Over the last three months I have had, like most Gartner analysts, several client conversations about cost cutting, or – as many, including us, more diplomatically call it – “cost optimization”. This is not new to government: several jurisdictions have been on a multi-annual journey toward greater efficiency, with progressive reduction of operational spending, usually to release resources to be employed elsewhere. Today the economic downturn and financial crisis is adding a sense of urgency as well as – in many cases – a different scale to this.
What I observed over the last few years, and I appreciate this is totally anecdotal nor would I ever write this in a research note, is that when cost saving targets are of a few percentage points, they tend not to fundamentally change the way government IT organizations operate. What I mean is that yes, they look for areas where they can increase efficiency and reduce cost, but this happen without any real transformation. More effective license management, smarter procurement and negotiation, more professional project management, adoption of IT operation management standards: this is hardly transformation but, at most, rationalization.
Things are different for government IT organizations that have either been or are about to be hit by a budget cut beyond 10 percent. This is where – as a colleague of mine says – there are “no sacred cows anymore”: organization, roles, sourcing strategies, all can be rediscussed. This is the threshold beyond which otherwise reluctant agencies will consider to join shared services, reuse somebody else’s solution, experience alternative delivery models.
The change of order of magnitude in saving targets seems to trigger behavioral changes. I have no evidence yet about this, but I suspect that in the 10 to 20 percent range these changes may be reversible, while beyond that they become permanent.
Does it mean we are going to see a new breed of government IT organizations emerging from this recession? Yes, it is very likely, and as there will be pressures to downsize even further and questions about their role, some will find themselves fighting for survival and for winning the recognition of their role – albeit a very different one – in the future.