Refresh without the headaches
Shirley Hughes used to cringe at the thought of "tech refresh." As a former public-sector chief financial officer, her desk was the final stop for information technology bills. Every few years, after an agency updated its IT resources, those bills would dramatically increase her operating expenses — and her pulse.
Eliminating those spikes was one of her goals when she took over as CFO of Falls Church, Va. — a community of about 11,000 people located west of Washington, D.C. — five years ago. She resigned from that job to become director of finance and city treasurer for Vista, Calif., beginning in September.
Hughes found the solution in 2000 when she spearheaded the installation of a new local-area network, a specialized financial software package and 100 desktop computers to replace an antiquated network and incompatible multiple software systems for Falls Church.
With the help of a systems integrator and an ongoing leasing arrangement with a local IT supplier, Falls Church received updated technology while Hughes ensured that she had a plan to use when all the new technology became outdated.
"Government is terrible about buying technology," she said. "We go out and spend all this money, then breathe a sigh of relief, saying, 'We're done.' And then in a couple of years, we're scrambling again when everything needs to be upgraded."
As part of her ongoing contract with Reliable Integration Services Inc., a systems integrator in Vienna, Va., virtually all of the city's hardware and software gets swapped out in a phased approach to refresh everything every three years. This approach doesn't directly reduce costs, but it brings about budgetary control. "I'm not seeing the huge spikes anymore," Hughes said. "The integrator literally saved us from ourselves."
Refreshing the technology takes smart thinking
Whether they are part of local government or the federal bureaucracy, IT managers understand the importance of keeping technology fresh without busting already tight budgets. This realization is leading them to form partnerships with systems integrators, who, in turn, are finding new ways of attracting revenue from the public sector.
Government agencies and integrators rely on two major solutions to keep tech upgrades moving forward: large-scale leasing arrangements, such as those Hughes negotiated, and performance-based contracts, which spell out the services agencies need and leave it to integrators to meet those requirements.
Last summer, the Small Business Administration used this performance-based approach and hired Corio Inc., an application service provider in San Carlos, Calif., to deliver, manage and regularly update a core financial application for the agency. The company provides similar services for the Coast Guard, Navy and Treasury Department.
"We suggest that our customers define early on the refresh rates they expect for everything from desktop systems to something like a major new financial system," said Robin Lineberger, senior vice president of BearingPoint Inc.'s federal government practice. A refresh strategy may actually increase IT expenditures, he added, but agency officials can see a return on investment based on cost avoidance if new technology allows them to do more with the same or smaller staff. "If done correctly, it can be a hedge against tight budgets," Lineberger said.
A coherent refresh policy can also help federal and local government officials cope with complex procurement regulations, which can delay acquisition cycles. Complying with those rules costs the federal government billions of dollars each year, according to a new report authored by Aberdeen Group Inc., a research and consulting firm.
Participants in the group's survey said adhering to these laws, rather than cost reductions, has become buyers' primary goal, and that "is getting in the way of sound and efficient procurement and supply management practices," said Tim Minahan, Aberdeen's senior vice president for supply chain research.
A third stumbling block to tech upgrades is terrorism-related budgetary priorities that earmark funds for homeland security or military operations at the expense of IT systems. "If you look at agencies that are focused on terrorism, Iraq or Afghanistan, [it is clear that] they need to get new tools to the field immediately," said Trey Smith, executive vice president for federal business at Science Applications International Corp. in McLean, Va. "Doing a refresh on storage equipment or servers goes to the back burner."
These problems create challenges not only for agencies and integrators, but also for original equipment manufacturers. "When we look at tech refresh, we try to make sure we have a seat at the table when an agency and a systems integrator are making key decisions about when to move to the next phase of an implementation or when one of our next major releases rolls out," said Mark Johnson, senior vice president for Oracle Corp.'s federal sales division. "As long as we are involved in the customer's implementation, whether it's led by a systems integrator or a government program manager, we have the ability to help influence" the project.
New lease on IT life
Falls Church officials and Reliable Integration leaders worked to overhaul the city's IT department and transform it from the five-person in-house staff it was five years ago to a completely outsourced resource today. Leased equipment now supports 150 users; only about 30 staffers used PCs previously.
Falls Church officials spent about $1.8 million on the overhaul. But in addition to always having the latest technology, Hughes said she can do long-range financial planning without the surprise of unexpected IT expenses. "I have a budget for equipment leasing," she said. "I know roughly what it's going to cost me, so now I can sit down at the start of the budget process with reliable estimates."
Falls Church isn't the only IT buyer benefiting from leasing. Scott Spehar, vice president of Cisco Systems Inc.'s federal sector, said that leasing is "a driver for how we package tech refresh" for customers. Three years ago, leasing was an uncommon way for public agencies to acquire Cisco networking gear, but today, the company is doing about $100 million annually in leasing business, Spehar said.
Valerie Perlowitz, Reliable Integration's president and chief executive officer, said public entities could realize a number of benefits through leasing and outsourcing. "If they're buying computing services for a monthly fee, that's just the cost of doing business," she said. "It's a lot easier for people to manage costs in that way. When it's tied with performance-based contracting, you're not paying if you don't receive the service you contracted for."
Performance-based contracts are gaining steam because they relieve the burden of having to stay current with every technology trend, said Sharon O'Malley, vice president of CGI-AMS, the U.S. operating unit of CGI Group Inc., an integrator based in Montreal.
Today's service-level agreements with integrators and manufacturers specify a standard suite of business services, such as word processing and spreadsheet applications. Service providers may promise that the hardware and software that delivers those services are no more than one or two generations old. It is up to these providers to swap technology to meet this threshold, relieving agency managers of the task.
BearingPoint's Lineberger said this approach is typically cost neutral to agencies, but savings still accrue from ensuring that new technology arrives on computers while agency IT workers devote themselves to more mission-critical tasks.
Such arrangements can also be beneficial for technology vendors, who can sell last-generation but still contractually viable computers and other gear to the government when high-priced, leading-edge models are introduced.
In the end, the bonds between integrators and government agencies may grow stronger as integrators push to find more tech-refresh agreements such as leasing and performance-based services. There's certainly motivation for integrators to do so.
Kevin Durkin, EDS' vice president of federal sales, describes the Holy Grail for government integrators as "what we can bring to a client that reduces costs by 5 percent but increases performance by 20 percent."
"I'm forever looking for an edge," he said.
Joch is a business and technology writer based in New England. He can be reached at [email protected]