Centralize and Save

Phil Windley // Thu May 22 08:42:00 2003

The McKinsey Quarterly has an article by Brad Brown entitled Recentralizing IT (note you'll have to register to read more than the abstract). The article makes the following claims:

Centralized IT infrastructures cut costs and more reliable.
A service-based approach where business units purchase the services they need from the central infrastructure allows them to retain control.
The more you consolidate, the more you save.

On the last point, the report shows that consolidating IT management, data centers, and network infrastructure yield savings of 15-18% over a purely decentralized model. Throwing mainframe and mid-range servers and Internet into the consolidation yields savings of 23-24%. Adding application and database services increases the savings to as much as 30%. I can't quite tell from the graph if they include desktops in that or if they're excluding them and leaving them to the business units.

Interestingly, this "ideal model" is what Utah currently has, if somewhat imperfectly realized. IT Services functions as what Utah deems an Internal Service Fund. Under this model, ITS sets prices for their services and agencies buy those services. There are some warts: In particular, the pricing process has left rates muddy and often unrelated to the true cost of service. Many agencies ignore ITS services (sometimes with good reason) and buy somewhere else. The network infrastructure is shared between agencies and ITS.

Even so, I'm convinced that strengthening ITS, fixing the rate transparency problems, and turning ITS into the kind of organization that agency IT shops see as an asset rather than competition is the best hope for Utah to maintain its edge in IT. This is the foundation upon which eGovernment will be built.

The newly formed Utah Technology Commission will apparently be discussing this issue in their June meeting. They ought to each read this McKinsey report and other information carefully before they decide to move away from what is considered by many to be a "best practice." I may try to make the meeting.