Bringing Silicon Valley to Sacramento: Why Entrepreneurs Need to Help Rebuild California's IT Systems


Most people don’t realize this, but Northern California actually has two giant technology centers: Silicon Valley and Sacramento. Silicon Valley is the world’s entrepreneurship capital, and Sacramento is California’s State capital. They are less than 100 miles away from each other.  But technologically, they’re light-years apart. While Silicon Valley’s workers conceive the next revolution in technology, Sacramento’s workers toil away at maintaining computer systems that were built in the tech equivalent of the Mesozoic era. Both depend on each other: Sacramento workers maintain the State’s infrastructure and public services, and the Valley’s workers generate the revenue to pay Sacramento salaries. The irony is that while the valley entrepreneurs desperately look for problems to solve, Sacramento has problems aplenty and no saviors in sight.

Witness the problems that the state experienced last November when it couldn’t issue checks to unemployed workers whose benefits had run out before Congress authorized a payment extension. Workers had to wait for up to two months to receive their checks, because the Employment Development Department couldn’t make timely changes to its computer systems. Like most of the State’s systems, these were built in the ’70s and ’80s in now antiquated computer languages like COBOL, Adabas Natural, Assembler, and PL/1. They run under operating systems like CICS and IMS.

This is the tip of the iceberg. California has roughly 130 agencies and departments. Each has its own IT staff and its own systems. Each collects its own information and maintains its own databases. These systems are not usually integrated with each other. When they do share data, it is usually through file transfer in batch mode. This is a nightmare for citizens and businesses. Take the simple task of changing a business address. The business owner has to inform multiple agencies, such as Employment Development Department, Board of Equalization, Franchise Tax Board, Secretary of State, and various licensing and certification departments. Believe it or not, the State has more than 40 separate computer applications to collect the same personal and demographic information about citizens. Even for mundane things like email, the State maintains more than 100 separate systems.

California isn’t alone in having such legacy systems and challenges. Its systems are probably better than those of any other State, and it is making the investments in reducing costs and improving infrastructure.  Most large corporations run their operations on systems that were built decades ago.  This is a ticking time-bomb for industry as well as for government.

There was a time when there was a big difference between these enterprise systems and the PC and Web applications that Silicon Valley entrepreneurs build. Enterprise systems require large-scale transaction-processing capabilities, have stringent security requirements, and need to have high availability. But that is not different from what Twitter, Facebook, and Zynga require.

Even fledgling startups in the Valley are building systems that make some enterprise systems seem like child’s play. For example, Real Time Matrix has built a facility to create Twitter groups. This requires sophisticated real-time analytics and integration with multiple sources such as Twitter, blogs, and live feeds in order to process information “as it happens”.  The Web systems that Real Time Matrix has built process tens of thousands of transactions per second and rebroadcast the results to numerous and varied clients accurately and in real time.

Cearadactylus atroxAt a talk I gave at California’s Executive Institute on Jan 21, I discussed these issues with the 200 IT managers in attendance; with State CIO, Teri Takai; and with CTO, P.K. Agarwal. Most were in agreement that new thinking was needed. IT managers seemed eager to be using the same technologies as their Silicon Valley brethren. Takai and Agarwal described how feverishly they are working to consolidate and integrate departments and move their systems into a more modern era. They are also working on streamlining the procurement processes for funding IT projects. Not long ago, it used to take an average of three years to obtain approval for a project. Today, they can do this in a year (that’s a lifetime in Silicon Valley, but considered fast in the government world). They claim they saved the State $400 million through all these efforts. Despite this, Takai and Agarwal have big challenges: they need to figure out how to make a dinosaur fly. Perhaps what is needed is to let the dinosaurs become extinct and be replaced by swift birds and mammals.

What I suggest that the State do as a top priority is to engage Silicon Valley entrepreneurs to rebuild its systems infrastructure. These entrepreneurs can create new systems for a fraction of the cost of patching up old systems. Take the system that processes unemployment checks. The State has budgeted $50 million to upgrade it. At the end of the day, it will simply have a more maintainable COBOL system if it does business the old way. Instead of the big state contractors who typically bid on and win such contracts, the State should reach out to the Valley’s entrepreneurs to rebuild this. Give them the detailed specifications and let them compete for this business (this requires streamlining the bidding process even further – even VC’s don’t take a year to make decisions). I’ll bet that the Valley’s entrepreneurs could build this system from scratch in less than a year for less than $5 million. That’s right: for less than a tenth of the cost. You can build sophisticated systems in the Web world for a tiny fraction of the cost and in a fraction of the time required for maintaining those old monsters. The new systems will be far easier to use, and cost relatively nothing to maintain. And we’d be boosting the local economy rather than the coffers of big state contractors with strong political connections.

I know that some systems are really complex and intertwined with others and can’t be fixed or replaced easily. The vast majority, however, aren’t like this. Most systems simply perform reporting and analysis – and these can be rebuilt in months, not years. I know because I started my career writing COBOL/CICS transaction-processing systems. Later I developed software to automate the process of developing large enterprise systems and co-founded a company to market it. My second startup built technology to automate the process of modernizing legacy systems. I’ve seen the technology world evolve and develop and know that what I am suggesting isn’t rocket science.

What is needed is to turn the Valley’s entrepreneurs loose on these problems and let them do their magic. The net benefit to California could be enormous. The modern world now runs on Web-based technology. So can California — and it can reduce its costs in the process. Sacramento has the advantage of having the world’s top-gun techies just a short drive away. They’re itching to help (and they can use the money).

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.