State gambles on <@SM>IT consolidation<@VM>Expect larger deals and fewer winners
Dustin Lanier (right) expects to get valuable help in his effort to coordinate IT consolidation with state agencies from Kim Weatherford (left) and Brian Rawson, whose first-hand experience at the agency level makes them well-suited for the job.
Dustin Lanier knows it won't be easy getting more than 200 agencies to turn over responsibility for their IT infrastructures to the Texas Department of Information Resources when a new state law takes effect Sept. 1.
But the department's director of strategic initiatives is betting that having the right people to help him will make the difference between success and failure. For that help, he has turned to Brian Rawson and Kim Weatherford, both with heavy experience managing agency-level IT in Texas.
"They have a lot of credibility with agencies in terms of having both direct background and logistical experience," Lanier said.
The trio will begin selling the concept of a centrally coordinated IT infrastructure at a conference next month in Dallas. The pitch also will contribute to a growing business opportunity for systems integrators to provide outsourcing and other services to the state.
Before joining Lanier at Information Resources, Rawson was chief information officer for the Texas Education Department, and Weatherford oversaw technology for the Aging and Disability Services and Assistive and Rehabilitative Services departments.
Today, Rawson directs the department's Service Delivery Division, and Weatherford heads up its Statewide Technology Operations Division.
Having the right people to lead the transition to a centralized IT infrastructure is one of several strategies Lanier plans to use to get agencies to comply with HB 1516. The law gives the department sweeping authority over the statewide IT infrastructure and services. Signed June 18 by Gov. Rick Perry (R), the law could save the state nearly $25 million by 2007, Lanier said.
UPPING THE ANTE
The act tackles IT infrastructure and services delivery on many fronts, such as requiring agencies to buy computer hardware and technical services from cooperative contracts negotiated by the department. The law also creates requirements for proposing and developing major information resources projects and establishes a system for consolidation of shared services, such as data centers, which likely will be the most lucrative opportunity for contractors.
All of this puts Texas bucking a trend that finds some of the largest states in the nation unable to consolidate IT infrastructure and buy IT products and services in volume. Three years ago, the California Information Technology Department closed shop, and last month the Florida State Technology Office shut down less than a year after a statewide outsourcing contract unraveled, to the chagrin of the two systems integrators involved. (Related story, Page 36)
Such developments raise the stakes in Texas considerably.
RAISING THE STAKES
Texas legislation has given the Information Resources Department the power not only to consolidate data center equipment and operations, but also to create so-called state technology centers that would consolidate infrastructure in certain areas, such as network security, electronic grants and telecommunications.
It also gives the department control over volume purchasing of IT commodities, including hardware, software and services that are common across agencies.
However, Lanier said, unlike in some other states that have tried to consolidate all IT resources, in Texas, the Department of Information Resources will focus only on IT infrastructure and leave out software applications that are unique to specific agency missions.
The new law requires agencies to sign contracts with the Department of Information Resources by March 31, 2006, establishing the terms and conditions by which the department will provide data center services to them.
The Texas Department of Information Re-sources faces an uphill battle getting agencies to transfer their IT infrastructure resources, according to analyst and industry officials.
The more than 200 independent agencies in Texas state government are accustomed to a substantial degree of autonomy and to negotiating their own terms and conditions for IT products and services, said Len Riley, a senior consultant with the consulting firm Strategic Partnerships Inc., Austin Texas. The changes embodied in the new act "will be viewed by many agencies as creating a significant change," he said.
Gary Richardson, director of Texas operations for Northrop Grumman IT, Herndon, Va., agreed.
"It's going to be more difficult to get the agreements in place than to select the vendor to do the data center consolidation," he said. "The politics associated with [the agreements] are going to be incredible."
READY TO DEAL
Because of challenges like these, Lanier and his team aren't waiting for the law to take effect before they get started. They've already established one interagency working group for the statewide technology centers, which includes data centers, and another for commodity purchasing.
"We came right out of the gate with these groups [and] are briefing the agencies right now," Lanier said.
With careful planning and ample communication, Lanier and his colleagues can accomplish their mission, Riley said. "It's not rocket science."
Still, it won't be easy to get agencies to cooperate even if they are required to do so by law, analysts and industry officials said. Agencies typically resist efforts to get them to relinquish control, because they fear their power and influence will be reduced if they turn over funds or personnel to another agency, officials said.
"Resistance is a natural thing," Richardson said. The agencies "will all have wonderful games they can play and delay tactics they will use to try to resist being included."
The authority to enforce the rules and regulations of the act resides with the Department of Information Resources, said Pat Hogan, another senior consultant with Strategic Partnerships.
"In those rules will reside 'the hammer' if there needs to be one," he said. The department will go through "a strenuous process to develop the rules, which will determine whether that hammer is velvet or not."
John Kost, managing vice president for worldwide public sector services at IT research consulting firm Gartner Inc., Stamford, Conn., said there is another factor to be considered: The Texas Legislative Budget Board also will play a key role in enforcing the new rules.
If the budget board helps execute the law through the budget process, "agencies will be compelled to go along if they want projects and day-to-day IT operations funded," he said.
"If, on the other hand, the [board] allows too many waivers for reasons that are more political than financial, they will undermine the intent of the legislation and the CTO."
HB 1516 gives Larry Olson, director of the Texas Department of Information Resources and the chief technology officer, authority to carry out his vision for an enterprise approach to IT set forth in two reports he published last year.
The concepts and ideas described in those documents were lessons he learned consolidating technology for Pennsylvania and Fortune 500 companies, Lanier said.
To quickly gain momentum, the department has started aggregating the purchasing of laptops, desktops and servers in configurations that will work across several agencies, Lanier said. The department also is reviewing pricing related to IT staffing contracts, he said.
But the greatest potential savings will come from consolidating data center operations and outsourcing them to the private sector, Lanier said.
Texas has about 30 facilities performing data center operations around the state, Lanier said. A Gartner study recommended that the state consolidate operations into two facilities: one in Austin and one in San Angelo in West Texas. The facility in the state capital would serve agencies that have print-intensive needs for which it might not be practical to ship data to and from San Angelo, Lanier said.
The West Texas facility serves 10 agencies and is run by Northrop Grumman IT through a contract it won more than a decade ago, Richardson said.
ASK FOR A FRESH DECK
Gartner recommended that the department outsource the operation of the data center facilities to "a single, world-class outsource vendor."
To get the ball rolling, the state plans in the next few months to hire a contractor to help with the procurement process for the data center and other projects, Lanier said.
Texas needs assistance, because "a data center project is mammoth in its logistical detail in terms of inventorying assets, developing service-level agreements and establishing contracts," Lanier said.
Texas hopes to save $15 million to $25 million over the next two years by selling assets to the company that takes over data center operations and through volume purchasing, Lanier said. Total savings over a five-year period could reach $60 million, he said.
The state plans to brief private sector companies July 28 in Austin on the new purchasing and IT infrastructure services strategies, Lanier said. The one-day meeting likely will be divided into morning and afternoon sessions, one focusing on commodity purchasing and the other on IT infrastructure outsourcing, he said
Companies bidding on the data center opportunity will need "a solid and clear transition strategy, so that we are able to deal with any transition issues," Lanier said. "We expect a robust and competitive procurement."
But vendors won't see a request for proposals issued until after the interagency contracts are signed next March, Lanier said. At that point, "Texas will know what it wants and will come out with a bid," he said.
Northrop Grumman IT's Richardson said the multiyear project would likely approach the size of a similar data center outsourcing project in Pennsylvania that was won by Unisys Corp. and worth $527 million.
"The size of the opportunity is very attractive to Northrop Grumman IT and our competitors," Richardson said.
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Technology companies accustomed to going door to door selling to Texas agencies may need to revise their marketing tactics following new legislation that affects IT procurement in the state, analysts and industry sources said.
The consolidation of IT resources into a central authority reduces the cost of contract negotiations and results in uniform terms and conditions, but also means less access to agencies and a short list of qualified contractors if Texas decides to pre-qualify vendors.
"When you consolidate, you assume that there will be fewer vendors that wind up with contracts," said Len Riley, senior consultant with Strategic Partnerships Inc., Austin, Texas.
Bob Campbell, global senior partner for the public sector with New York-based Deloitte & Touche USA LLP, said companies should still promote their services to the agencies because they define the requirements, whether they make the final purchase or not.
In these kinds of arrangements, procurement costs and the amount of time spent negotiating are reduced, "but I don't think [companies'] marketing and sales costs are materially reduced," Campbell said.
John Kost, managing vice president of worldwide public sector research at market research and consulting firm Gartner Inc., Stamford, Conn., said the new law won't likely change the way companies sell to Texas, but it might change the number of agencies they can reach within state government.
More of the companies "will have to change their message to one that demonstrates how they can help the consolidation process," Kost said. "They'll find larger deals, but a lot fewer of them."