?".

Why: Economics of Scope and Scale

To survive in a competitive world we need to work efficiently. Scope economies exist where resources can be applied to multiple needs, with the combined needs handled more efficiently than via single-use applications. For example, someone who uses a pick-up truck to transport goods will gain economy of scope by also using that truck to transport people, rather than buying an additional vehicle exclusively for passengers. Software, too, offers economies of scope because it is so malleable.

Scale economies - where unit costs decrease as volume increases - exist where fixed costs are spread over more users. The hundreds of millions of dollars required to develop an operating system like Windows can become increasingly productive as the system reaches millions or even billions of users, because with each new user the overall cost-per-user drops. The Internet also offers network economies of scale as each extra user not only shares costs, but also adds value to the community. If we assume for the moment that each user reached is equally valuable to the network, then we may determine that as networks get larger, value explodes.

The proposed Great Lakes Information and Technology Center will take scope and scale to the next frontier, again boosting data center efficiency. Beyond that, it will add new users and uses by working with local governments and private sector partners. Local governments will gain the same kinds of processing efficiencies the state gains; they could also outsource their software development via "software as a service" arrangements with the state. Private firms will also benefit from GL-ITC, using it for backup capacity and other needs, much as many years ago when Citibank pushed their back-office processing from New York State to South Dakota.

In addition, by taking advantage of the speed and efficiency of fiber communications - meaning that data servers don't need to be physically close to data users - Michigan can move GL-ITC to low-cost, energy- and environmentally-friendly locales, where it can serve as an anchor tenant for additional economic development.

More efficient technology services, delivered in a green way and serving as a catalyst for economic development are key goals in tough economic times, especially for a global, knowledge-based, green economy.

How: Leadership for Cross-Boundary Partnerships

The key to scope and scale is partnerships that share services which, for the environment of today and the future, are currently too decentralized and inefficient. Technology services are a prime example. So are financial services, human resources, logistics and other services that are not unique and not strategic to policing, education, environmental protection or the other public services they support.

Over the years, Michigan has succeeded with shared services not so much because it made good technology choices - although those were important - but primarily because it possessed credible, competent leaders who kept at it until needed changes were implemented and operating effectively. The heart and soul of success required budget power, staffing power, ongoing negotiations with unions and legislators, and new governance structures to rebalance central versus local needs.

Assembling such cross-boundary partnerships, or partnerships among independently governed stakeholders, will obviously be even more important for the Great Lakes Information and Technology Center. In addition to the state government stakeholders, Michigan must work effectively with an outside vendor to build and possibly operate the new center, and with local governments and the private sector to use the center and provide the "multiplier effect" needed for economic development.

What's in it for You?

For many governments the Michigan story is interesting for its past as well as its future, for how its leadership has been developed as well as where it will next be invested. The Great Lakes Information and Technology Center is now going out with a request for information, but it has a long road yet ahead.

It's worth your attention because it represents a leading response to economic and political pressures we can't ignore. Technology allows us - and a competitive economy requires us - to take advantage of economies of scope and scale. Michigan provides a great example for how to move from simple consolidation to shared services to outside partnerships, and then on to serving as an anchor tenant for economic development in the new economy.

It's time to take such possibilities seriously. Glitzy or not.