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No Cover, No Minimum

No Cover, No Minimum

The votes are in and government CIOs are winners at innovation and delivering business benefits.

During 20 years in the IT industry I have formulated a theory that the Australian public sector contains this country's major innovators in the application of information technology. I remember countless trips to Canberra in the mid 1980s to demonstrate office automation solutions at a time when there was little comparative interest from major commercial organisations in Sydney, even in strongly white-collar industries like insurance and banking. In the late 1980s I watched as the public sector took this country's first steps towards embracing parallel processing, Unix and relational database technology.

I believed there were several factors helping to make government sector CIOs the industry pioneers. Above all, they worked in industries that were governed by processes and documents that naturally lent themselves to automation by technology. Furthermore, without the competitive pressures of their commercial counterparts they faced less risk in trying something new. On the other hand, continuous public demand for reduced taxes tended to promote constant calls for cost savings, and one way these could be achieved was using new technology to do things better. This created an incentive to explore new technologies and a willingness to be a test bed for new developments.

That was the theory, at least. To find out how well the theory is supported by facts, I recently drew on the last six years results of IDC's Forecast for Management (FFM) study, an annual survey sent to around 8000 public and private sector CIOs and IT managers in Australia and New Zealand. The survey asks respondents myriad questions relating to their use of, expenditure on, resourcing for and challenges with information technology. I wanted to compare and contrast responses from CIOs within the public sector against replies from their peers in other organisations.

My starting point was IT expenditure. FFM asks respondents to identify their IT investment levels both as a percentage of their organisation's turnover and as a percentage of the business operating expense. The results did nothing to dispel my original beliefs. In comparison with 20 other industry categories, as outlined by Australian Bureau of Statistics industry codes, the federal government and defence sector was second only to banking in relative IT investment levels. Over this period these IT managers averaged a median IT spend of 7.04 per cent of turnover, compared to a survey average of 2.5 per cent. State government CIOs also spent proportionally above the average, coming in seventh overall with a median spend of 3.98 per cent. The only public sector arena spending below the average was local government at 2 per cent, though even this put it at the midpoint of all industries in eleventh position.

There are subtle but noticeable differences in how each level of the public sector spent these moneys. Given the outsourcing zeal that has pervaded the federal government sector over the last decade, it was perhaps not surprising to note that CIOs in these organisations spent proportionally more on external staff and professional services. Where CIOs overall allocated an average of 12 per cent of the local IT budget last year to external resources, in the federal government and defence sector the figure stood at 19 per cent. On the other hand, CIOs in the same sector spent much less on internal staff than the survey average (8 per cent as opposed to 19 per cent). Their networking costs were also significantly lower.

This probably reflects the vigour with which federal government politicians have sought to reduce head count levels in this sector. By contrast state government CIOs spent 23 per cent of their IT budgets on internal staff. Moreover, they also spent an above average amount on external staff at 14 per cent of their IT spend. InTEP members from this area commonly complain that pay scale rates in state government hinder their ability to attract certain IT skill sets. One way around this is to use contractors paid from a different cost centre. These high investments in staff may reflect the fact that state government CIOs have to be creative to attract and retain key personnel.

In local government the most noticeable difference was in the proportion of the IT budget spent on maintenance. Last year this stood at 14.8 per cent against a survey average of 9.5. This probably reflects a lack of investment in more modern hardware and software applications. While older equipment nearly always carries higher maintenance costs (since there are usually fewer clients against which support expenses can be amortised), there's evidence local government is paying a premium to retain these systems. An inspection of these costs against more modern alternatives may help in cost justifying an upgrading of the IT environment.

Equipment Sourcing

Part of the challenge for local government CIOs may be their tendency to source IT investments from resellers and distributors rather than direct from hardware manufacturers. Some 60 per cent of local government CIOs source IT purchases from resellers compared to a survey average of 56 per cent. This may reflect the nature of local government business - serviced by a handful of vertical software packages that developers tend to offer in combined hardware and software solutions, possibly leading to less scrutiny of maintenance rates.

By contrast state government CIOs are much more likely to deal directly with the vendors, obtaining 36 per cent of IT acquisitions that way, compared with an industry average of 30 per cent. This probably reflects the importance of this market to IT suppliers, especially outside Sydney and Melbourne. In fact state government may well provide the revenues that enable vendors to have a presence in the smaller capital cities.

The most intriguing finding in public service IT sourcing comes from federal government CIOs, with respondents from this sector reportedly obtaining 20 per cent of IT purchases from application service providers (ASPs), compared to an FFM average of just 4 per cent. Some of this is clearly a reflection of a strong tendency to outsource where the provision of functionality via an ASP arrangement may be part of the delivery arrangements. But it is very likely also indicative of the innovative tendencies of these CIOs. Interestingly, there was strong growth between the 2000 and the 2001 FFM studies in the use of ASPs by federal government CIOs; yet this did not correspond to a major outsourcing growth in the same sector. ASP use was also higher in the state government sector at 7.86 per cent but was much lower in local government at 0.95 per cent.

ASP usage is likely to grow significantly, with numbers of local government CIOs exploring the model in conjunction with peers in neighbouring councils. The aim seems to be to collaborate to give vendors the carrot of much more sizeable business while offering economies of scale. For small councils, this cooperation via an ASP delivery model could enable the automation of a number of services, such as the library, that may previously not have warranted the investment.

E-Business Lag

While public service CIOs lead their commercial counterparts in some areas, they lag badly in the area of e-business. Some might argue this is reasonable, since government doesn't have the same imperative to trade as many industry sectors, but this overlooks the many ancillary ways business is starting to harness the Internet. It also overlooks the many government online initiatives that have been extensively promoted.

Respondents to the survey were asked what proportion of their IT budget was allocated to e-business. In the current operating period respondents said 6.66 per cent, up from 5.50 per cent in the 2000 survey. Only federal government CIOs bettered this at 7.47, but this still put them only twelfth out of the 22 industry sectors. State government CIOs recorded that only 3.84 per cent of their IS budgets were earmarked for e-business while in local government the figure was a mere 1.85 per cent. That figure made local government the second lowest industry sector overall investing in e-business.

The low figures might indicate that public sector CIOs fail to see the Internet as a process enabler rather than a transaction environment. On first analysis this is definitely not the case. The FFM survey asks CIOs to nominate their single most strategic current or planned use of the Internet. The most dominant reasons given by all respondents to last year's survey are customer service and support, (32 per cent), communications with suppliers and customers (21 per cent) and marketing such as company promotional material (20 per cent). In contrast many more public service CIOs - 41 per cent of federal government CIOs, 46 per cent of state government and 53 per cent of local government CIOs - identified customer service and support as the primary reason for use of the Internet. This leaves no doubt that public service CIOs are attuned to the workflow potential of the Net in better serving their clientele.

When it came to using the Internet for promoting company information, public sector ratings were significantly lower than the survey average. Barely 12 per cent of federal government CIOs saw it as the primary use of the Internet, just 4 per cent of state government CIOs marked this option and in local government it failed to score. These differences may reflect the fact that executives in this sector don't have the same challenge of competing for customers as those in the private sector. It may also show that with an electorate for a customer base, organisations are more sensitive to customer needs. Nevertheless, it does indicate that many public service CIOs have been sluggish in embedding the Internet as a delivery channel for some of their business processes.

Interestingly, despite the constant cost pressures endured by many in the public service there was a notable difference between private and public sector CIOs when it came to opinions about the primary benefit of the Internet. Overall, 23 per cent of respondents thought the Internet had the capacity to reduce the cost of doing business. Responses in the public sector were much lower. Only 15 per cent of local government CIOs agreed with this opinion and among those in the federal government and defence only 11 per cent did so; 21 per cent of state government CIOs saw this as the primary benefit of the Internet. This is still below the survey average several years after the business online strategies announced by nearly all Australian states. These low responses may point to the frustrations experienced by government CIOs in harnessing the full potential of the online world.

The survey did ask respondents to nominate what they saw as the primary obstacles to their organisations' successful exploitation of the Internet. Altogether the predominant responses for the survey were cost, (37 per cent), in-house skills and security, (both 30 per cent), and corporate vision (29 per cent). In the federal government security and cost were much higher at 59 per cent and 53 per cent respectively. Similarly, 59 per cent of state government CIOs saw security as a concern but only 37 per cent believed cost was a problem. In local government cost again rated highly with 45 per cent of respondents from this sector seeing this as a major obstacle. Given this survey was conducted pre September 11 it will be interesting to see whether security gains even more prominence in this year's survey.

Bleeding Edge

If CIOs in the public sector are not the real Internet pioneers, where do they lead their private sector counterparts in the use of information technology? The FFM study has a specific section looking at the adoption of IT and modern IS management methods.

A number of new technologies stand out. Public sector CIOs have been more enthusiastic in embracing the Citrix/thin-client solution, with an average usage across all government sectors of between 44 and 46 per cent in the 2001 study. In comparison, 36 per cent of CIOs overall were adopting this technology. Document management, geographic information systems and workflow are all used in much higher proportions by public sector CIOs than their commercial counterparts.

CIOs in state and federal government are also more advanced in their use of a number of other technologies. In particular, business intelligence solutions rate highly in these sectors. Data warehousing was deployed by an average of just 29.6 per cent of all respondents, compared with state government levels of 35.7 per cent and federal government and defence levels of 44.4 per cent. Similarly, 21.2 per cent of all organisations used OLAP, yet in state government 39.3 per cent used the functionality, with 44.4 per cent doing so in the federal government sector. I find these response levels encouraging. These public service CIOs clearly recognise that the essence of IT is to help business with its decision making and reporting. On the other hand, it may be a defensive strategy on the part of these CIOs to show their paymasters that if they want really want to know what is going on then good IT is indispensable for them.

Other areas where technology adoption was much higher in the state and federal government sectors include Linux servers, smartcards, help desk systems, mobile computing and systems development tools. These CIOs were also far more likely to have implemented an intranet and they made marginally more use of some of the more modern networking and communication functionality such as voice over IP and DSL broadband services. And among the management methodologies, these CIOs had a greater propensity to use operational benchmarking and to have undertaken a business continuity plan.

Ongoing Trend

Much of the above indicates a trend, particularly among CIOs at the state and federal government level, for government CIOs to be early adopters of technology. There are clear indicators that potential long-term cost savings are driving some of these investments, such as those in thin-client computing, operational benchmarking and, perhaps, Linux servers. Another motivator for these technology investments appears to be streamlining business processes. This is probably driving expenditure on workflow, help desk management systems and, probably, on intranets. Finally, government CIOs recognise the importance of providing superior information to assist decision making. This must be influencing the strong investments in business intelligence solutions.

So it is apparent from their use of technology that an argument can be made that government sector CIOs are willing to be industry pioneers. The results are particularly encouraging in the federal government sector, since these CIOs have faced a constant battle over the last seven years against the turmoil generated by some of the misplaced outsourcing zealotry of recent ministers. However, implementing technology is only one side of the coin. What do these CIOs see as their main role and challenges?

I think the results are encouraging. FFM asked respondents to indicate what they saw as their three main challenges over the next 12 to 18 months. In the total survey the predominant responses were aligning IT to the business, (32 per cent), reducing costs (30 per cent), migrating to new hardware and software environments (27 per cent) and meeting user expectations (23 per cent). Federal government CIOs gave greater prominence to all of the above with the exception of migrating to new environments, which was well down the list. In its place they highlighted the importance of recruiting and retaining skilled staff. This was by far the dominant response with 47 per cent of CIOs in this sector seeing it as a major challenge. I suspect this reflects their loss of key IS personnel in the outsourcing turmoil.

State government CIOs also listed staff recruitment and retention as one of their top four challenges, albeit in much lower numbers (21 per cent). Their biggest challenge was migrating to new hardware and software platforms (29 per cent). Equally they highlighted the need to meet user expectations and to develop effective IS investment cases. The story was not much different in local government. Aligning IT with the business rated strongest, with 38 per cent of these CIOs identifying it as a major challenge. Prominence was also given to reducing costs and meeting user expectations.

With these statistics it would be difficult to make a case that public sector CIOs are enamoured with technology and divorced from the real challenges of ensuring it delivers real benefit to the business. In all three sectors CIOs regarded aligning IT with business directions and meeting user expectations as highly important. Nor were they insensitive to the business imperative to drive down costs, and they recognised the importance of ensuring they had competent staff to implement these strategies. The importance of protecting these IT assets through security vigilance also rated highly.

In conclusion, my research does nothing to dissuade me from my original assumption. The public sector is a critical powerhouse in the local IT economy. These CIOs show a willingness to work with the business to embrace new and advanced technology. They are leading the way in the adoption of thin-client computing, Linux servers, business intelligence solutions and new communications functionality. Yet they are much more than mere technocrats. They show a healthy discernment about where the online world can benefit the business and understand the importance of cultivating the IT staff who can work with the business to harness the full potential of IT. For my part I see these as all positive.

I do hope that the days of IT being kicked around as a political football are over. If public sector CIOs can achieve so much in a hostile political environment, what could they deliver if the politicians finally recognised how many capable IS executives remain in today's Australian public service?

Peter Hind is the manager of User Programs, which includes InTep, at IDC Australia

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