How Outsourcing Turned Pennsylvania into a Technology Champ
The October 1923 issue of National Geographic magazine devoted 79 pages and 76 illustrations to the automobile industry, describing it as a force that revolutionized manufacturing and transformed transportation. The auto truly altered American life, for it caused cities to spread into suburbs, provided jobs, took families for Sunday rides and gave people a sense of freedom.
Similarly, the outsourcing arrangement between the Commonwealth of Pennsylvania and Unisys to harness the value in technology and use it to the state’s greatest advantages has altered life for Pennsylvania citizens. It’s expected that this $527 million outsourcing initiative, referred to as “Data PowerHouse,” will save the state’s taxpayers more than $110 million during its first five years, with the savings to be reinvested in more technology solutions and programs to achieve beneficial services for Pennsylvania citizens. Already it has improved public safety, education, economic competitiveness and citizen satisfaction.
When former Congressman, Tom Ridge, went into office as Governor in Pennsylvania in 1995, only 5,000 of the state’s 80,000 employees had computers, and most of the software was incompatible. Technology was barely used in the state, let alone managed and exploited as a valuable tool. Now the American Electronics Association ranks the state as one of the nation’s top 10 “Cyberstates” and it’s in the top five for attracting IT and biotech companies.
Maneuvering to a Different Vantage Point
Although the agreement between Pennsylvania and Unisys is a landmark deal just from its sheer size and complexities that have not been undertaken successfully elsewhere in state government, its real value is its cornerstone role in an extremely strategic IT initiative designed by the state’s top leadership.
The roots of the strategic plan that culminated in a Request for Proposal with a 2000-page appendix and the subsequent 1999 contract signing sprang from the state legislature’s 1995 report documenting advantages of computer communications and interoperability among state agencies. The Governor’s administration followed up by creating a commission/task force to propose changes to reduce costs, increase accountability and improve service. A year later, they had identified more than 400 opportunities for change, and Governor Ridge issued an Executive Order establishing the PRIME initiative (Privatize Retain Innovate Modify and Eliminate).
Under the direction of then Lt. Governor Mark Schweiker (now Governor), the Data PowerHouse project was launched as a PRIME initiative. The commission had discovered a multitude of redundancies in 20 data centers operating within an eight-mile radius of downtown Harrisburg, and one proposed solution was to leverage economies of scale by consolidating 18 of those centers from 15 state agencies into one data center. Assisting the Commonwealth in moving the project forward, KPMG Consulting explained the three options: continue the status quo; consolidate the data centers into one but operate it with internal staff; or consolidate and outsource the operation.
The Ridge/Schweiker Administration decided to take the outsourcing approach because it promised the greatest operational advantages, including faster access to technology enhancements. It was the best solution to achieve the Administration’s broader strategic plan to free up both capital and human resources and redirect them to innovative IT initiatives, including eGovernment.
Tactics from the Trenches
Several times choked by unique challenges, the state and Unisys became partners who were unstoppable because of their strong commitment to succeed together. They learned to approach the project flexibly together so they could quickly change lanes when necessary and not suffer whiplash.
Curt Haines, director of the Bureau of Consolidated Computer Services in the Governor’s Office of Administration for the Commonwealth, recalls a megacrisis started with the Pennsylvania project team underestimating the role of the federal government. “Just a week away from issuing our Request for Proposal, six federal agencies contacted us and said ‘not so fast.’ So we spent the better part of nine months convincing those federal agencies that what we were doing would not impact their funding streams into these data centers, nor would it put at risk their very sensitive data that they share with the Commonwealth. And that was a huge challenge.”
“Everybody ultimately gave their blessings, but I spent an entire summer in Washington,” Haines continues. “One of the recurring themes we heard with those federal agencies was: you are the first state that is doing this on this scale; therefore we want to make certain you are doing it right. Every one of them put us under the microscope so that they would have a blueprint to follow with the next states. It took us about nine months to get through that process.”
Another hot spot impacted their tactical plans when the U.S. Department of Justice stated one of its regulations prohibited putting its criminal record information (used by the Commonwealth’s state police) into the hands of a private contractor. Bureau director Haines says Justice actually changed the federal regulation to permit this project to move forward. “They realized that this is a growing trend in the public sector, so they worked with us to craft the changes in the language of the federal regulation and published it in the Federal Register to allow this to happen.”
The rollout spanned 15 months — three longer than the original target because of unanticipated issues happening within the agencies. Transition was phased in agency by agency, migrating each in their off-peak periods. “Unisys came up with a game plan, and they began to work with each agency three months in advance of its actual cutover,” explains Haines. “It was a whole lot of work on the part of each agency, Unisys and our bureau. But Unisys and its subcontractor, IBM, have a very tried and proven methodology of how to move data centers. There was a good bit of work involved in each one, but they went incredibly smoothly.”
Still, there were surprises in every agency. “A lot of these agencies had file transfer capabilities with banks and any number of service providers in their program areas,” Haines says. “To identify every single one of those connectivity issues and to map them into the new Commonwealth network was the biggest challenge.”
Most of the cutovers were planned for 2:00 A.M. on weekends in order to minimize the amount of downtime to a half hour. But one agency presented a huge unanticipated hurdle. “They convinced us that they could not afford one second of downtime because of safety issues involving the state police and the Department of Transportation,” Haines recalls. “So Unisys had to work with IBM and the agency to get additional software products to do mirror processing and additional hardware capacity to afford absolutely zero downtime.”
The Strategic Impact
“In this day and age,” observes Haines, “business mandates that you have to change quickly. We could never do that before outsourcing.” Whereas Unisys can implement a mainframe upgrade in two weeks, government requirements aside from an outsourcing arrangement require advertising a request for 30 days before even considering getting a solution. The fraction of time in which the outsourcer’s solutions are brought to bear is an enormous competitive advantage to the state.
Another facet of this beneficial relationship is Unisys’ provision of state-of-the-art hardware and software. “Previously, only a couple of our largest agencies could get to and use this type of technology. Most agencies didn’t have a prayer of getting it because of budget constraints, but now everybody in our agencies is at the leading edge of mainframe technology,” exclaims Haines. All of the state’s mission critical infrastructure and applications are now backed up and have been tested for disaster recovery. No individual agency could have afforded to do this alone, he states; but collectively it’s easier because of the outsourcer’s economies of scale.
The flexibility of the outsourcer in working with Pennsylvania’s budget challenges is another prize in the package of benefits resulting from their relationship. “Unisys has been very flexible in backloading costs — or in some cases frontloading them, depending on Commonwealth funds and where we are in the budget year,” notes Haines. This flexibility enables the state, for example, to implement a half-million dollar upgrade mandated by the legislature when the agency didn’t budget for it. Both parties have had to be extremely flexible with give-and-take behaviors to keep the relationship on track.
The most impressive benefit from the outsourcing strategy has been the freeing up of 180 IT people who were simply processing data and retraining them to develop eGovernment applications and other Web-enabled processes to better serve the public. But the outsourcing initiative has done more than enable the original vision of the Ridge/Schweiker team. It revolutionized the state’s approach to doing business.
Because the busiest times for Pennsylvania’s citizens to use the Internet is on weekends and after 8:00 P.M. on weeknights, the agencies soon discovered that their new eGovernment initiatives needed new staff for the 24x7x365 operations. Several already have opted, instead, to knock on the Unisys door and ask to put this work in the outsourced data center. “So that has been a very pleasant spin-off in this,” the PA bureau director says. “And the best part of it is that we didn’t go out and solicit this — they came on their own to Unisys. So the word is out now through Harrisburg that the outsourced solution not only provides good, reliable service but solves problems.”
In his June 2001 remarks at Governing Magazine’s “Managing Technology” conference, Governor Ridge explained the crux of how Pennsylvania became a technology champ. “We had to change our attitudes. We knew we couldn’t go it alone.” Where state government has historically viewed the private sector as an adversary, the Ridge/Schweiker Administration saw it as a partner. “And we discovered something interesting along the way,” he stated. “In opening up a new path to government, we ended up changing government itself.”
Lessons from the Outsourcing Journal
- What initially is a goal to reduce operating costs and increase efficiency or quality of service should be examined from an enterprise-wide perspective to see how outsourcing can make a more valuable strategic impact.
- Even with an outsourcer’s expertise moving and taking over a data center, process and network complexities will cause unexpected challenges in the transition phase. In planning an outsourcing initiative, the parties need to understand the ramifications of all internal and external entities that “touch” the process.
- For both private and public sector organizations, implementing eBusiness solutions requires a new approach to effectively support the Internet activity on a 24x7x365 basis.