Gartner Says a More Radical Approach to Cost Reduction Is Needed in Government
Analysts Discuss How to Respond to Different Economic Cycle and Optimize Multi-Sourced Environment at the Gartner Outsourcing & IT Services Summit 2010, September 20-21, London, U.K.
STAMFORD, Conn. - Governments need to take radical steps to make further cost savings amid ongoing uncertain economic conditions, according to Gartner, Inc. Gartner said that while the financial crisis and the economic recession have already forced government organizations in some countries and states to face significant budget shortfalls, the traditional means to reduce costs that have already been applied may not be enough to produce the sustainable savings that are required.
“Government organizations in most of the Western world have already gone through one or two cost-cutting cycles during the past few years,” said Andrea Di Maio, vice president and distinguished analyst at Gartner. “However, the aftermath of the most recent global financial crisis, the sluggish recovery in some countries and the significant level of debt require continued and increasing cost-containment discipline and are forcing government organizations to explore new avenues of cost reduction.”
Mr. Di Maio added that radical ideas for cost reduction are possible in several areas including sourcing and procurement, e-government and government integration, and workforce management. Nevertheless, he said that the various cost-saving options need to be tempered with the specific financial circumstances and regulatory constraints of each given jurisdiction.
Gartner has compiled a list of options for government organizations to save money, both in IT and through joint business and IT initiatives. While this list not exhaustive, it reflects discussions with Gartner clients during the past several months.
Sourcing and Procurement
* Use public cloud services. Gartner recommends that government organizations that are challenged by major budget cuts should pilot public cloud services where they are demonstrably significantly less expensive, accepting a level of risk that will most likely decrease in the future. This should start with non-mission-critical applications and move to mission-critical ones.
* Use community source and the cloud as alternatives to incumbent vendors. Open source has certainly gained its place in the portfolio of solutions that most government agencies utilize. While some might think that the role of open source as an alternative to commercial vendors is no longer an issue, it can still be useful in negotiating with vendors at the higher levels of the stack. We recommend that government CIOs consider program areas where joint development with peer agencies would be possible to facilitate service-level and price negotiation.
* Pursue crowdsourcing. Budget constraints often lead to reducing the use of external consultants, which leaves agencies with significant coverage holes and unable to proceed on certain projects. Crowdsourcing is a way to expose a problem to a wide community, and CIOs need to encourage government agency executives to identify problems that cannot be addressed through traditional contractual means due to budget constraints, and select some for crowdsourcing.
“Overall, a number of signals indicate that the financial climate is forcing the U.K. and European governments in general to follow in the footsteps of commercial organizations,” said Claudio Da Rold, vice president and distinguished analyst at Gartner. "We expect that governments in Europe are likely to follow the U.K.’s spending cuts and gradually move toward increasingly considering consolidation, outsourcing, global delivery models and industrialized services as potentially viable options to reduce spending.”
Project and Portfolio Management
* Cancel high-risk, high-profile programs. Government CIOs and other executives should assess the public value, alongside the risk and residual cost, of large programs, regardless of how much money has been invested. For citizen-facing programs, a fact-based estimation of the likely uptake is essential. For infrastructure programs, alternative scenarios should be developed to assess the public value in each scenario and determine the case for continuing the investment.
* Enforce rigorous yet lightweight portfolio management. Organizations need to adapt or establish portfolio management processes that are agile enough to be applied to both capital spending and operational spending, and to investments or expenditures of different amounts.
Joined-Up and Open Government
* Link interoperability frameworks to immediate benefits. Joined-up government projects that have a clear value and risk being delayed or made more expensive by rigorous compliance with a whole-of-government interoperability framework should be reassessed, in order to identify whether lower-cost and lower-risk integration approaches can be pursued.
* Shut down channels (including e-channels). Whereas governments have already consolidated and reduced channels for government-to-business services, the same has not happened for citizen-facing services. Government CIOs and business executives need to reassess the effectiveness of service and information channels, and those that are less cost-effective need to plan for shutdown by moving constituents to other channels.
* Open government: do not engage unless it’s for a reason. Executives responsible for open government policies and plans should set deadlines for open government initiatives to demonstrate potential for value (and, in particular, contribution to operational efficiency).
* Aggressively implement teleworking. If furloughs, salary freezes or other cost-reduction measures that impact employee compensation are necessary, teleworking may work as an incentive to compensate the lower salary. Gartner advises government CIOs and other business executives to implement teleworking wherever possible.
* Task and reward employees for cost-saving innovation. Governments should seek innovative ways to tap into the knowledge of their employees to solve problems, especially in the area of efficiency gains. A recent example of this is the “Spending Challenge” started by the U.K. Treasury, where government employees are encouraged to submit ideas for the Spending Review before opening this process to a wider public.
Gartner analysts will further discuss how to optimize sourcing and industrialize services in different economic cycles. The Gartner Outsourcing & IT Services Summit 2010 will be held on September 20-21, in London. For more information about the Summit please visit www.europe.gartner.com/outsourcing. You can also follow the event on Twitter at http://twitter.com/Gartner_incusing #GartnerOss.
Additional detail is available in the Gartner report “From Modernization to Survival: Radical Cost Reduction in Government". The report is available on Gartner’s website at http://www.gartner.com/resId=1407214.
About the Gartner Outsourcing & IT Services Summit 2010
We live an uncertain world and businesses must dramatically improve their ability to respond quickly to different economic cycles and market conditions. At the Summit, analysts will examine how to take advantage of industrialized services and cloud-based solutions, but will also provide advice on how to master the design and management of multisourcing. The Summit will help organizations prepare for the next economic cycle and develop new approaches to service aggregation and management.
Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. Gartner deliver the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to approximately 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has approximately 4,300 associates, including approximately 1,200 research analysts and consultants serving clients in 80 countries. For more information, visit www.gartner.com.
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