Over the last several years we have witnessed a move towards greater consolidation and centralization of IT assets and IT-intensive processes across several jurisdictions. Some of these have taken the form of true shared services, where different government organizations use and jointly manage those assets, while others have moved more decisively toward sheer centralization, where a single organization is responsible for providing and managing services.
This has been mostly driven by the need for greater efficiencies. In fact, having different infrastructures, applications and processes across different departments and agencies makes little sense when what those are trying to accomplish are pretty much the same things.
The move toward centralization has been accelerated by technology trends such as virtualization and cloud computing, which pave the way to better utilization and rationalization of otherwise distinct resources and push a “commoditization” agenda for enterprises in all industries.
In the government domain, several jurisdictions are moving toward some form of “government cloud” activity, although in different shapes and forms. National governments in the US, UK, Singapore, Israel are pursuing the adoption of cloud computing on a large scale, while countries like Denmark or states like Victoria or Queensland in Australia are on the path for consolidation and centralization of IT infrastructure.
Is it all gold that glitters? Is centralization going to deliver all the value it promises? And, if it does, at what cost?
Let me be clear. I am not saying that centralization of IT assets and processes in government is a bad thing, on the contrary. What I mean is that we need to understand very carefully its risks as well as its benefits. In my post on Gershon I have already mentioned its possible downsides, and here I would like to focus on two in particular.
The first one is constraining sourcing strategies for agencies and departments. Once they have a single, centralized service provider they are in a monopoly situation: either by mandate or by applying budget pressures, centralized IT services agencies are made the only service provider that agencies can chose. On the other hand, it is quite possible that they may find more cost-effective and flexible service offerings from external service providers, which either specialize on service organizations of their size and nature or just can offer lower prices for the sheer size of their infrastructure. A centralized service provider needs to accommodate the requirements of entities (i.e. government agencies) that are very diverse in size, mission, nature, and it is very unlikely it will be able to provide the most cost-effective services to all of them. Indeed a smart centralized service provider will be very good at sourcing its own services to the market, but with increased commoditization of services it will be challenging to prove its value added with respect to individual agencies going straight to those external service providers.
The second point, which I appreciate is probably even more controversial, is about the role that government inefficiencies play in making IT markets work. Especially during an economic downturn, and as a consequence of the relentless search for efficiencies by the private sector, government becomes a very important market for many IT players in all jurisdictions. As I have stressed in my research about the geopolitics of cloud computing, in spite of globalization and commoditization, governments will inevitably prefer to spend in their own jurisdiction. The more they centralize, the less likely they are to rely on local, second or third tier IT service providers. The more they centralize, the fewer their buying centers, the fewer opportunities for the IT industry to serve the government market.
For those who say that this line of reasoning is very close to subsidizing an industry, I’d like to recall recent examples in areas like the car industry, where government funding of all sorts (lending, consumer incentives, etc) have kept the industry breathing.
So my point against centralization is that it must be taken with a grain of salt. More autonomy in sourcing and purchasing to individual agencies does not necessarily mean more waste but may – in some cases – make government more efficient as well as respond to transient and longer term needs for economic development.
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