news The Queensland Government has engaged consulting firm EY (formerly Ernst & Young) to conduct a strategic review of its CITEC IT shared services business, in a sign that it is considering following the recommendations of the Costello Commission of Audit report and selling the business to the private sector.
The so-called Costello Report was published on 30 April this year by the Queensland Commission of Audit, which was set up by Queensland’s new LNP Government after it took power in early 2012. The commission is chaired by Costello, with commissioners Doug McTaggart, a leading executive in the financial services sector, and Professor Sandra Harding, vice chancellor and president of James Cook University.
New Queensland Premier Campbell Newman asked the commission to report on the Queensland Government’s current and forecast financial position, and to make recommendations on strengthening Queensland’s economy, restoring its financial position, and ensuring value for money in the delivery of frontline services.
Among other conclusions in its interim report delivered last year, Costello and his commissioners pointed out that the state “continues to operate commercial business operations in direct competition with private businesses operating in open and competitive private markets”. “These government businesses are providing services principally to internal government clients,” the report stated, “and there is no justification as to why these services cannot be sourced directly from commercial private operators.” Amongst the government business units cited as examples in the report were CITEC and Queensland Shared Services.
In its final report, the Commission recommended hat “the Government discontinue the role of CITEC as a centralised provider of ICT services within government, and initiate a processto divest the CITEC business within two years.”
At the time, Queensland appeared reluctant to fully accept the recommendation, stating: “The Government accepts this recommendation but notes that additional policy work is required to understand the implications and consider broader issues. It notes that CITEC is only part of a broader services provision and ICT asset environment in the Queensland Government, and as with other recommendations relating to ICT and corporate service provision, notes that a detailed implementation plan which first and foremost establishes an orderly process to manage the implications of this recommendation is needed.”
However, in an email sent to CITEC staff yesterday, the group’s general manager Dallas Stower appeared to signal that moves were afoot to examine the potential for a CITEC sale.
On 24 June, according to Stower, Andrew Garner, the director-general of the Department of Science, Information Technology, Innovation and the Arts, had given a briefing to staff noting that an independent industry advisor would be appointed “to assist CITEX with a strategic assessment of our business”. EY (formerly Ernst & Young) had been appointed to conduct the review, Stower added.
“The aim of the independent industry engagement is to strategically assess CITEC’s business position with a view to making recommendations to the Government as to the best options for the divestment of CITEC as per Recommendation 149 of the Qld Commission of Audit Report. The EY consultants commenced their engagement yesterday and I expect that they will take some 4 -5 weeks to complete the strategic assessment.”
Stower noted that over the past several weeks, senior CITEC staff had been collecting “key information about the CITEC business for review by the advisors”. “The information has included key financial data, HR establishment, Product, customer and contract data. The package of information provided to the advisors will assist them in understanding the nature, size and complexity of the CITEC business,” Stower wrote.
Garner, the director-general of DSITIA, has close professional links to EY. The executive was recently appointed to his post, with his most recent role having been at EY as the firm’s lead Queensland Government partner, as well as leading its Queensland advisory practice. However, there is no suggestion of impropriety in the appointment of EY to the CITEC work. EY has previously conducted similar work in the state; for example, auditing the problems suffered by Queensland Health in its disastrous payroll systems upgrade.
opinion/analysis
As I wrote in June 2012:
“I am strongly of the view that the once-hyped IT shared services paradigm is virtually dead in Australia’s public sector and should be abandoned. I would support a recommendation by the Queensland Commission of Audit that the state’s internal IT services units be privatised or sold off to commercial IT services firms.”
It’s good to see Queensland progressing this one. I would suspect that likely buyers might include Queensland-based diversified IT firm Data#3, as well as some of the major global players — Fujitsu, perhaps, which has proven itself willing to buy local firms recently, or NEC, which has also been on the acquisition trail.
Hmmm … the challenge here is that selling CITEC may seem an expedient way to “cut and run”, but this will likely create a contractual lock-in to an outdated mode of service delivery. The best outcome for the government as a whole is to create incentives for agencies to transition to modern market-based ICT services as quickly as possible with few perverse disincentives and barriers. The only way to make CITEC saleable will be to create some defined window of time where agencies are mandated to continue to use the existing services … hence perpetuating the status quo for longer than would likely occur if agencies had a free hand. Selling CITEC will simply create an inefficiency gift that will keep on giving …
Maybe it would be possible to create contractual incentives for the buyer to migrate all applications and workloads into more efficient/lower cost as-a-service offerings … but this will be complex given the organizational dynamics. It will be in the buyers interests to do so, of course, but they will have a limited ability to influence the behavior and decision making of the agencies.
Wouldn’t it be better and more flexible just to create incentives and mechanisms for the agencies to transition off CITEC into more modern managed service and cloud services arrangements? Hollow it out one application and service at a time and close it rather than sell it holus bolus?
The Vic government has a similar dilemma with CenITex …
What do folks think?
Very valid points, Steve — I hadn’t considered the issue you raise about forcing agencies to use its services for a window.
Steve,
In various quarters of the QLD Public Sector and ICT community during the last decade the sale of CITEC has been a prospective issue raised/dumped and re-hashed over again (often behind closed doors). This includes the 2005 review and the prior appointment of private sector executives to senior levels (including an ex Mincom executive as CEO).
Why sell or on the other hand buy CITEC. From a historic position, one would be buying a client base and seeking to maximise the return on such an investment ie a profit derived from the client base – the sale price and potential profit clearly increases with the degree to which you have certainty of a monopoly lock in to that customer base.
It has been a long held and privately discussed subject that under the former government that once there was use of centralised systems that CITEC would be sold off – ie large agencies would be locked in and hence the government had something of value to sell off – IE one was selling a monopoly access to a customer based – its agencies).
Indeed, the centralist approaches and methodologies of the QGCIO were said to have been supported on this basis/ for this purpose.
There are opposing forces and agendas at work and it will be very interesting to see what the Newman government does – as one has to ask what does one get if you bought CITEC. Historically the proposition of a CITEC sale was based on the value of its locked in customer base.
Steve, here is a question – What is CITECs value proposition and positioning to a prospective buyer in the emerging cloud computing and consuming ICT as a service environment?
E&Y and the government will have to devise one to sell it! But this may well go against other interests/agendas. (eg agencies seeking efficiency dividends).
My view is that the decision to try and sell it is motivated by the desire to realize some quick capital inflow, but it will turn out to be a poisoned chalice for both the government and the buyer. The game has fundamentally changed in favor of what I call “proliferative innovation” i.e. the ability to harness and manage rapidly proliferating digital technologies. The CITEC model is founded on a ‘socialist economy’ anti-proliferation premise – consolidate, standardize, rationalize … fewer moving parts etc. There is no practical way that CITEC can be granted an ongoing monopoly because this would require a perpetuation of closed socialist ICT economy thinking which has proven time and time again to be a failure. Agencies won’t, and shoudn’t, agree to such a monopoly. Without a monopoly, what is there to sell? An old factory full of worn-out and old fashioned tools and a portfolio of dissatisfied customers?
We are in the early stages of rapid proliferation of digital solutions fueled by mobile devices, apps, social media and cloud services. The new generation of solutions offers compelling innovation and productivity benefits for agencies DIRECTLY, agency-by-agency, without the need for a sub-scale intermediary like CITEC. I discuss this in an Ovum StraightTalk piece published overnight:
http://ovum.com/2013/07/17/proliferative-innovation-is-a-game-changer-for-government-ict-strategy/
Trying to sell CITEC holus bolus will just be a non-value adding distraction to the core game of transforming the way the government sources and manages ICT capabilities to drive innovation … another 2-3 year nugatory exercise that will do nothing more than enrich the gaggle of advisers, consultants and middlefolks involved in the transaction.
Steve, nice article but your second sentence while true is also fundamentally the numb of the issue. The much talked of learning organisation and government as a good client. Never really seen it. Don’t believe I will I see it – in my life time anyway.
Indeed the big vendors and global consulting houses have built their businesses on the very fact that government is a dumb client. And they do and will do everything to ensure that remains. Its not in their interests to do otherwise.
Actually when I said “The Vic government has a similar dilemma with CenITex …” I suppose what I meant to say was the Vic Gov has faced a similar dilemma but decided on a different path – against the ‘throw the baby out with the bathwater’ Qld approach – in favour of a selective transition of services to managed services and cloud services. This makes more sense in terms of a flexible and phased transition to new sourcing and delivery models on a case-by-case basis.
The key thing to bear in mind is that it is will be less costly, and less risky, to simply buy modern services from a fresh start than to seek to use a contractual ‘magic wand’ to try and renovate the existing legacy infrastructure, systems and processes. This proposition simply needs to be put to the test on an application-by-application, workload-by-workload, basis.
I cant see a market for CITEC at all, we are already seeing agencies coming under pressure to reduce costs, the overhead these agencies carry being tied to the CITEC model is one of the first areas they are looking at.
Combine this with the Treasury moving to make a number of agencies Stat Authorities ( TIQ as an example) they will look for more efficient, utility based solutions to gain theses efficiencies around business processes and outcomes. The agencies will be forced to improve processes and reduce overhead. One of the major overheads they have? ICT services provided by existing government agencies. Locking agencies into CITEC to make a sale attractive contradicts the very message the government is challenging the agencies with.
I wish them the best.
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