California CIO To VARs: We Need Your Help

"We currently have 10 state contracts over $10 million, but we have 11,500 under $500,000," said J. Clark Kelso, CIO for the State of California and Governor Arnold Swarzenegger's special advisor on information technology.

Kelso made his remarks last week in Sacramento, the first stop on GovernmentVAR's StateLocal Roadshow. The event brings together key executives from government solution providers and state CIO's to discuss issues and opportunities for VARs to win state and local IT contracts. Some 50 solution providers attended the Oct. 11 Sacramento event. Others are slated for Austin, Texas on Oct. 24, and Oak Brook, Ill. on Nov. 6.

Kelso said that the state has dozens of legacy IT systems that it can no longer maintain because the managers who designed or maintain the systems have either retired or will do so in the near future. "We've run out of time on legacy applications and we can't continue to maintain them," he said. "We've been reliant on small handful of individuals and they have retired or are planning to retire. Many of these systems are non-manageable, not because they are broken, but because we don't have any people around that know how to keep them running."

Clark Kelso, CIO State of California, gives the keynote address at the Xchange Government VAR State and Local Roadshow in Sacramento, Calif. on Oct. 11, 2007. Photo by Kim Kulish

As a result, California has launched a broad initiative to update the state's IT systems. But Kelso acknowledged that the state is looking at a projected shortfall $5 billion to $6 billion for fiscal 2008, which may slow down some of these large IT projects such as the $1.5 billion Fi$Cal project to update the executive branch ERP systems.

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But despite the shortfall, the broad IT mandate coupled with the fact that 50 percent of the state's IT workforce is eligible to retire over the next five years, creates a potential boon for VARs.

He said many state departments are buying into the broad theme of modernizing their IT systems but they don't necessarily entail giant contracts that would be beyond the scope of smaller solution providers.

"Many departments have much smaller projects," he said. "What [VARs] want to be doing is exploring what departments are doing what to improve their business management systems. I would encourage you to approach these departments if [their projects] are in your area of expertise."

He cited document management, web development and LAN/WAN services to name a few. And one growth area for solution providers is in advising the state on consolidation and virtualization of servers, he said.

"We are behind [in consolidation and virtualization]; we haven't done much of it," Kelso admitted. But the state commissioned a study, which showed that it could save $21 million annually by consolidating and virtualizing its servers, he said.

"I have that number. The departments have heard me talk about it and we are starting to look at having requirements for consolidation and virtualization," Kelso said.

He added that some departments have seen the handwriting on the wall and are already undergoing consolidation projects in anticipation of a state mandate.

"This is good opportunity to talk to any department that has any type of server population to see how they can get 15 to 20 reduction in number of servers and to virtualize the ones they already have," he said.

Kelso added that many of these smaller contracts are "chopped up into smaller pieces" and come out of discretionary department funds that often don't show up on an IT budget or an RFP. As a result there are thousands of contracts that may have duration of 30 to 90 days that are being let on a regular basis.

"I encourage you to stop and talk to [the departmental] CIO to see how to get some of these things moving," he said.

One area Kelso warned solution providers away from, however, was computer hardware and peripherals. "We've driven almost everything out of the margins on PCs, laptops, printers, peripherals and certain servers," he said.

He noted that later this fall and early next year, the state has an IT hardware contract it plans to let with an estimated value of $170 million. "Whoever wins this will get a lot of revenue, but the margins are going to be razor thin," he said. "The big vendors, if they want to play, they are going to have to cut their margins down to virtually nothing. And every other state is doing what we are doing in California."


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