Government Operations Committee on Feb. 13th, 2012

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

I just want to talk briefly about what you're recommending in your study. You talked about a moderate outsourcing model. Could you describe the advantages of doing some level of outsourcing compared to doing this transformation entirely in-house?

[John Chang]

Sure. That's an excellent question.

Our analysis, as you saw from our report, took into consideration three factors. One was strategic fit to requirement: what is the requirement of the Government of Canada? That is well documented. As well, what are the risks to implementing this and to sustaining the future state, as well as the costs and benefits of doing it? We took all three of those into consideration when analyzing the different service delivery options, which included status quo, complete outsourcing, or doing it all in-house--moving it all into complete shared services--as well as a couple of options that are combinations of internal service delivery and external service delivery or private sector delivery.

The reasons we landed on what we call the centralized moderate scenario, and why we think that's better than a complete internal service delivery or complete external service delivery, are twofold. One is that there are many aspects of infrastructure delivery in the Government of Canada today that are best in class. We believe some functions are being run very well. An example--and it's a point-in-time analysis, but in the mainframe area--is that the Government of Canada is ranked very well against our benchmark data, so we believe this kind of function should remain in-house but should potentially be centralized, because if one department is doing that well, the actual knowledge and expertise should be spread to other departments that are potentially smaller and can reap the benefits of it.

Conversely, there are many functions the private sector does well, which are, as I mentioned earlier, functions that are being commoditized in the marketplace today. Doing so is becoming almost a utility. As a result, we think that blending of best-in-class internal capability with private sector external capabilities in a moderate fashion is a very sanguine approach to this process.

The other thing is that from a risk perspective, moving to a complete in-source or complete outsource scenario presents the highest risk to transition. I think a moderate approach--i.e., a blended approach--has a lower risk for implementation.

[The Chair, NDP, Pat Martin]

Thank you, Bernard.

For the NDP, we have Denis Blanchette.

You have five minutes.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you, Mr. Chair.

I'd also like to thank our witnesses.

I have a lot of questions to ask, but I probably won't ask all of them.

The report cost a little over $2.5 million. That's the amount that circulated. We have a lot of things to discuss if we consider that the future of government service delivery will be significant modified.

One of the things you spoke about was transformation. Did you consult the Government of Canada's Chief Information Officer about transformation? His mandate sets out that he must review that type of thing. Did you consult the Chief Information Officer?

[John Chang]

Could you clarify who that is?

[Denis Blanchette, NDP, Louis-Hébert, QC]

The Canadian government has a Chief Information Officer Branch. Its mandate is to review how electronic services are delivered within the Government of Canada. How do we manage that? Did you consult that office?

[John Chang]

Yes, if you're talking of the CIOB, when we were doing the study, it was Corinne Charette at the time, if that's who you were referring to. She was intimately involved in both governance and program management of our engagement.

[Ivan Milam, Director, PricewaterhouseCoopers]

Corinne Charette was one of two executive sponsors for this study. We had two executive sponsors. Those were Corinne Charette and Maurice Chénier at PWGSC. They were part of what John referenced at the beginning. We had a CIO-ADM advisory or oversight committee that met monthly for this project. They gave us input and reviewed our key deliverables, our key assumptions, and the work plan. It was basically the oversight function.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Okay.

Mr. Chang, in your opening remarks, you said that the scope of the mandate changed after four months. Coincidentally, things that had been included were now things that were going to be sent to the private sector.

Who initiated the change in the mandate and why?

[John Chang]

Well, I don't know the reasons. I can't speculate on that, but I can tell you, as Ivan just said, that the two sponsors of our project informed us that this would occur.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Okay.

Mr. Chang, you are responsible for outsourcing at PricewaterhouseCoopers. Can we rest assured that you were not biased toward outsourcing from the beginning, given your position? Would it not have been better for another group to do this study?

[John Chang]

Just as a point of clarity, I'm responsible for outsourcing advisory; it's one of the responsibilities I have with PricewaterhouseCoopers. We provide advice to clients on how to succeed in different sourcing strategies.

We are completely independent. We're not in the outsourcing business, and when we engage clients, it's safe for me to say, in fact, that half the time or more we advise clients that they should not outsource, because it's not easy to do. I have over 25 years of experience in the business of outsourcing on the IT side, both as a vendor as well as a client, and now as a consultant. It is not an easy journey. As you see, our report is full of implementation cautions that we've actually put into it. Part of that kind of advice is based on the experience we're providing.

As a point of clarity, then, we're not in the outsourcing business; we provide advice on how to mitigate risks and how to succeed in such a program. We provide truly independent advice.

[Denis Blanchette, NDP, Louis-Hébert, QC]

The Government of Ontario managed to transform its IT without touching human resources. Did you really thoroughly assess that model before recommending solutions where the savings came mainly through staffing cuts?

[John Chang]

Yes, one of our case studies was the Government of Ontario, as you note. We interviewed Dave Nicholl and his executive officer. As you know, when the Ontario government launched their transformational program in this area--

[Denis Blanchette, NDP, Louis-Hébert, QC]

Why did you reject that avenue?

[John Chang]

We didn't reject that avenue. The point I was going to make is that we understood the Government of Ontario committed not to lay off people who could potentially be affected for two years. They were able to achieve their target of $100 million in annual savings without doing that for the first couple of years. According to what Dave Nicholl said in our interviews, some of the labour savings were achieved through attrition, as an example.

One of the recommendations we make in our report is a gradual gated approach. We're not saying the Government of Canada should undertake a big-bang approach similar to what the State of Texas did. If you look at the case study we wrote, we do not recommend that you do that.

What does that mean? We're saying that there are a number of gates, a series of opportunities requiring detailed analysis. They include a human resources plan, which I think is critical to the success of this kind of program. If this is done in an evolutionary fashion, which is what we're recommending, you can potentially minimize the HR impact, as you've seen in the Government of Ontario.

[The Chair, NDP, Pat Martin]

Thank you.

Thank you, Mr. Chang; you're well over time.

Thank you, Denis.

For the Conservatives, we have Ron Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here this afternoon.

Just to clarify, your report took only data centres into account, and not the process of consolidating networks and email systems. Is that correct?

[John Chang]

That's correct.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

It's a range of $45 million to $293 million just on that one sector of data centres.

I come from the Okanagan, in British Columbia, where we've got RackForce. British Columbia did the same thing as Ontario, and other provinces are moving that way. Do you have an idea of how much savings you think you could generate from consolidating email systems and networks? I think we've got over 100 different email systems within the federal government alone. Have you any blue-sky estimate of the cost savings potential there?

[John Chang]

It's hard to speculate. Just to clarify, the $45 million to $293 million we're talking about there concerns server consolidation and facilities consolidation opportunities, and when I say “consolidation”, I also mean virtualization. There are virtualization and consolidation opportunities in that area. The server is actually 36% or 37% of your total cost, so it's a significant piece, and there are also what we call alternate service delivery opportunities, as I said earlier.

What is not included in that $45 million to $293 million is mainframe and storage, which are within the data centres, so even outside email consolidation--which we didn't include because that wasn’t part of our mandate and we didn't gather the data—we think there are opportunities there for sure. In fact, in a lot of our case studies, as you saw in our report, the jurisdictions there in particular report savings as low-hanging fruit in the mainframe area. In our view, we recommend that the Government of Canada retain that mainframe area. We think there's an opportunity for the Government of Canada to retain mainframe services, but they should be consolidated across departments in best practices, as we observed.

I hope I answered that question.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

What is your estimated timeline to implement this transition, your best guess?

[John Chang]

Again, we see this as an evolutionary series of gates and a journey. We truly believe this is the best way to mitigate risk and ensure success. In our report, we note that creating a capacity for change and getting a mandate for this kind of change would take a couple of years. When we tabled this report in May last year, we did not contemplate that the government would move so quickly. That's a bit unusual to us on the shared services side, to be honest. We were not part of that at all.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Well, it's good to know that we can get blamed for going too fast. There's a mandate, we need to get it done, and as my colleague Mr. Trottier said, it obviously should have been done a long time ago, so I'm glad we're moving forward.

You mentioned Mr. Nicholl, from the Province of Ontario. He did testify at our committee last week, and he said:

We could not have undertaken that without private sector expertise or involvement. They are involved with all the steps. All the way through, they are involved.

Would you agree with this statement about the need for private sector involvement?

[John Chang]

Our recommendations are that you take the best of both private sector expertise and Government of Canada expertise and leverage it to your advantage, both on the transition and in the transformational part of your journey.