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No Need To Get Mad at Kundra: IT Cartels and Silos Are Here To Stay.

By Andrea Di Maio | September 02, 2011 | 1 Comment

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It appears that Vivek Kundra’s first article for the New York Times after stepping down as CIOs did not make him many friends among large government IT contractors, as he wrote:

… governments around the world are wasting billions of dollars on unnecessary information technology. This problem has worsened in recent years because of what I call the “I.T. cartel.” This powerful group of private contractors encourages reliance on inefficient software and hardware that is expensive to acquire and to maintain…

I can understand the disappointment of large contractors who saw themselves singled out in Vivek’s statement. However this is not the first time, and won’t be the last, that incumbent suppliers are described as one of the reasons why IT in government is not more successful and efficient than it is.

I am in no position to say to what extent Vivek’s statement is grounded in overwhelming evidence and how much comes from the common wisdom that incumbents – in any sector – have little incentives to innovate and push the boundaries. Actually, this has little to do with IT or the US federal market, but with human nature. Luckily enough there are forces that play in favor of innovation, such as new technologies, changes of administration, more tech-savvy leaders, and that can change the rules of the game.

However do not get fooled here. For one “cartel” that goes (or reshuffles), another cartel sets in. For one silo that gets broken a new silo emerges.

Let’s take the cloud. Vivek and others have done a lot to move the federal government in that direction. On the other hand, if any significant economies of scale must be achieved, there will be only a handful of suppliers that can provide what is needed. When migrations will accelerate and thousands of workloads, application and data will be in some form of cloud – be it private, government or public – why should cloud suppliers not establish a cartel? What evidence do we have that they really want to pursue interoperability and portability – so that their clients really have choice about where to source their IT services – as opposed to sharing the market as usual?

But one has to look inside government as well. Large programs and sourcing arrangements often imply that somebody owns the relationship, the budget and ultimately the authority. Pushing for consolidation and cloud sourcing will just reshuffle those silos.

We can clearly see the ongoing struggle between shared service or central IT planning and procurement organizations, and individual agencies and departments. Today many seem to agree that the former act in the interest of lower costs and greater efficiency: but are we sure that tomorrow (and a very close tomorrow) they won’t turn into silos themselves, stifling the agility of individual agencies?

Cartels and silos are the normal course of business in government IT today, and may well be so tomorrow. We can either hope that the new ones will be better, or start looking into what prevents cartels and silos to form and sustain themselves. Striking a better balance between choice and consolidation is going to be critical for this to happen.

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1 Comment

  • Jed Sundwall says:

    Human nature? That’s a punt. Humans’ “nature” is informed significantly by the legal regime in which they live.

    Yes, markets frequently drive toward consolidation and/or collusion, but govt IT cartels exist because procurement policies create enormous inefficiencies to win government business. Only a few large organizations can afford to bear the cost of contracting with the government. Smaller organizations, who have a great amount of value to add, simply cannot afford to work with the government.

    The existence of this cartel and the higher costs paid by govt for IT relative to the rest of the market are clearly symptoms of a broken system.

    The cartels will be happy to leverage their connections within government to keep it this way—they can tell their clients to shrug it off, “there’s nothing to see here, just human nature.”