California eyes enterprise approach

Strategic sourcing initiative will consolidate contracts, streamline procurement

Changes in IT management lead review

On Feb. 10, less than three months after he took office, Gov. Arnold Schwarzenegger issued an executive order for a sweeping review of state operations to try to restore fiscal responsibility to California government.

The initiative, known as the California Performance Review, calls for reorganizing the executive branch, reassessing programs and budget processes, re-emphasizing service and productivity and reforming acquisition processes.

About 240 volunteers, mostly from California state government, are conducting the review. They are divided into 11 teams, one of which is reviewing statewide information technology governance and strategy.

Most of the other teams' recommendations will have IT implications and components, said Clark Kelso, California's chief information officer. "Not everything is going to come from the IT team," he said.

Co-executive directors Billy Hamilton, deputy comptroller of public accounts for Texas, and Chon Gutierrez, interim director of the California Motor Vehicles Department, are leading the review. Hamilton led a similar performance review for Texas that enabled the state to save between $3 billion and $4 billion during its two-year budget cycle.

The California Performance Review recommendations are due June 30. Schwarzenegger has not said when he will begin the executive branch reorganization or implement recommendations from the review.

Although he is not a member of the review's IT team, Kelso has asked the team to examine the state's overall IT governance strategy and make recommendations for its improvement. He also has asked it to review and re-evaluate the state's priorities for its Web portal, enterprise resource planning software and telecommunications.

Kelso declined to discuss other issues the team is examining. "Until we know what issues are really going to appear in the final report, we don't want to telegraph too much," he said.

It is unlikely that all the teams' recommendations will be included in the final performance review report, he said.

"We've asked the people participating to go out on a limb and think creatively," Kelso said. "Not everything they are working on is going to make it, because there is an evaluation process where things are weeded out."

Companies are "going to be facing a more aggressive state negotiator and more aggressive state procurements. And that's good for everybody." ? Clark Kelso, California's chief information officer

When California officials contracted out the state portal four years ago, their strategy was the antithesis of an enterprise approach. Rather than awarding one prime contract, they awarded 20 contracts to six contractors.

"That's no way to do an enterprise program," said Clark Kelso, California's chief information officer. Even if state officials had wanted to take an enterprise approach, they couldn't back then, Kelso said. "Four years ago there may have been some talk about that, but there was no natural place to make it happen."

But times are changing.

Kelso said that a strategic sourcing initiative to start later this year and Gov. Arnold Schwarzenegger's (R) planned reorganization of the executive branch will ease budget woes and make it easier for contractors doing business with the state, which spends about $2 billion on IT each year.

"The biggest difference is going to be consolidation," he said. "We are going to start purchasing as though we are a single organization instead of a hundred different departments and boards, all of which are doing their own purchasing."

At the same time, the state will pursue strategic sourcing "with a vengeance," Kelso said. Strategic sourcing is a process to achieve savings by streamlining procurement activities through consolidating, renegotiating and automating contracts.

The California Performance Review, which Schwarzenegger created earlier this year to find ways to improve the state's operations and services, is pushing the changes. The results of the review are due to the governor by June 30.

At press time, Schwarzenegger had not set a date for the executive branch reorganization or for implementing the ideas that flow from the review.

The expected reorganization likely will consolidate about 100 departments and agencies into a dozen large agencies, said state officials and industry sources familiar with the performance review.

Technology companies will find it easier to do business with the state because the consolidation will substantially reduce the number of buyers that contractors have to deal with, Kelso said.

Companies also will find themselves dealing with a stronger buyer than they have in the past, Kelso said.

"They're going to be facing a more aggressive state negotiator and more aggressive state procurements. And that's good for everybody," he said.

"It can't be much harder than it has been," said Dave Ross, managing partner of the West Coast client group for Accenture Ltd., Hamilton, Bermuda. Agencies have been "under heavy scrutiny post-Oracle," which froze a lot of their technology buying.

Ross referred to the controversy surrounding the decision under former Gov. Gray Davis' administration to give a $95 million enterprise software license agreement to Oracle Corp. of Redwood Shores, Calif., without conducting a competition. The state ultimately canceled the contract.

Ross said he expects the state to manage IT procurement more effectively when the performance review recommendations are implemented. By modernizing its revenue systems and transforming its procurement processes, the state can reduce considerably the cost of government, he said.

Carlo Grifone, lead client services partner for California with New York-based Deloitte, said the performance review will attempt to reduce the average procurement life cycle from one to two years to a matter of weeks or months. This would guarantee that the state receives the latest technologies at contract award, he said.

Grifone said he hopes the performance review will encourage agency buyers to pool their resources for enterprisewide solutions.

For its part, Deloitte is already capitalizing on the push for enterprisewide contracts in California. In January, the company won a $38 million contract to provide an enterprisewide case management system to the California Administrative Office of the Courts, Grifone said. The company is tracking a pre-RFP opportunity with the California Department of General Services for asset management, he said.

Accenture is pursuing an opportunity with the General Services Department to oversee strategic sourcing, Ross said. An award is expected in July.

Both Accenture and Deloitte are poised to bid on the systems integration portion of a statewide enterprise resource planning initiative, called the 21st Century Project, when the California State Controller's office releases the request for proposal later this year, company officials said. The ERP contract "could be a pacesetter" for similar ERP initiatives in other departments, Ross said.

John Kost, managing vice president of worldwide public-sector research for Gartner Inc., Stamford, Conn., said the consolidation is a mixed blessing. On the downside, companies may find it takes the new departments longer to create specifications for departmentwide projects, which themselves may be difficult to implement. On the upside, companies will benefit from fewer points of contact and fewer variations in the procurement process, he said.

Procurement can be difficult not only for companies doing business with the state government, but also for departments and agencies struggling with changes in the rules and processes, Kost said.

"If it's too hard to buy what you need or it takes too long to do it, everyone loses, especially California taxpayers," he said.

Staff Writer William Welsh can be reached at wwelsh@postnewsweektech.com.

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