Victoria abandons IT shared services?
Core CenITex services to be outsourced

news Dramatic internal documents leaked from CenITex this week have revealed that the Victorian State Government plans to turn the IT shared services agency into a ‘broker’, rather than a provider of services, and that the Government is considering outsourcing massive chunks of CenITex’s work.

The troubled agency’s future has been in a cloud over the past year, with the Victorian Government putting CenITex’s formal status on ice pending a number of investigations into its future. Following a series of troubling reports into its ability to deliver IT services to client agencies in the state, and audit reports finding “nepotism and favouritism” in the company’s contractual processes. It has also gone through major redundancy rounds, sacking 200 staff in one event in May last year, for example.

Yesterday Melissa Fyfe, a journalist with the investigations unit of Melbourne newspaper The Age, published an extensive document which appeared to be a PowerPoint presentation by CenITex chief executive Michael Vanderheide to an all staff forum held by the agency on Monday this week. In the document, Vanderheide noted that CenITex was to undergo a significant shift in its mission, from being a pure provider of IT services to a number of Victorian Government agencies to becoming a broker of third-party services.

In the document, Vanderheide noted that evidence supported approaching the private sector to provide services in four key areas currently being provided by CenITex: Hosting, storage, network and desktop services. All of these areas are generally considered by the IT industry to be so-called ‘commodity’ IT services, in that they represent standardised infrastructure services that almost any medium or large organisation would purchase in a similar fashion.

For example, in the private sector, IT services companies such as Fujitsu and Unisys already supply desktop services to a number of government agencies, while firms such as Dimension Data have long been known to provide standardised services around network administration.

The document noted that CenITex had identified “significant potential savings” from shifting this kind of work to the private sector. A review of CenITex’s capability had found that lower costs on the private sector’s side were driven by factors which CenITex itself couldn’t easily replicate internally — such as the availability and uptake of new technologies such as cloud computing, access to labour, service levels and standardisation.

“Where our costs differed, approximately 15 percent was driven by scale differences and the rest related to the complexity of our environment,” the document notes.

Vanderheide wrote that about 75 percent of CenITex’s desktop, storage and hosting environments were “legacy”, and that the agency’s customers didn’t have the funds to upgrade those systems. “Close to 80 percent of our environment is fixed cost and revenues are expected to drop or not grow for three of the four service streams,” the executive wrote. CenITex assessed its options as follows (click for larger image):

The next steps for CenITex will be to prepare for the transition to its new planned ‘broker’ model. This will involve building its procurement and vendor management capabilities as it attempts to increase its service management overlay on the service delivery aspect of its work and the work of vendors; solidifying its business case for the planned approaches to the private sector and conduct the detailed tendering work; and taking other steps to prepare its organisational shift, including communicating its new strategy effectively.

CenITex plans to finish finding its new private sector partners for its new model by March 2014, and it plans to start implementing the new model after that point, with a date of July 2016 listed in Vanderheide’s document as the finish date for when the new model should be implemented. In the meantime, much of CenITex’s work will be business as usual on many aspects of its ICT project and service delivery work, while it prepares for its new role in the background.

In general, Vanderheide’s presentation did note that there had been some upsides for CenITex recently. The organisation had “paused and consolidated” over the past 12 months, the executive said, and had achieved some “goodwill” amongst most of its customer base and in the industry. It had also achieved a good relationship with its Minister, Gordon Rich-Phillips, as well as its chair and the Government’s newly appointed chief technology advocate, Grantly Mailes.

CenITex now had a “deeper understanding” of its infrastructure, Vanderheide noted, with operational risks being recorded, monitored and steadily addressed. Severity 1 incidents were “trending down” against CenITex’s growing asset base, and the organisation was tracking very close to its budgeted end of year outcome. In addition, the agency’s first level resolution was “consistently above 90 percent” against a target of 70 percent, it said.

Across Australia, State Governments ranging from Western Australia to Queensland and Victoria have struggled over the past decade to successfully deliver IT shared services to different government departments, with most states walking away from the paradigm in general over the past several years.

The change to CenITex’s fundamental business model was foreshadowed in February this year when the Victorian Government released its whole of government ICT strategy. Analysis conducted at the time time showed that the state was thinking of breaking up CenITex and providing some of its services through the private sector, as well as embracing the new cloud computing paradigm.

Opinion/analysis to follow in a separate article.

Image credit: mtellin, Creative Commons