Are CIO-Led Organizations Endangered?

State and local governments are questioning the need for large, centralized, costly IT departments.
by | March 2011

Washington state’s new $300 million data center, located just off the Interstate 5 exit to the Capitol in Olympia, rises like a classic government building: stately and imposing, its exterior lined in cut limestone. Inside, the building looks to the future with four enormous, 12,500-square-foot halls, ready to house banks of servers that will store and process the state’s burgeoning data needs. There’s just one problem. The state needs only a fraction of the room that’s available.

The original plans for the center date back to the 1990s when the solution to growing data demands was to keep buying more servers. Another factor driving its construction: state government’s desire to consolidate as much of its computing needs as possible into one physical location, bringing economies of scale. That model called for server farms, which require large buildings with special flooring, cooling systems and room for lots of computers. But while the state continued working on its plan to build a data center, technology changed. Virtualization, which involves sophisticated software that can turn a single server into multiple versions of itself, slowed the demand for more hardware. More recently, cloud computing -- information stored on the Web, where it’s accessible from any computer, anytime -- has accelerated the information outsourcing process, reducing further the need to purchase more hardware, build more data networks and add more IT personnel.

To make matters worse for Washington, the data center is coming online at a time when the state’s coffers are running on empty. Whatever happens to the data center -- and lots of questions are being asked about what to do with it -- it’s becoming clear that the traditional business model for IT in government is shifting. Critics believe the recession has exposed flaws in the long-held notion that government needs to own and maintain most if not all of its computing needs. It’s just too costly, they say, especially when less expensive solutions are available for cash-strapped governments.

“It’s hard to stop doing things when you started doing them for a good reason,” says Edward Lazowska, the Bill & Melinda Gates chair in Computer Science and Engineering at the University of Washington, and a longtime adviser to the state’s IT agency. “But it’s essential you rethink the need. The recession is driving this.”

Washington state isn’t the only government to be buffeted by technological change and large budget problems. Most every other state and jurisdiction is facing similar issues. In Corpus Christi, Texas, a budget shortfall compelled the city to lop $2 million off its $17 million annual IT budget. That forced Mike Armstrong, the city’s CIO, to eliminate nine positions from his staff of 105 employees.

But unlike states, cities can be more nimble in terms of changing direction. Armstrong foresaw the virtualization revolution and quickly downsized his data center by 25 percent. He’s testing the waters for outsourcing, which includes cloud computing, and hopes to “keep moving ahead” while shrinking the need for expensive personnel. Will it work? Perhaps, but it will be tricky. The city’s administration complains about IT cost, “but they want the higher level of service that it brings,” says Armstrong. “Sometimes I feel like we’re supposed to be magicians.”

Back in Washington, home to Microsoft and a host of other high-tech firms, frustration with how the state is dealing with its IT dilemma is growing. Lazowska calls the state’s new data center “a monument to the old ways of doing things.” He would like to see the state put more of an emphasis on outsourcing or sharing services with a third party. “No government organization,” he says, “can afford to continue to be in businesses that someone else can conduct with equal or better efficiency.”

That view is shared by Washington state Rep. Reuven Carlyle, who has a background in software and mobile technology markets. In January, the legislator, a longtime critic of the state’s data center plan, put language into a supplemental budget bill that bars the state from spending money related to data center computing until it figures out how it will use the unneeded space. Carlyle figures the state will need only 10 percent of the center’s space and would like to see the rest of the site used by local governments and universities. “We have excess capacity here,” he says. “We have to be creative in how we use that space for the maximum return on investment.”

While Carlyle wants the state to adopt more shared services and cloud computing initiatives to get more bang for its buck, he says the problem is bigger than learning how to adopt new technologies. Like every other state, Washington owns and runs most of its IT infrastructure, including networks, routers, and of course servers that store and process information used by dozens of agencies. “But too much of our technology dollar is stolen by the back-end, data-hosting and utility functions,” he argues. “Not enough goes toward front applications that really impact citizens.”

In fact, the state is beginning to take steps in this direction. Gov. Christine Gregoire proposed the creation of a new agency that would merge and privatize some of the state’s basic IT functions. The move would, in effect, decentralize the state’s IT operations, putting “back-office” services (like storage and networking) into the new agency, while the Office of Financial Management would continue to handle policy, budget, forecasting and labor relations.

Another state unhappy with the direction its IT services are headed is also looking to decentralize some of the functions that have been long considered a key feature of any government technology agency. Texas, facing a massive $15 billion to $27 billion budget deficit, is considering a plan to abolish the Department of Information Resources (DIR), replace it with a smaller department, and perhaps most critically, transfer some of the powers of IT procurement to the Comptroller of Public Accounts.

A scathing report last year by the state’s Sunset Advisory Commission heavily criticized how the DIR handled some major contracts, most prominently an $863 million outsourcing contract with IBM to run the state’s data centers. To counter the DIR’s weaknesses in managing and enforcing outsourcing contracts, the commission recommended changes in the agency’s management structure as well as increased reporting and accountability to the Legislature.

The problem with large-scale outsourcing isn’t limited to Texas, of course. State and local governments have a mixed record when it comes to management and oversight of large IT contracts.

But the fact that critics inside and outside of state government in Austin are calling for the DIR to be abolished and replaced by a smaller agency with less authority, speaks to the turmoil that has come to the world of government IT. The idea that one agency can manage all the IT contracts, operate all the networks and data systems and drive innovation at the same time, may be starting to look passé. The soup-to-nuts government technology agency is a legacy of another era, based on adding more technology for a growing government. That is no longer the case today.

“The reason the public sector struggles so ferociously in technology is because it doesn’t put the business process on the table first,” says Carlyle. “We have to fundamentally change the incentives and expectations so that we move away from the idea that buying a new box is going to solve the problem.”

If government IT departments must embrace change, so too must the CIOs who run these agencies. Twenty-eight new governors took office in January, which created significant turnover for CIOs. Whether they’re new or staying on, their roles and responsibilities could begin to transform in 2011. With what is happening in Texas, Washington and elsewhere, there’s a hint of diminished expectations in the air.

In Michigan, one of the states hit first and hardest by the recession, former Gov. Jennifer Granholm began reorganizing government operations in January 2010. She combined IT with management and budget and named then-CIO Ken Theis to head up the new department. With an IT specialist overseeing the budget, many saw this as the triumph of technology and innovation over finance. But newly elected Gov. Rick Snyder thinks otherwise. He put a veteran budget man, John Nixon, in charge of the Department of Technology, Management and Budget. In tight times, financial expertise often trumps IT savvy.

John Miri, a former senior-level IT official in state government and now an IT consultant, believes the state CIO position is still critical and will remain so. But if states begin to separate purchasing and back-office functions from IT services and development, as some appear to be doing, the CIO position becomes one that is largely manager of services. And that, he points out, “is a loss of responsibility.”

In order to survive, CIOs will have to change. This is not a new argument. For years, critics of public-sector IT leadership have said that CIOs need to get out of the proverbial boiler room and replace some of their technological mindset with business savvy. That may be starting to happen, according to Darrell West, vice president and director of Governance Studies and founding director of the Center for Technology Innovation at the Brookings Institution. He sees elected officials increasingly looking to CIOs to provide guidance on how to reorganize government, deliver services and improve the functions of government. “The holders of that position,” he says, “are going to gain a lot of power and influence in the coming years.”

That’s an important issue because never before have state and local governments been under so much pressure to quickly streamline and adapt to a new fiscal reality. Technology can help organizations adjust to new business models. West points to the speed with which the federal government is embracing cloud computing, along with some state agencies and local governments. What they are finding is that the cost-savings are piling up without reducing the quality of services. But in order for a state or local government to embrace the full benefits of a new technology, it takes someone to manage the necessary change who is both a technocrat and management guru.

“The CIO role is going to become more important because the technologies that are most transformative are those that combine technology with organizational change,” West says. “If you just use technology with the same organizational structures, you are not going to get the benefits.”


More from Technology