NAVIGATING DIFFICULT TIMES

Viewpoint Paper

Government Chief Information Officers (CIOs) will have to take a strategic view
to navigate the economic downturn because the impact on government finances
will be long term in most countries. They will have to reduce the costs of IT to run
the business to free up funds for IT investment in business improvement projects.
In addition, they will have to overhaul governance mechanisms to increase return
on project spend. Finally, the scale of the challenge is such that they will have to
explore “disruptive solutions” with potential to make breakthroughs in performance,
whether disruptive technologies, sourcing solutions or business models.
Executive Summary
However long the economic downturn lasts, in most countries a long-term deterioration in government
finances is already projected. HP believes that government CIOs have to take a longer-term view at the
same time as responding to today’s immediate problems.

First, CIOs will have to restructure IT operating costs to fund investment in IT that enables business initiatives.
CIOs should work back from a target cost that reflects where the business needs to be, not where it is today.
Action is required quickly so that a virtuous, self-reinforcing cycle is established where IT costs are reduced
ahead of savings targets so that funds are available for the next cycle of cost reduction. HP has identified
the main cost levers and cost reduction strategies that will enable CIOs to reach the cost reduction targets
that will typically lie in the 15 percent to 45 percent range over three years.

Having created more room for project spend, the second task is overhauling governance mechanisms to
increase the business impact of IT project spend. This can be achieved by flexing delivery and procurement
models, prioritizing projects based on Government Return on IT (GRoIT) and adopting portfolio management
approaches that address the entire IT value life cycle.

Finally, the economic crisis is a highly disruptive event, in the face of which incremental change alone will
rarely be sufficient. CIOs will have to explore “disruptive” solutions – some will be new technologies, some
alternative procurement solutions and others different business models.

Introduction
“B.C. and A.D. - Before Crash and
After Depression”
The economic crisis has brought storm conditions for
most government Chief Information Officers (CIOs).
New policy objectives must be implemented with
unparalleled speed. Workloads are increasing often
without commensurate funding. Budgets have been
reduced, frozen or increased less than historically.
Despite these changed conditions, CIOs still have to
keep the ship afloat, ensuring uninterrupted delivery of
live services.
In this storm you will inevitably be absorbed in
problem-solving. In terms of the well-known time-
management matrix, most of your time is probably
spent in the “important” and “urgent” quadrant.
Even so, it is vital that you look ahead and carve
out time for activities in the “important” but “not
urgent” quadrant that can prevent problems and seize
opportunities. This is for two reasons.
First, though no one can predict the severity of the
economic crisis, economists are already forecasting a
significant long-term deterioration in the public
finances of most developed countries. For example,
in the UK, the Institute for Fiscal Studies estimates that
it will take 20 years for government finances to return
to where debt is 40 percent of GDP.1 This is because
the need to fund interest payments and pay back debt
will coincide with the aging of the population. CIOs,
therefore, cannot plan just to hunker down for a year
or so, to survive one or two cold winters. You need a
longer-term strategy to cope with the climate change
in government finances.
Second, the instability caused by the economic crisis
will reduce barriers to change, thereby bringing within
reach transformation opportunities that you may
previously have regarded as “too difficult” or “too
risky.” The combination of cost pressures and reduced
barriers to change could create a tipping point for
the transformation of public services. For example,
the Great Depression in the United States triggered
reform that went beyond the scope of the New Deal.
The Glass-Steagall Act, the repeal of Prohibition, the
introduction of Social Security and the recognition of
trade union rights all date from this period. It was this
enduring change that led historian Felix Frankfurter
to redefine B.C. and A.D. as meaning “Before Crash”
and “After Depression.”

1
 HP advice to Government CIOs
HP has three points of advice to help navigate these
difficult times:
• Restructure IT operating costs to fund investment in IT
that enables business initiatives
• Overhaul governance mechanisms in order to
increase the business impact of IT project spend
• Explore disruptive solutions that can create
breakthroughs in performance
Each of these points is described in more detail below.
Restructure IT operating costs to fund investment in IT
that enables business initiatives
Information technology on average makes up 6.8
percent of government operating expenditure,
according to Gartner. See Figure 1.3 It is evident,
therefore, that Chief Financial Officers (CFOs) will
be looking to their CIO colleagues to make a “fair”
contribution to meeting budget freezes or reductions.
At the same time, even if a narrow financial view is
taken there is much more potential to impact the non-IT
costs of the organization (93.2 percent) by increasing
the value that IT creates rather than by reducing the
cost of IT. Since capital is in short supply, however,
the main source of funding for IT to improve business
performance (“Grow” and “Transform” in Gartner’s
terminology) will be reductions in IT operating costs,
for which Gartner uses the term “Run” and the
industry commonly calls
“Business as Usual.”
CIOs need to act quickly to reduce their cost base
In a situation where budgets are steadily declining,
two scenarios are possible. In the first instance, a CIO
resolves to reduce the cost of IT to run the business
substantially and quickly — to meet cost reduction
targets, fund investment in business improvement
projects and free up capital for further reductions in
IT operating costs. In this case, a self-reinforcing or
“virtuous circle” can be set in motion. Alternatively, if
a CIO does not quickly get on top of operating costs, a
“vicious circle” sets in where declining budgets and
the cost of running IT operations combine to squeeze
out investment in improving the business or in reducing
IT operating costs, making change progressively
harder.

Figure 1. Government IT Expenditure in Relation to Total Operating Expenditure and Allocation to “Run,” “Grow” and “Transform”

Average Total Operating Average Breakdown of

Expenditure IT Expenditure

Transform 12% (0.8%)

Grow 13% (0.9%)

Non-IT Operating Expenses
93.2%

IT 6.8%
Run 75% (5.1%)

Run Grow Transform

This is an indicator of how
much of the IT resource is
consumed and focused on the
continuing operation of the
business. It includes all non-
discretionary expense as part
of the Run the Business Cost.
This is an indicator of how
much of the IT resource is
consumed and focused on
developing and enhancing IT
systems in support of busi-
ness growth (typically organic
growth). Discretionary invest-
ments are included in the
Grow the Business Cost.
This is an indicator of how much of
the IT resource is consumed and
focused on implementing technololgy
systems that enable the enterprise
to enact new business models. This is
very much a “venture” category and
would be represented by activities
such as the e-investments in the late
1990s.

2
Figure 2. Self-reinforcing or
“Virtuous Circles” Related to IT
Operating Costs (Run)

Lower Business Lower IT

Operating Costs Operating Costs
(Run)

Investment in
Reducing IT
Operating Costs
(Run)

Rationalized Rationalized
Infrastructure and Infrastructure and
Applications Applications

Cost reduction does not have to be at the expense of CIOs should work back from a target for spending
quality on IT to Run the business and on IT to Grow and
The natural assumption is that reducing costs has to be Transform the business
at the expense of quality. However, an analysis of 37 When an automotive company sets about developing
European banks by McKinsey & Company found that, a new product, it is common practice to set a target
“A small number of European banks get more business cost. The design teams work back from that figure
value from information technology — including faster, knowing that they have to meet the target cost if the
more flexible support of business objectives — than product is to succeed in the market. Working back
do their peers, and at a far lower cost.”4 They called from a target cost greatly increases the probability of
this group “effective business enablers.” Conversely, a product’s success in the market. Moreover, starting
another group of banks, the “high IT spenders,” with a target stretches a team to achieve more than
reported both high IT costs and high operating costs. if they set expectations to improve based on today’s
McKinsey’s detailed examination showed that in performance.
comparison to the “high IT spenders,” the “effective
HP believes that government CIOs are in a similar
business enablers” on average had half the number
position. You need to achieve a target cost for IT to run
of data centers, 380 vs. 500 applications, more
the business if the organization is to meet its financial
standardized desktops that cost 40 percent less, and
targets. There is also a target level of investment in
a lower percentage of applications that were “hard to
IT to improve the business that is needed for the
change” (<40 percent vs. 40–60 percent).
organization to meet its wider objectives. So how
In other words, reducing IT costs to run the business can you determine the right targets?
need not impact business performance – quite the
According to Gartner, public sector organizations on
opposite. There is a second “virtuous circle” where
average use 75 percent of their IT budget to Run the
modernized systems provide high returns from
business. Bringing performance into line with the
investment in IT and yet are cheaper to run. See Figure 2.
private sector at an average of 66 percent would

4 Kanika Bahadur, Driek Desmet, Edwin van Bommel (McKinsey & Company), “Smart IT Spending: Insights from European Banks”
McKinsey Quarterly (January 2006).

3
Figure 3. Illustrative Target to Reduce IT Operating Costs (Run)

1. Changing the mix between Run and 2. Increasing IT volumes and

125% demand for IT
Grow/Transform
(75%:25% to 65%:35%) (0% - 5% p.a.)

~45%
AS-IS Higher end of
100% ~15% required
Lower end Run cost
of required reduction
Run cost
reduction
75%
3. Allowance for investment
to reduce Run costs
(~5%*)
50% 4. Reduction in overall
department/agency budget
(0% - 5% p.a.)

25%

0% * Investment required to achieve target BAU reduction assuming ~5 times payback and ~25% cost reduction target

entail reducing IT operation costs by 12 percent.5
Likewise, the Gershon Review of Technology Spending
in Australia set a target for large departments to
change the mix of business as usual (BAU) to project
work from 77:23 in 2007-2008 to 70:30 in 2011–
2012.6
Extra factors should be taken into account in setting
the target cost for IT to run the business in addition to
the investment required to improve the business.
• Rising IT volumes and demand for IT — As
organizations mature in their use of technology
and technology itself matures, demand for IT
increases. For instance, although the cost of storage
is declining at 35 percent per year, demand for
storage is increasing between 50 percent and 150
percent per year. Furthermore, many organizations
are experiencing increasing volumes of workload –
up to 30 percent in some human services agencies.
• Allowance for investment to reduce Run costs —
Since organizations may have to self-fund, the target
cost for IT should include allowance for capital to
invest in reducing costs to run the business.
• Reduction in overall department/agency budget —
You will probably have to reduce your overall
budget, not just change the mix of spend.
Since government finances will be under pressure for
several years, a medium-term target should be set,
say for three years. This is far enough out to reap
the benefits of investment in major change, but close
enough in to make plans practical.
The individual economic circumstances of government
agencies will vary, but HP believes that CIOs will
typically have to reduce the cost of IT to run the
business by 15 percent to 45 percent within this
timeframe. See Figure 3.

5 Kurt Potter and Michael Smith (Gartner, Inc.), “IT spending and Staffing Report 2009” (January 2009); Table 2. Run-, Grow- and Transform- the Business IT

4
Spending by Industry, 2008. To determine the Run savings required, we solved for X in the equation 75%-(75%*X) = 66%, or X=1-(66%/75%).
6 Sir Peter Gershon, “Review of the Australian Government’s Use of Information and Communication Technology” (August 2008), 48.
 Since these are demanding targets and you need to able to demonstrate a track record of cost reductions
make cost reductions quickly to prevent a vicious circle and return on investment.
from developing, there is particular value in considering
The savings that are achievable will depend on an
alternative sourcing options that may reduce capital
individual client’s circumstances, but the table below
requirements or even provide a capital injection
provides indicative savings derived from HP experience.
(see the Disruptive Solutions section on page 10).
These savings figures are based on tried and tested
Additionally, there may be newly established funding
solutions and do not assume some of the more radical,
options available from central government initiatives to
but still practicable, modernization strategies that entail
increase sustainability or develop infrastructure.
disruptive technology and sourcing solutions (see the
The target level of investment in IT to improve the Disruptive Solutions section on page 10). In order
business should in theory be set by working in concert to give a sense of potential impact on the overall IT
with the business units to determine which projects will budget, these indicative figures are mapped against
be required to meet the objectives of the organization. Gartner data on the average percentage of the IT
In practice, the realities of tight budgets are most budget that is spent in each IT domain in government.
likely to require you to work within your existing (now
You can see that by absolute value (Table 1, column C)
reduced) budgets.Furthermore, your ability to negotiate
the areas with most potential to reduce costs are
additional funds will to a large degree depend on being
applications development, applications support,

Table 1. Average Government Spending and Potential Savings by IT Domain

Gartner Data On Breakdown Of HP Average

Government IT Budget By Domain7 Experience Impact on
of Typical Total IT
Savings Budget
(Average
Federal/ State/ (C) of A+B*
Domain National Local Midpoint
(A) (B) of C)

Finance / 5% 3% 20% - 40% 1.2%

Administration
IT Management 10% 6% 15% - 30% 1.8%
Applications 14% 18% 6.8%
35% - 50%
Development
Applications 11% 15% 3.5%
15% - 40%
Support
Help Desk 7% 4% 10% - 30% 1 .1 %
Voice Network 5% 10% 20% - 30% 1.9%
Data Network 13% 13% 5% - 30% 2.3%
Desktop and 15% 12% 20% - 35% 3.6%
Peripherals
Data Center 20% 19% 15% - 40% 5.4%
Total 100% 100% 27.6%

7 Jamie K. Guevara, Eric Stegman and Linda Tracy (Gartner, Inc.); Figure 21. State/Local Government: Distribution: Spend by Technology
Domain, and Figure 22. Federal/National Government: Distribution: Spend by Technology Domain.
5
 desktop and data center. The main modernization
strategies for each of these major cost reduction areas
are:
• Applications development – component re-use;
tooling; and adherence to quality standards, such as
the
Capability Maturity Model Integration (CMMI)
• Applications support – portfolio rationalization;
remote management; and Design for Run™, HP’
proprietary approach to applications development
that focuses on minimizing total lifetime cost of
ownership
• Desktop and peripherals – consistent office environment,
minimal number of standard configurations; and
standard tools and processes
• Data center – virtualization and remote systems
management; physical centralization; standardized
tools and processes; and server and storage
consolidation
Achieving these reductions in IT operating costs entails
a journey. The major stages can be categorized as
custom-managed (typical un-modernized environment),
leveraged facility (partial centralization, consolidation
and standardization) and a fully agile environment
(full centralization, consolidation, virtualization and
standardization). Figure 4 illustrates for each
infrastructure domain the potential savings at each
stage.
Cost reduction initiatives need to be underpinned by
understanding of costs, risk and potential impact on
other change activities
An essential step in addressing any of these cost reduction
opportunities is to understand the existing cost base,
including cost behavior. Costs can vary with time due to
licensing agreements, business volumes, IT transaction
volumes, changes in the location where services
are provided or as a consequence of contracts with
suppliers. Assessment of the behavior of costs assists with
modelling costs and identifying the optimum targets for
cost reduction initiatives.
A next step is to ensure that the risks of potential
change are understood. IT to support the business
in its current state is inextricably linked to existing
organizational processes, structures and control
mechanisms, so the potential impact of cost reduction
activities on the business should be analyzed in detail.

Figure 4. Potential Savings at Each Stage of IT Maturity across Infrastructure Domains

Custom Leveraged Agile

Managed Facility Environment

Mainframe 15% 25% 35%

Midrange 30% 35% 40%

Network 5% 15% 30%

Desktop 25% 30% 35%

Leveraged Savings
Agile Savings
Help Desk 10% 25% 30%

Total 15% 20% 35%

Forward
Costing
Curve Future

6
Finally, projects to reduce costs have to be planned
alongside investments to improve the business so as
to ensure that plans are synchronized.
Overhaul governance mechanisms in
order to increase the business impact
of IT project spend
Government is often criticized for being slow to
change. In reality, however, government departments
have well-oiled mechanisms for introducing substantial
policy change. What is different about the current
economic crisis is the speed of change and that so many
changes have not been anticipated. The processes that
government departments have in place, such as for make/
buy decisions and subsequent procurement or in-house
development, are not designed to operate within such
short cycles nor can many cope with the range and
complexity of current change. In this situation, IT is bound
to be a constraint unless CIOs are able to overhaul
governance mechanisms so that they become fit for
purpose.
Governance and sourcing processes should be reviewed
in the light of project demand
In manufacturing, a standard way to design operations
is to analyze demand in three different categories:
“runners” are daily or weekly production items;
“repeaters” for which demand will be occasional
but when it comes it will be of a similar nature; and
“strangers” or one-offs that fit no discernible pattern.
The point is that very different production systems are
required for each type of demand. “Strangers,” for
example, typically require ways of working that are
more akin to a traditional workshop than a factory.
Mixing “strangers” with “runners” or “repeaters” is a
sure way to foul up an efficient production line.
This concept can be transferred to public sector IT
where “runners” are routine application enhancements;
“repeaters” are policy changes, often substantial, but
still usually following relatively similar patterns; and
many of the changes being introduced as a result of
the economic crisis can be categorized as “strangers,”
since they are different in nature and/or require much
more rapid implementation. Attempting to handle
these “strangers” through governance mechanisms
and sourcing approaches that have been designed
to manage “runners” and “repeaters” will most likely
fail to deliver the required change and foul up the IT
production line as well.
Case Study 1
EDS, an HP company, modernized a U.S.
Federal Agency infrastructure to enable
the agency to reduce comparable IT spend
by 20 percent
Determined to enhance its standing on the
President’s Management Agenda and improve
service to citizens, this federal agency relies
on a large number of applications and
systems to successfully support community
development on a national scale. Yet over
time, these systems had grown complex and
outdated.
The agency looked to EDS to overhaul its data
center, optimize security, provide business
continuity and enable an industry-best
enterprise architecture for all of its business
lines.
The first step toward building the centralized
IT infrastructure required consolidating the
agency’s various home-grown help desk
operations into a single, enterprise-wide help
desk.
Next, EDS transitioned the agency’s aging
mainframe environment to EDS and enhanced
it to industry-best standards. At the same
time, EDS migrated nearly 200 business
applications running on 400 servers to
an EDS data center through back-to-back
weekend moves in just six weeks – all
with no interruption to the agency’s daily
business. EDS then successfully executed rapid
modernization projects, such as virtualization,
which further improved the agency’s
productivity.
As a result of the massive modernization and
enhancements, the federal civilian agency’s
various business lines are now unified by a
standardized platform which helps enforce
the new enterprise architecture. The agency
has succeeded in attaining the coveted
Green rating on the President’sManagement
Agenda in record time. More importantly,
enhanced systems availability and processing
performance have dramatically improved the
agency’s ability to serve citizens.
7
 Since “strangers” inevitably require workshop, rather
than factory, ways of working, the governance and
sourcing mechanisms that are appropriate will vary
according to the project. The key for CIOs is to
understand the nature of each project and determine
whether it can go through the existing governance and
sourcing processes or whether something different is
required. In some instances, sourcing services from
third parties, such as another department operating
a similar function, may well be the quickest route to
delivery.
If there is a need for different governance and
sourcing processes then it is essential that the decision-
making process is documented (“Why was a different
approach adopted?”). Furthermore, if an alternative
approach is employed, there is all the more need
to ensure that appropriate steps are taken to meet
standards of public accountability and audit.
CIOs can prioritize projects and assess results using
Government Return on IT (GRoIT)
In the private sector, Return on IT (ROIT) investment
is usually calculated in financial terms. Many have
recognized that even in the commercial world this can institutions, and to achieve desired socio-economic
be simplistic. In the words of Eric Clemons, a professor outcomes.10 We believe that Government Return on IT
at Wharton, “The greatest danger is the ‘concrete’
and ‘measurable’ driving the significant out of the
analysis.” A special problem identified by another
MIT professor, Ravi Aron, is the “revenue gap,” i.e.,
the distance between the technology and impact on
revenue. He gives the example of how a customer-
ordering system would have a much smaller revenue
gap than an intranet for sales people to share sales
leads.8
The issue of how to measure ROIT is more complex in
the public sector since policy outcomes are rarely purely
financial, outcomes are harder to measure and there
is often an even bigger gap between IT investment
and outcomes, the “outcome gap.” So how can you
measure ROIT in order to prioritize IT investment and
demonstrate returns?
HP has developed a Framework for Public Value that
is based on the work of Mark Moore.9 In contrast to
market contexts, where value is linked to the return to
shareholders, public value in societies is ultimately
defined by the public themselves. As a general rule,
the key things valued by the public fall into four
very distinct categories: they value quality services,
delivered with efficiency, by trusted
(GRoIT), is directly linked to the public value created
or enabled by IT. See Figure 5.

Figure 5. GRoIT: Government

Return on IT Cost Factors Quality Factors Trust Factors Outcome Factors

• Transaction costs • Convenience and • Security of • Service delivery

• Productivity availability personal metrics
• Access and information • Long-term
• Time to market
channels • Price and qualitative and
• Volume, Speed
• Accuracy and affordability quantitative
and Flexibility
timeliness • Equity - service measures
• Asset utilization
• Choice and delivery to all • Sustained change
personalization segments
• Collaboration &
participation
• Compliance &
risk
GRoIT =

How IT is How IT is How IT is

“produced” delivered “consumed”

How IT is How IT is How Risk is

sourced managed mitigated

8 “Measuring Return on IT Investment: Some Tools and Techniques,” knowledge@Wharton, 18 July 2001, available from http://knowledge.wharton.
upenn.edu/article.cfm?articleid=398; Internet.
9 Mark H. Moore, Creating Public Value: Strategic Management in Government (Cambridge, Massachusetts: Harvard University Press, 1997).
8 10 Suparno Banerjee and Ian Kearns, “Public Value and e-Government,” HP Government Journal (2007).
 Portfolio management disciplines can increase
business impact, reduce risk and ensure auditability of
decisions
After evaluating candidate initiatives, it is essential that
CIOs assess how they come together as a portfolio for
three reasons.
Firstly, projects may combine to impact business
objectives in ways that are more complex than a
matter of straight dependencies.
Secondly, just as in the case of a portfolio of financial
investments, the balance of a portfolio has to be
assessed on a number of dimensions:
• Impact on business objectives - The overall impact
on departmental objectives has to be considered to
ensure that investment is not skewed unduly towards
specific objectives
• Project size and time to impact - A mix of small,
medium and large projects and projects with short-
and long-term impact is necessary to diversify risk
• Impact on IT objectives - There should be a blend of
projects that impact Run, Grow and Transform
• Application areas – Investment should be spread
across application areas such as service delivery
applications, business intelligence and utility
applications (for example Human Resources and
Finance).
Finally, the portfolio has to be analyzed in relation to
constraints to ensure that it is deliverable. In particular, the
demands that the portfolio places on the resources of your IT
organization have to be profiled, alongside capital and other
funding requirements.
Departments can employ an end-to-end IT value life
cycle to maximize GRoIT
In our experience, though public sector organizations
have a formal IT project life cycle, few have the same
level of rigor in the IT value life cycle that goes from
business case development to benefits measurement.
See Figure 6.

Figure 6. IT Value Life Cycle to Maximize GRoIT

1 2 3 4 5 6

Create Score Provisional Portfolio Go/ Measurement of

Business Business Portfolio Assessment No-Go costs and ben-
Cases Cases decision efits
Portfolio Balance
Run, Grow
Transform
Public Value
Value Impact
Factor
Quality Yes IT area, e.g. utility Go
& service delivery Public Value
Trust
Initiative Initiative Value
Outcomes Factor Impact
Initiative Cost Quality
Project size and
time to impact Trust
Constraints No No-Go
Outcomes
Other GRoIT = Cost
Criteria Impact Initiative Initiative
Architecture Investment
Constraints
Risk Funding profile
Capital
Lessons
learned
Resource needs

9
 Many of the individual components will be in place but the
process is not formalized or viewed as a single end-to-end
process. As a result, public sector bodies often find it dif-
ficult to demonstrate value for money by citing consistent
figures for financial and non-financial return on IT spend.
In addition, audit trails showing how decisions were made
may not be sufficient to meet raised expectations for trans-
parency of public spending.
Having a framework for the full IT value life cycle allows
CIOs not just to maximize GRoIT, but to demonstrate
ability to achieve GRoIT —
­ a competence that will be of
importance in competing for scarce capital. A standard-
ized approach to GRoIT also enables your organization to
learn from experience
and thereby ensure that there is no weak link in the IT
value life cycle.
Explore disruptive solutions that can
create breakthroughs in performance
A “disruptive” technology is a technological innova-
tion that marks a radical change in the market, often by
maximizing a particular product attribute, such as cost or
convenience. Examples of disruptive technologies include
the digital
camera, the tape recorder and the personal computer.
In many instances, disruptive technologies actually
perform worse on certain product attributes than exist-
ing alternatives. But they manage to gain market share
because customers place a higher value on a single
attribute. For example, the early digital cameras took
lower quality pictures than traditional film cameras but
many customers valued convenience over quality. For
this reason some disruptive technologies are not actually
new. They take off because people’s priorities change. The
downturn will alter people’s priorities, giving greater value
to low cost and flexibility but less value to customization
and control.
The concept of disruptive technologies can be extended
to disruptive sourcing models and business solutions. The
economic downturn is a highly disruptive event that, in
HP’s view, calls for disruptive solutions. Adopting evolu-
tionary approaches will be a critical element in your change
strategies but it seems unlikely evolution alone will be
sufficient for the scale of the task.
10
Case Study 2
Portfolio management and measurement
of ROIT investment were key to HP halving
IT spend and flipping the ratio of operating
costs to new projects from 70:30 to 30:70
In 2005, Hewlett Packard CEO Mark Hurd
established straightforward goals for CIO Randy
Mott: provide better information, lower the risks
related to technology failures, and lower costs
overall. As one of five key initiatives in the
overall transformation program to achieve these
goals, Portfolio Management and Prioritization
processes now require all proposed IT projects to
develop a business case that demonstrates real
impact.
The impact, or Return on IT, is documented
using the sum of all benefits, both hard dollar
and intangibles, that a project delivers in
the 12 months following full implementation.
Furthermore, forced ranking and selection
enables our IT organization to focus on
executing fewer, high priority projects at once
and completing them in shorter timeframes. The
ROIT numbers have credibility because they are
based on a cost benefit analysis agreed to by
business partners — they are finance numbers,
not estimations from the IT department.
While more benefit may be derived from longer
term projects, a six-month duration hits the
right balance of benefit and risk most often and
therefore makes up the majority of the portfolio
of projects at any given time.
As a result of this focus, we have been able to
drive down overall IT cost from 4% of Revenue
to just under 2%, and shift the ratio of Business
as Usual to New Development cost from 70:30 to
30:70. Along the
way, we significantly reduced our reliance on contract
employees. The transformation program itself
implemented modernization initiatives that
tripled bandwidth at half the cost; rationalized
6,000 applications down to about 1,500; 700
data marts to fewer than 55; and 85 data centers
consolidated down to 6.
 Disruptive technology solutions can reduce costs,
increase flexibility and enable more
open government
HP believes that several disruptive technologies
have matured to the point where they merit serious
consideration by governments. Examples include:
• Alternative workplace solutions — Government
agencies are considering alternative options for the
workplace, such as role-based computing and thin
client. Pressure on cost makes these options more
advantageous as well as more innovative options,
like netbooks.11
• Open source software — Utility applications (applications
that are essential, but not differentiating, such as
payroll and HR systems) on average account for 20
percent of expenditure in banks12 so, if a similar level
of spend in government is assumed, exploring open
source software has substantial potential to impact
costs. The desktop is the most obvious area. Other
generic applications, such as Customer Relationship
Management (CRM), database and application
servers will also be candidates.
• Open / collaborative approaches — Government
can free up development resources by adopting open
development approaches and more collaborative
models such as Web 2.0. and mash-ups.13 These have
potential to transform the relationship between
citizens and government, as well as reduce costs.
• Cloud computing — Cloud computing offers powerful
opportunities for delivering a service-centric strategy,
creating a scalable infrastructure by sharing technology
services and resources, thus driving down the cost
of infrastructures. For example, HP supplies the U.S.
Department of Defense (DoD) with scalable technology
to enable its Defense Information Systems Agency
(DISA) to deploy a cloud computing infrastructure. The
shared, flexible infrastructure allows DISA to remotely
provision its test and development systems through a
single, secure interface.
11 Note: A netbook is an ultra light-weight laptop designed predominantly for work over the Internet or accessing applications through a cloud.
12 Peter Redshaw (Gartner Inc.), “IT Spending for Banks, 2007” (February 2008); Table 17. Allocation of IT Operating Budget by Category.
13 Note: “In web development a mash-up is a web application that combines data from one or more sources into a single integrated tool. The
term mash-up implies easy, fast integration, frequently done by access to open APIs and data sources. An example of a mash-up is the use of
cartographic data from Google Maps to add location information to real estate data.” From:
http://en.wikipedia.org/wiki/Mashup_(web_application_hybrid), accessed 20 March 2009.
CIOs can employ disruptive sourcing solutions to
increase efficiency, reduce capital outlay and move to a
more variable cost base
Alternative procurement solutions can convert costs
from fixed to variable and reduce capital requirements.
Moreover, innovative sourcing solutions can often
deliver change within the shortest timeframes by
re-using existing capabilities. Examples include:
• Outsourcing — The economic crisis impacted the
Financial Services (FS) industry first and there has
already been a sharp increase in outsourcing
by FS institutions. This is because they have seen
outsourcing as the single way that they can achieve
the biggest reduction in IT operating costs within the
shortest timeframe. We have also seen FS institutions
reviewing existing contracts, and where they do not
perceive sufficient value for money, either going back
out to market or breaking single contracts into multi-
sourced arrangements. As governments come under
greater cost pressures you may need to take similar
steps to reduce costs and to avoid risk by “baking in”
cost outcomes.
• Alternative financing options — Even where
government departments have outsourced IT service
management, the assets often remain owned by the
government. Transfer of assets and leasing can free
up scarce capital for you to invest in other areas.
Similarly, public-private partnerships have potential
to provide access to additional capital and revenue
streams.
• Software as a Service — Software as a Service
(SaaS) is a way of deploying software where an
application is hosted by a service provider and
accessed by customers via the Internet, potentially
using cloud computing. SaaS reduces your need for
capital outlay and enables faster implementation.
• Pay-as-you-go — Another flexible sourcing approach
is “pay-as-you-go” or “pay-per-use.” Think of this as
outsourced capacity on demand or infrastructure as a
service. HP Adaptive Infrastructure as a Service and
other pay-per-use solutions offer real-time access to
pre-built application infrastructure without having to
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Table 2. Impact of Alternative Sourcing Solutions

Outsourcing Alternate Software Pay-as-you- Shared Service/

Financing as a go joint-
service procurement

Reduced 3 3 3 3 3
capital

More 3 3
variable
cost base

Reduced 3 3
costs

Faster 3 3 3
time to
market

pay for all the capacity when not in use. Pay-per-use
measures how much capacity you use and bills you
accordingly.
• Shared service and joint-procurement models — The
change in the economic environment strengthens
the case for shared services and joint-procurement
models that can decrease capital needs by reusing
assets and reduce costs and time spent managing
procurements. An instance of such a shared service
in government is the Data Warehouse on Demand
service that HP operates for a number of U.S. states
to analyze and profile Medicaid and Medicare
claims.
The potential of alternative sourcing models to impact
capital requirements, fixed vs. variable cost structure,
total costs and time to market is shown in Table 2.
finances creates a stronger drive for change and
innovation. The second reason is that the economic crisis
has altered the boundaries of government and caused
general instability, thereby bringing greater degrees of
freedom.
Technology will be a critical enabler of many of these
disruptive business solutions, in some cases creating
opportunities that would hitherto not existed. For
instance, the integration of edge technologies has
enabled new models for funding transportation
infrastructure and managing congestion by introducing
highway toll collections that are based on usage
and the time of day. Likewise, identity management
and Service Oriented Architecture enables joined-
up citizen-centric services. The main innovation in
business models that we envisage are:

Disruptive business solutions have the greatest
potential to drive breakthroughs in performance
The traditional model for delivering government
services entails a vertically integrated “silo” that is
responsible for a single policy area, such as tax or
justice, and is funded through taxation. There have
been moves away from this silo model towards
joining up front-line services for citizens and achieving
economies of scale at the back-end through shared
corporate services. In general, progress has lagged
behind the expectations of those at the centre of
government.
HP believes that the economic crisis will, in many
instances, create a tipping point that will accelerate
these pre-existing trends in government. The first
reason for this belief is that increased pressure on
• Integrated models for customer-facing functions —
The concept of shared services applies to customer-
facing functions as well as to corporate services.
Government departments can share capabilities
at multiple levels: process, data, applications and
infrastructure. The result can be both lower costs and
a more seamless customer experience.
• Shared service models for corporate services —
The standardization that is required to make
shared services work will increasingly become an
acceptable price to pay in order to reduce costs
and fund modernization of Human Resources and
Finance.

12
• Different payment models — Payment by customers
according to use of a service or payment of suppliers
for delivery of policy outcomes, such as placement
in employment, can provide new funding and alter
customer and supplier behavior.
• Outsourcing of service delivery to the private or
voluntary sector — The downturn will encourage
service suppliers to consider new opportunities as
suppliers of services directly to citizens; while the
voluntary sector will often be an attractive option
for shaping services that are built on first-hand
understanding of customer needs.
• More participative community models — New
technologies such as Web 2.0 will allow citizens to
take more direct control over the design and delivery
of services, changing their role from consumer to
producer.
Seizing disruptive solutions requires an open innovative
mind-set
This final point of advice is more a matter of adopting a
new mind-set than of taking a specific action. To seize
such opportunities, CIOs will have to be imaginative
and willing to take steps into unfamiliar territory. In
nearly all instances, deep collaboration with your
business colleagues or external parties will be vital.
Exploring disruptive business solutions may seem like an
unaffordable luxury in a world of frozen or declining
IT budgets, but the reality is that for many this will be
a necessity — “more of the same for slightly less”
will not work.
Case Study 3
The City of Anaheim developed an entirely
new way to manage local emergencies
through a virtual emergency operations
center
For the City of Anaheim in Southern California, public
safety is a crucial concern. The City has to be prepared
for emergencies such as wildfires and earthquakes or
incidents in the Anaheim Resort area, the City’s
thriving convention and entertainment district.
Organizations in the public sector for many years
have had brick-and-mortar emergency operations
centers (EOCs). The problem with traditional EOCs
is that it takes time to physically report to an EOC
and communications with field personnel are limited
to radio and telephone. Working with EDS,an HP
company, the City’s long-term technology partner,
the Mayor of Anaheim had a vision for emergency
management that broke the mould in three ways: it
was virtual, it demolished organizational silos through
information-sharing and it put information in the hands
of front-line responders as well as incident managers.
The Enterprise Virtual Operations Centre (EVOC)
allows officials and emergency responders to view
topographical maps, global positioning system (GPS)
data, weather conditions, blueprints, utility plans,
video camera feeds, radio transmissions, live news
feeds and more – all from a single application that
is available through a wireless public safety network.
Information-sharing across departmental and
jurisdictional boundaries is achieved through open
formats and technologies such as XML and web
services. In addition, map layer standards, like KML,
make it possible to obtain and overlay map layers from
services such as Microsoft Virtual Earth, Google Earth
and ESRI ArcWeb Services.
Whilst being highly innovative, EVOC is a practical
solution that re-uses existing assets, applications and
data repositories through middleware without having to
reengineer them.
An example of EVOC’s practical value is provided by
the 2007 wildfires in the nearby City of Malibu. The
Anaheim Fire Chief happened to be out of town but he
was able to locate each of his units assisting Malibu,
track all communication and, using the aerial view of
the map that was obtained via Microsoft Virtual Earth,
could assess the terrain that his teams were facing.
As is with many innovative or ‘disruptive’ solutions,
EVOC has been employed in ways that were not
originally envisaged. For example, traffic footage
that was previously only available in the Traffic
Management Center is now used for day-to-day
operational management by other departments.
Likewise, an exercise using real operational data is
underway to assess the potential impacts to respond to
emergencies. In addition, as a result of the
proliferation of cell / mobile phones, when EVOC
issues a major event advisory, an email is sent to
all members of the Emergency Notification Group.
Embedded in the email are links to EVOC lite — a
version of EVOC that is designed to run on PDAs or
any comparable device.
About the Author
David Rimmer
David Rimmer is the leader of HP Enterprise Services, Global
Government Industry in Europe, Middle East and Africa and also
the global lead for Revenue and Tax.

Contributors
Suparno Banerjee
Vice President and Leader of HP Enterprise Services, Global
Government Industry

Kimberly Caldwell Katsuyama

HP Enterprise Services, Global Government Industry

Charity Dunlop
HP Enterprise Services, Global Government Industry

14
Technology for better business outcomes
To learn more, visit www.hp.com
© Copyright 2009 Hewlett-Packard Development Company, L.P. The information contained herein is subject to
change without notice. The only warranties for HP products and services are set forth in the express warranty
statements accompanying such products and services. Nothing herein should be construed as constituting an
additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.
4AA0-1231ENW, Sept 2009