Case Study: The Workforce Strategy Was Key to Indiana's IT Consolidation

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1 Industry Research Publication Date: 26 January 2010 ID Number: G Case Study: The Workforce Strategy Was Key to Indiana's IT Consolidation Massimiliano Claps The Indiana Office of Technology (IOT) was established in 2005 to consolidate IT infrastructure and operations for the executive branch of the state of Indiana. Consolidation of people and assets was complemented by a reorganization focused on customer-centric service delivery process optimization. Special attention was dedicated to the transition of the workforce, to complement staff reductions by recruiting and training the most valuable skills. Key Findings The state of Indiana's IT consolidation enabled IT infrastructure and operations costs to drop by $15 million to $71 million between 2005 and Collocation of assets, standardization of hardware configurations, reduction of redundant staff, and consolidation of hardware and software contracts were complemented by the establishment of processes and metrics that drive service delivery improvements. Particular care was dedicated to the transition of the workforce to ensure that the right skills were in place, and that productivity and service improvement incentives were aligned with the consolidation strategy. Recommendations If a statewide CIO is appointed to centralize IT operations, then he or she should report directly to the governor to ensure the continuity of sponsorship in the ramp-up phase and in the first critical phases of operations. If elections or other political events distract the governor, then other high-level officials should back up the consolidation with strong sponsorship for example, through a strategic committee. The centralized service delivery organization should not only standardize and collocate assets, but also define processes and establish key performance indicators (KPIs) that provide feedback to continuously improve those assets. Employees' recruiting, training and incentive schemes should foster service delivery accountability and ideas for service improvement for example, through spot monetary bonuses. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 WHAT YOU NEED TO KNOW Gartner research shows that government agencies as well as private-sector organizations can choose from among four IT service delivery models (see "IT Service Management; CIO Desk Reference Chapter 18"): silo, process-oriented, service-oriented and value. The government of the state of Indiana established the IOT to move IT service delivery for the executive branch away from a siloed model (wherein the IT staff was dispersed through multiple units and processes were redundant) toward a service-oriented model that focused on optimizing the customer experience of all departments and agencies. The initiative encompassed a careful transition of the workforce by: CASE STUDY Getting buy-in from the governor at the outset to set clear expectations for staff reductions Defining a detailed recruiting process to hire resources from individual departments and agencies, rather than transferring them with no selection criteria Starting a recognition and reward program to motivate continuous improvements Introduction In 2005, the governor of the state of Indiana established the IOT (see Note 1) to provide costeffective, secure, consistent and reliable IT infrastructure services to the entire executive branch of government, which includes 41 agencies. The governor's agenda, which drew lessons from his private-sector experience, aimed to improve efficiency across the executive branch; hence, he set clear strategic directions for the new IT organization: Improving service Reducing costs Supporting state/agency initiatives Considering "green" whenever possible The Challenge Before the IOT was established, IT infrastructure and operations for the executive branch of the state of Indiana were delivered in a highly fragmented environment: The Department of Information Technology (DIT) supported only 900 of 25,000 desktops. The DIT reported to the Department of Administration; thus, it could not operate as an independent service delivery unit. There were very few processes in place for managing back-office operations or frontend service requests. There were no service-level agreements (SLAs) or performance metrics to manage internal service delivery. Publication Date: 26 January 2010/ID Number: G Page 2 of 9

3 There was no standard security policy or plan. Networks were open, and personal security risks were not addressed. Duplicate systems proliferated. For example, Novell software was used in four major agencies, while different versions of Lotus Notes were used by other agencies. Approximately 450 IT professionals were employed across agencies, but did not communicate well enough or often enough; thus, their IT and procurement departments were completely unaware of existing IT services and solutions that could be leveraged across the executive branch. A separate agency ran a statewide ERP implementation, but faced program and project management challenges. The software ended up being implemented in only a handful of agencies. Yet another agency was charged with managing the state's network and website. All this resulted in duplicated functions, resources and contracts; thus, poor service levels and inefficiencies prevailed. Approach In 2005, the newly elected governor promoted the establishment of a central agency, the IOT, which was to become responsible for IT infrastructure and operations service delivery. The IOT's mission was clearly stated in the legislative act that established it: The objective was not only to collocate IT people and assets, but also to create a central autonomous unit (unlike the DIT) that focused back-office operational processes and front-end customer service processes, performance metrics and investments toward the delivery of excellent services. A CIO was appointed by the governor and was directly accountable to him for IOT performance and financial sustainability. One senior consultant with government experience assisted the leadership team in the consolidation process. The workforce transition was a key part of the success. The Workforce Transition Particular care was dedicated to the workforce transition from individual departments and agencies to the IOT. The governor made clear from the outset that a reduction of IT staff was part of the plan to eliminate duplications, and, thus, cut costs. Given that objective, a carefully designed HR strategy was necessary to avoid across-the-board cost cuts without considering the skills required to align with the service delivery improvement plans, and to reduce the risk of demotivating the remaining staff. The IOT leadership team defined and executed a workforce transition plan to meet those requirements, which included: Mapping the types of skills and the number of people required for the various lines of service included in the portfolio. Designing, in collaboration with the state Office of Management and Budget, a recruiting process to hire staff. This enabled people to be transferred from executive agencies only if they matched the skill requirements, and if they were motivated. This also enabled recruiting some staff from external organizations, including qualified individuals who had previously left the DIT because of a lack of motivation. Providing opportunities for some of the people who were not recruited by identifying job openings within their departments, or by referring them to organizations outside the Indiana government. Training all IOT employees on customer service and customer satisfaction. Publication Date: 26 January 2010/ID Number: G Page 3 of 9

4 Starting a recognition and reward program. Recognition and rewards are uncommon and sometimes seen as risky in the public sector; recognized workers could be marginalized instead of becoming role models for example, because some colleagues fear that executives will impose changes and productivity improvements outside of the contracts negotiated by the unions. The IOT established an annual kickoff and other events that provided chances to build a common culture beyond the daily working routine, and on those official occasions, the IOT recognized specific individuals. The CIO also rewards employees who suggest innovative ideas for service improvements with spot awards. These awards consist of small monetary bonuses. Consolidation of Assets and Centralization of Service Delivery The CIO and his or her executive team defined and executed a strategy for establishing a service-oriented organization that included the following steps: Setting an overarching strategic goal to become No. 1 in IT infrastructure service delivery in the state government, in terms of quality of service and cost-effectiveness. This goal provided a clear, long-term objective to which operational activities and metrics could be aligned, and it acted as a motivational driver for all staff members. Assessing the situation prior to the consolidation of assets to help define a clear implementation road map that was tailored to the requirements of the 41 agencies. Eventually, the ramp-up of the program was completed in approximately 18 months and divided into five phases, each including the "onboarding" of a subgroup of agencies. Collocating IT assets and standardizing hardware configurations, which, in turn, enabled the consolidation of contracts. This full-cycle consolidation resulted in decreasing costs through staff reductions, lower costs of training because of fewer configurations, the elimination of duplicate processes and stronger bargaining power vis-a-vis IT suppliers. Establishing processes to manage a single point of contact for front-end customer service requests, and to handle back-office operations. International frameworks, such as ITIL, were used as a starting point to design the IOT's path to process maturity. Optimization of processes was very detailed for example, the IOT defined a standard message to respond to Level 1 help desk calls and trained all employees on how to use it. Building a service portfolio (see Note 2) that describes the services in detail, defines the SLAs and offers different pricing options. Direct chargeback for services is set to enable the IOT to fully recover direct costs, and to drive demand behavior through the right price incentives. The organization was aligned with the service portfolio, with each manager being assigned a set of service excellence and financial objectives. Defining a set of key performance indicators (KPIs), such as the ability to answer customer service calls within 60 seconds, or to set up a new user account within two business days of the authorized request. Most importantly, KPIs became part of the management routine to monitor and drive service improvements through the transparent communication of monthly SLA reports (which include 13 performance indicators for customer service, five for network availability, eight for storage and server administration, three for account management, and two for field operations see the communication of long-term program and project completion rates, and quarterly discussions between the CIO and line-of-service managers to verify the achievement of annual operating plan targets. Publication Date: 26 January 2010/ID Number: G Page 4 of 9

5 Results Benchmarking results against industry standards. For example, in 2008, the IOT commissioned a service delivery maturity and cost benchmark to an external consulting firm, which enabled the IOT to identify opportunities for improvement for example, mainframe and voice service levels are not clearly defined and tracked; network infrastructures, servers and mainframes are aging, and there are limited processes in place to monitor their entire life cycles to ensure smooth divestment and modernization; and the coordination of installations, moves, adds and changes (IMACs) lacks consistent processes. Communicating with stakeholders at all levels: The governor communicated with the agency heads at the start of the program and clarified what kind of support he expected from them. IOT leaders held status meetings with each agency, ranging from once per week to once per month, to review all projects and discuss any issues. Biweekly meetings for line-of-service managers were instituted to address change management challenges and to define appropriate communications to employees. The IOT is pursuing all four strategic objectives established by the governor: IT service improvement, cost reduction, support for IT initiatives and green. IT Service Improvement IT service delivery is now comparable to industry good practices. Service levels are monitored on a monthly basis, and statistics for 2009 indicate that all services were fully compliant or within the strict ranges of tolerance. A high-level compliance summary for customer service management showed a decrease of noncompliant responses to customer requests from almost 20% in June 2005 to less than 10% in April Levels of security were also improved via the creation of a single directory for the authentication and encryption of all new laptops. Cost Reduction Cost optimization was, by far, the biggest focus of the first three years of operations. Between 2005 and 2008, the IOT reduced the executive branch's operating IT costs by approximately $15 million, down to $71 million: A total of 450 IT infrastructure and operations full-time equivalents (FTEs) were reduced to 250 (135 FTE reductions were realized in the first 12 months). Currently, the staff of the IOT includes 248 FTEs and approximately 30 contractors. Approximately 50% of the total cost savings was driven by this workforce rationalization and was realized in the first 18 months of the consolidation. Five data centers were physically consolidated into one: A total of 800 servers were decommissioned. Server contracts were consolidated into one framework contract with a single vendor. The WAN communication service was consolidated into one contract with AT&T. Publication Date: 26 January 2010/ID Number: G Page 5 of 9

6 systems were consolidated into one, which enabled the IOT to reduce servers from 107 to 16. Desktop services were rationalized: The number of FTEs was reduced. The number of PC configurations was decreased, which enabled the IOT to sign enterprise agreements with software vendors such as Microsoft and McAfee. The supply contracts were consolidated and awarded to one PC vendor. The overall cost reduction of 40% now enables the IOT to finance PC refreshes every four years. The rationalization of the physical IT infrastructure was funded by savings in operating costs. Support for IT Initiatives The cost-efficiencies enabled the IOT to reinvest in new initiatives by extending the scope of its activities for example, to provide wireless access, portal management, application portfolio rationalization, and support to the PeopleSoft implementation across the executive branch. Green The standardization of PC configurations and the consolidation to a single vendor have enabled the IOT to rapidly refresh machines with new equipment. This has reduced electrical current leakage and increased performance, thus saving an estimated $300,000 per year in energy consumption. Critical Success Factors Strong leadership: The appointment of a CIO who reports directly to the governor has ensured support for all key decisions at the highest level and has removed obstacles, including laying off senior IT managers who did not agree with the consolidated serviceoriented strategy. Little resistance from workers' organizations: Indiana's state IT staffs were not unionized, which enabled the governor and the IOT leadership to directly communicate and agree on redundancies with an internal committee of employees. Commitment to continuous service and quality improvement: Designing a path to process maturity aligned with the service excellence strategy included tracking results against industry standards, making managers accountable for a clear set of KPIs, hiring the right sets of skills and motivating all workers. Attention to customer relationship: Customer surveys, transparent chargebacks, and the tracking and communication of performance against service levels are ensuring customer satisfaction. Setting clear expectations with the vendor community: Communicating to vendors that they would be consolidated began early and was complemented by an invitation to suggest ideas on how to improve services. This carrot-and-stick approach enabled vendors and the IOT to save money and stimulate service excellence. Publication Date: 26 January 2010/ID Number: G Page 6 of 9

7 Lessons Learned The transition to a service-oriented organization provided significant benefits in terms of service quality, and enabled the IOT to identify and eliminate duplication, thus reducing costs. However, the IOT could have adhered more strictly to international standards, such as ITIL and Capability Maturity Model Integrated (CMMI), to increase the maturity of service delivery in areas that still show gaps, such as mainframe, network and IMAC. The strong buy-in from the current governor has a flip side. If he does not run for another term, or is not re-elected, then there is a risk of losing continuity of leadership. The governance model could be partially revised before the next election to directly involve individual agencies, or a small set of their executives, in the governance to ensure the continuity of the IT service delivery model road map, even if elected officials change. The consolidation did not consider the workforce transition for the FTEs that were retained by individual agencies. Each department's IT director had to identify what types of skills had to be retained, and little coordination was put in place to ensure that enterprise architecture, portfolio management, and project and program management capabilities were aligned with effective demand management for IOT services. RECOMMENDED READING "How Governments Are Addressing the IT Consolidation Conundrum" "Toolkit for IT Executives: Choose the Right Services in the Right Order for Government Shared Services" "Case Study: The National Business Center Reduced Costs and Improved Services in Multitower Shared Services" "Michigan's Successful Experience With Centralizing Government IT" "Guidelines for Understanding and Formulating Decision Frameworks for Shared-Service Centers" "Reduce Costs of Data Integration by Rationalizing Tools and Infrastructure, and Centralizing Skills" "Achieving Success With Shared Services" "Understand How Methodologies Evolve Into Standards to Achieve Service Excellence" "Toolkit: ITIL and Process Improvement Are Key Initiatives for Infrastructure and Operations Leaders" "IT Service Management; CIO Desk Reference Chapter 18" "The Politics of Consolidation" Note 1 Creation of the IOT "Indiana Code, Article 13.1 established the Indiana Office of Technology as a state agency in July 2005 to: Publication Date: 26 January 2010/ID Number: G Page 7 of 9

8 1. "Establish standards for the technology infrastructure of the state. 2. "Focus state information technology services to improve service levels to citizens and lower costs of providing information technology services. 3. "Bring the best and most appropriate technology solutions to bear on state technology applications. 4. "Improve and expand government services provided electronically. 5. "Provide the technology and procedures for the state to do business with the greatest security possible." Note 2 The IOT's Service Portfolio The current service portfolio includes: Computer Operations Mainframe System Administration Servers Voice Services Data Services LAN WAN Help Desk Seat Services IN.gov State Website Support Automation-Database-Process Services Security Publication Date: 26 January 2010/ID Number: G Page 8 of 9

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