The boom and bust of IT centralization

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Temporary fiscal pressures driving Shared Services Initiative

How do economic cycles affect the centralization of information technology? Surprisingly, the efficiency or chaotic sprawl of IT is directly related to the health of the overall economy.

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By Christopher Smith

There are two separate cycles that help explain how this works. The first is an overview of the basic long-term pattern found in our economy. In general, economies peak and then experience a contraction marked by falling interest rates, rising bond prices and falling stock prices. After the economy bottoms out, it reverses the process as it expands. Stock prices rise, bond prices fall and interest rates rise again.

This pattern of contraction - followed by growth, then by contraction - is mirrored by the second cycle, which focuses more closely on individual business practices. This second cycle is based on a study of how companies internally handle swings in the larger economy. In general, a company tends to consolidate or centralize its IT department during bad economic times, while allowing expansion or decentralization during good economic times.

While the underlying factors that motivate IT centralization and decentralization are economic, the influence and corresponding confusion of politics also plays a significant role. In many cases, large companies discover a conflict between a principal chief information officer and his regional IT managers. The CIO is constantly attempting to centralize his organizational authority, while the regional managers are attempting to break it apart. While these political battles rage regardless of economic times, they are heavily prejudiced toward one side or another depending on the company's overall level of economic prosperity.

This swing is perfectly illustrated in the large government consolidation project known as Shared Services Canada. The project aims to reduce the overall proliferation of "non-essential" IT infrastructure by introducing a more rigorous set of organizational metrics. It also has been designed to increase efficiency by eliminating duplicate facilities or making better use of storage space and personnel.

Government e-mail accounts have been consolidated, server warehouses have been meticulously inventoried and reordered to produce the highest yield ratios in terms of storage per square foot and all other slow or inefficient processes have been streamlined as part of a larger government mandate. In short, Shared Services Canada is the ultimate in IT centralization, thanks to a unilaterally poor global economy. Not surprisingly, this centralization results in reduced budgets and more concentrated business processes.

However, this will not last forever. In accordance with the inevitable economic cycle, the government will eventually start to increase its budgets as the economy recovers. These increased budgets will lead to a push for innovation and new infrastructure. The need for more innovative infrastructure will subsequently result in the decentralization of IT, which will continue to devolve and develop multiple redundant arms until the next recession strikes.

Obviously, both the centralized and decentralized models have value. In a time of scarcity, we need to conserve our resources in order to make the best use of both our energy and our supplies. In a time of plenty, it's important that we explore our full potential and attempt to push beyond older systems and ways of thinking. Although no one can predict precisely when the latest economic contraction will end, it is a certainty that at some point in the near future it will. Centralization will become a cumbersome and restrictive way to organize IT. The need for multiple stewards of authority and more decentralized organizational models will naturally come into being. No matter what the economy brings, we must never allow temporary shortfalls to halt our push toward innovation.

Christopher Smith is the chief executive of local software company OPIN. He writes about open governance, technology, and the public sector on Twitter @csedev.

Organizations: Shared Services Initiative, Shared Services Canada, OPIN

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Recent comments

  • TB
    January 30, 2012 - 23:50

    Consolidation just sounds too good as a sound bite to not be a winning political strategy. And such, it will return again and again. Middle management, Senior Management, Executives, Politicians, all vulnerable to simplified thinking.

  • Watchdog
    January 27, 2012 - 09:35

    Whereas I agree with this, I believe that for the most part this is politically motivated when it come to Canadian Government IT spending. First of all, through major attrition, over the next few years, the Gov could realized a 20% reduction in staffing as the public sector contracts through retirement and the movement out of the public sector. Let's put things in perspective... When you build this massive data center, you try and position it as close as possible to a stable power source, not Buckingham Quebec; again politiically driven. Nor, do you move the GST/HST data center to PEI, an Island with virtually no power sources; again politically driven. Do you want me to continue? There are plenty of data centers in Ottawa right now which have the necessary infrastructure to host a consolidated email system for the feds. No, they want to build two more datacenters and close the other ones down. The feds should take a page from Western Australia who are going to spend a Billion dollars, yes a billion dollars to dismantle a shared services initiative that they started many years ago. We have similar major projects that the government is a failure at... gun registry anyone; into the billion and counting? Would you like some more examples. Aunder the auspice of, "..many dissimilar email systems", the treasury board has convinced the Fed that they need to consolidate.. No-one has asked them the most very important question... On what year are you basing your decision.. yep, you got it the report was done about 10 years ago when there was chaos, but now there is some semblance of order. Newsflash.. the email system of choice is MS exchange with about 2% of the email systems being something else... One department can send an email to any other department with virtually no issues. Of course, some standards need to be invoked but, there you have it. Oh wait, with our, "new datacenters we'll have a standard network infrastructure". Newsflash! The hardware of choice for networks is CISCO with a smattering of other stuff. This whole fiasco will fail as it has done in the past and with other countries. The Feds are trying to do too much too soon with no plan. If you were at the session where the head of Treasury board was speaking and where the head of the SSC was speaking, you would have heard two different stories.. SSC head said that the gov will consolidate etc, and run by public sector people. Treasury board says that they do not want to be in the business of IT and will outsource everything. Failure is just looming on the horizon. Comeon Mr. Harper, step in and stop the lunacy..