Exclusive: Finance Minister Lindsay Tanner (Part One)

Very shortly after taking power, Lindsay Tanner [pictured, right] and his colleagues at the Department of Finance earned an unfortunate nickname in the information technology industry: The Razor Gang.

Sir Peter Gershon (left) and Lindsay Tanner (right)

Commissioning a report by UK cost-cutting specialist Sir Peter Gershon [pictured, on the left], Tanner aimed to dramatically reduce agency spending on information technology - with $1 billion dollars of 'Business as Usual'  savings set over five years, and another $1 billion expected to be shaved off the Government's data centre bill.

Minister Tanner offered half an hour of his time this week to talk through the cost-cutting project with iTnews editor Brett Winterford.

iTnews: It is somewhat rare for a Finance Minister to play such an active role in the IT and Communications arena - be it as a stakeholder in the NBN, or a commentator on the use and cost of IT. Where was this interest spurred from?

Tanner: I don't come from a techie background by any means, and I am of an age where I didn't grow up with computers. So it's more just my analysis of where the world is heading, and the dynamics of economics and social change that are very much driven by technological change.

Years ago I wrote a book, Open Australia, in which I stated that when the steam engine was invented the world changed, and when the internet was invented the world changed.

The thing that drives me about all this is the understanding of how human society is shaped by technology change and the opportunities it creates, not just in how to run Government. But also how the ways it can improve our society are just limitless.

It's important governments understand these things and are at the forefront of change, not resisting it or oblivious to it.

iTnews: How has that translated directly into policy so far?

Tanner: There are two main areas - you would be aware of the Gershon report, which is very much focused on us, as a large organisation, doing things better. And there is the Web 2.0 Taskforce, which is about how we interact with wider society.

iTnews: Let's start with the Gershon review. Why was there a need to re-shape how the Federal Government buys IT?

Tanner: It's mostly prosaic things, about moving away from the totally decentralised arrangements that we had, in which agencies large and small [were] pretty much left to their own devices when it came to buying information technology.

That has all kinds of problems - it fragments your spending power and bargaining power, fragments your skills base, and leaves a lot of agencies with inadequate capability - not so much their IT capability but human capability.

By definition, the big agencies like Tax and Centrelink will have top level IT expertise, because of the nature of their tasks. But there are a lot of other agencies that still spend a lot on IT but find it hard to maintain the level of managerial capability that's commensurate with that.

Those smaller agencies might engage with the really challenging IT issues every now and then, whereas the big agencies like Tax and Centrelink go through big challenges in the IT sphere every day.

iTnews: When did you first become aware of these problems?

Tanner: I only really had a strong engagement with this as Shadow Finance Minister in 1999, when the cracks started to appear in the IT outsourcing program the former Government ran.

The ultimate collapse of that program is how we ended up with a decentralised model.

There were some weaknesses in what they did - jamming together groups of agencies in clusters, some of which were pretty inappropriate. The whole thing was done in a messy way. So certainly I learned some lessons from that.

iTnews: Was there one project in particular that illustrated the problems for you?

Tanner: In a sense it was fuelled by discovering when we got into office that there were major problems with the Department of Immigration's 'Systems for People' program, which we've ended up having to spend a lot of money to get back on track.

And really there were no particular big mistakes or blunders or anything the Department themselves had particularly done wrong there, it was just the accumulation of little problems that probably were inevitable given the completely decentralised model, and the fact that the decisions that drove this project were highly political and very rushed.

So I don't blame the Department of Immigration or their key players for this problem, they were making the best of a bad system.  To me it was a great illustration of the weaknesses of the arrangements across the board. Here is a middle sized, but still reasonably sized department, where IT is not its bread and butter as it is for Centrelink or the Tax Office or Medicare, and things didn't work as well as they should. The end result with IT is the price tag went through the roof quickly.

iTnews: What kinds of lessons did you take from that?

Tanner: I learned that the government purchase of IT is very challenging and complex.

I had a couple of the [outsourcing] contracts leaked to me and they were a foot thick. Just unbelievable! I thought - how could anybody know everything that is in this contract?

iTnews: How did Sir Peter Gershon become involved?

Tanner: This all came from a general policy stance we came into government with, of reforming procurement across the board, and going through different product categories and looking for options to move towards a more coordinated model.

Early on, my Department recommended to me that we get an outside expert to examine the whole IT thing. Because it was particularly complicated and challenging, I was happy to do that. We were very fortunate to get Sir Peter Gershon, he is generally acknowledged as a worldwide expert in this.

And he did a great job. There was no crap. There was no flowery rhetoric. The actual text of his report was only about 70 pages, but it was bang! Do this. Bang! This is crook. Bang! Fix that. And so far it has stood the test of time.

The strategy that's emerged is cutting back 'Business as Usual' spending, reinvesting half of the savings in new projects, getting the whole-of-Government data centre strategy, shifting back to more reliance on in-house capability, personnel capability, with less reliance on contractors. That's all underway and all are progressing on-track.

iTnews: In March, you said the Government "can do better" than spending $5 to $6 billion on information technology. What is a more appropriate figure?

Tanner: I wouldn't designate a specific figure. But certainly the Gershon reforms, when fully in train, are expected to deliver savings of up to $200 million a year.

In addition, one of the points Gershon made was that outside Defence we have 45 or so data centres, with varying levels of efficiency and varying levels of redundancy.  He also reckoned a whole of Government data centre strategy, which we are reasonably close to developing, could save up to $1 billion over 15 years.

iTnews: What changes were identified with regards to data centres specifically?

Tanner: I can only say that we're still working gradually away at putting things together. There has been a lot of engagement with the sector.

I've made efforts to quell some of the concerns immediately expressed, like the prospect of one giant data centre or contractor.  We don't want to kill off competition or innovation in this area. But we also don't believe we need 45 data centres in the future.

Of course introducing change is by definition a slow and gradual process because you have a whole lot of legacy arrangements you can't just abandon.

iTnews: Our readers would be interested to know how agencies have responded to the Business as Usual cuts so far.

Tanner: There is some education and culture change embedded in this.

One of the key points Gershon made that really resonated with me was that heads of agencies typically don't pay much attention to the IT parts of their business.

Even though in many cases it is a really substantial part of their business, they tend to allow people further down the hierarchy to tell them what to do, and subsequently don't pay much attention to it.

But there is a comment I often re-tell to illustrate how important it is.

The CEO of ANZ bank once said he "runs an IT company that occasionally delivers banking services."

Within government, there is a cultural change required to actually make us focus on these issues.

Ultimately what it's about is putting a great deal more focus on what we're doing and how we're doing it, rather than allowing an 'anything goes' attitude -  an attitude where people just go and do their own thing, and if it turns out there's a huge blow out, its just "stuff happens and write the cheque."

iTnews: Phase One of the Business as Usual cuts totalled $109m - which is only one tenth of the $1 billion of projected BAU savings from the Gershon review. Agencies are expected to find almost three times those savings in 2010/11. Where do you expect those savings will come from?

Tanner: I can't give a generic answer to the first question. It's just been generally about more effort into managing how things are done.

When you put people under pressure, they perform. When you put the focus on a problem and say, folks, we've got to do better, capable people rise to the occasion. Broadly that appears to be what is occurring.

How this will unfold into the medium term, time will tell. But I believe the structure of the reform process is sound.

Obviously as new technologies arise and existing technologies evolve it will drive further efficiencies. Two good examples of this are in the areas of printing and desktop computing. Several agencies are utilising improved printing technology to reduce their printing costs as part of the Gershon savings. Several are also extending the life of their hardware assets as these become more reliable or more able to be retained due to their initial increased capability.

We are cautiously optimistic about the ability of these types of developments to produce further efficiencies.

And as you would undoubtedly know, there are a lot of variables in there which we don't control, which could impact in a variety of ways on long term outcomes. The cost of things could halve, they could double, we could get all kinds of new whizz-bang technologies come along that we need or want to make use of.

There are emerging issues about use of data and privacy. There are security issues. There are no shortage of things intersecting with this process. The task of today is not going to be what the task of tomorrow looks like. The technology we are using today won't be the one we necessarily use to tackle that task tomorrow.

All our efforts to have greater coordination, greater capability and a more intelligent use of contractors - none of these are occurring on a static subject. They are occurring on a highly volatile, constantly changing one.

iTnews: Would you then expect some of the targets you set to change over time?

Tanner: We've had minor adjustments already.

iTnews: We note the Gershon report talked of $140 million in Phase One BAU savings, while the Government identified $109 million.

Tanner: In some cases we had faulty information from agencies.

During the Gershon process of getting agencies to fill out surveys, inevitably we discovered in retrospect that there were bits where the information was inaccurate - especially around the definition of what is 'Business As Usual' spend.

These things are not easy to define. Once the project teams have gone in and discovered that something that was classified as Business As Usual actually probably shouldn't have been, [the] end result is a slight modification to that.

Inevitably there are hiccups and difficulties, these things are never completely smooth, but it broadly remains on track and agencies have been working very well with the department.

iTnews: What progress has been made on cutting back on contractors and developing more ICT sector skills within the Australian Public Sector?

Tanner: I have only seen some data that is probably too early to rely on. Certainly there is a shift underway. But it's occurring at a time of dramatic events in the wider economy, which makes it difficult to form a view about [it].

Two years ago, the money was flowing freely. Every time the Government turned around there was a few billion dollars of extra revenue.

We have now moved to a much more financially constrained world. What that means is, although the evidence is there of belt-tightening in terms of the cutting back on contractors, some of that is inevitably just the result of agencies with tighter financial circumstances.

[NOTE - iTnews has recently been provided figures which suggest some $7 million of savings from the first phase of Business As Usual cuts has been identified, leading to the potential creation of 200 full time IT jobs in the Australian public service.]

iTnews: The Government has promised to reinvest half of the Business as Usual savings back into IT projects that deliver efficient outcomes. What kind of projects would get the Lindsay Tanner tick of approval?

Tanner: I don't expect to play a major role in that. I don't want to be somebody who is there making choices when my knowledge base is limited. That's why you have public servants with serious expertise.

So I can only answer that question in a very generic way.

I am interested in projects that improve the efficiency with which we do things. Improving government productivity is obviously crucial.

A second goal is improving flexibility.

One of the frustrating things we get from time to time is all these systems where anytime you want to make some minor tweak to the processing; it costs you $20 million to bandaid everything. That's a significant problem. So anything that is focused on improving the adaptability of systems is important.

Thirdly, a project aimed at improving the results at the other end - for the people of Australia.

A classic illustration, which was implemented before we came into government, was when Centrelink and Medicare matched their systems so you can put in a single change of address for both systems rather than doing it twice. It's a small thing, but if it means you only have to go through the process once, rather than twice, that's a far better outcome.

Click here for Part Two of iTnews' interview with Finance Minister Lindsay Tanner, in which we discuss how the internet is changing politics.