Sustainable Public Financial Management

Doug Hadden, VP Products

We were very happy to get an invitation to give a short 15 minute presentation at  InterAmerican Development Bank workshop yesterday. My focus was on the disturbing trend of problems with custom developed Government Resource Planning systems in Latin America and the problems associated with customizing Enterprise Resource Planning (ERP) systems for government. There has to be a better way – Commercial-Off-The-Shelf GRP systems like FreeBalance. It’s the GRP tipping point.

Doug Hadden, VP Products

A FreeBalance team attended an InterAmerican Development Bank workshop from May 15 to 17: International Workshop on Public Financial Management for IFMIS Coordinators. [Presentations are located on that web page and my Storify version of tweets during the event are below.] We prefer the term "Government Resource Planning" (GRP) to "Integrated Financial Management Information Systems" (IFMIS). Nevertheless, IFMIS (SIAF in Spanish) is the term most often used among International Financial Institutions. 

We were very happy to get an invitation from the IDB to attend the entire conference and to give a short 15 minute presentation. (It was actually 14 minutes.) Three Enterprise Resource Planning (ERP) vendors were also invited, but only Oracle came and presented. Our partners Samsung SDS and Everis also presented. 

We've been going to Public Financial Management related conferences and workshops for some time. Insight in what is working and what isn't working is progressing. Patterns are emerging. And, many of these patterns are relevant across countries. In this case:

• Analysis of why some Public Financial Management reform doesn't work as expected and how to organize reform to achieve success from Matt Andrews of the Harvard Kennedy School, whose recent book, Limits of Institutional Reform, is a seminal work 
• Analysis of the links between GRP systems and extent of budget transparency by Cem Dener of the World Bank. He introduced a study that will be published in June with a budget transparency rating for 175 countries. He showed countries grouped in A, B, C and D. The main outlier was our customer Timor-Leste rated as an A thanks to the transparency portal that we developed that integrates with our GRP system.
• Analysis of drivers for accountability and GRP systems from Philipp Krause of the Overseas Development Institute who showed that the push from transparency can often come from internal government demand without any democratic insitutions.
• Significant problems in the dominant model for IFMIS in Latin America – custom developed software and significant problems with ERP in government elsewhere.

It was in this environment that I presented about the advantages of Commercial-Off-The-Shelf (COTS) GRP software like FreeBalance and the need for software vendors to be committed to customer successes.

PDF & Storified version of presentation made by a FreeBalance team on May 7th. and links to relevant documents discussed.

On Total Cost of Ownership (TCP) for government financial management systems

http://www.freebalance.com/whitepapers/FreeBalance%2013-01%20Good%20Practice%20GRP%20TCO.pdf

Public Financial Management Good Practice GRP TCO by FreeBalanceGRP

On the use of GRP systems for Anti-Corruption

http://www.freebalance.com/whitepapers/FreeBalance%2013-03%20Good%20Practice%20Anti-Corruption.pdf

Public Financial Management Good Practice Anti-Corruption using Financial Systems by FreeBalanceGRP

On the advantages of GRP specialization

http://www.freebalance.com/whitepapers/FreeBalance%2013-07%20Good%20Practice%20GRP%20Specialization.pdf

Good Practices in Government Resource Planning Vendor Specialization by FreeBalanceGRP

Enterprise Software Success Myth #5

Doug Hadden, VP Products

FreeBalance is a medium-sized Independent Software Vendor (ISV) with considerable success competing against very large Enterprise Resource Planning (ERP) vendors. We are sharing 16 lessons learned by bucking conventional wisdom to encourage industry innovation and creativity.

Conventional View

Enterprise software companies scale by creating a services channel. This channel promotes ERP and other types of software while supplying labour for implementations. It is thought that labour cannot be scaled within a software manufacturer. Professional services staff at enterprise manufacturers should be focused on a small minority of implementations that extends products. In fact, high professional services revenue devalues enterprise software companies.

Symptom

Large numbers of expensive failures in enterprise software implementations may come from a disconnection between what companies build and how customers use products. This may come from a lack of on-site implementation knowledge for what Michael Krigsman calls the “devil’s Triangle” .

Emerging Trends

• Enterprise software companies are relying most heavily on after-sales maintenance revenue rather than meeting customer needs directly
• Maintenance model from ERP companies is increasingly under attack from 3rd party maintenance organizations and cloud computing providers.
• Failures in ERP implementations are regularly blamed on the victim – the customer .
• ERP vendors determine what new features will be presented in software, usually described at user conferences. These decisions are made with little or no on-site customer experience.
• ERP vendors rarely attend Public Financial Management conferences, and rarely participate to learn about new trends.

FreeBalance Approach

FreeBalance operates “in network” by seeking customer interaction. We realized that the “arms’ length” approach used by ERP vendors increases the likelihood of failure. As I described in 2011, software manufacturer involvement is critical to ensuring success for GRP in emerging nations and developing countries.

Other aspects of the FreeBalance approach include:

• Ensuring that FreeBalance is part of every implementation team. And, ensuring that implementation partners are focused on customer success .
• Using the venue of the FreeBalance International Steering Committee to change the product roadmap to meet customer needs.
• Deep commitment to PFM by participating in conferences and NGOs like FreeBalance ICGFM .
• Also, a commitment to share good practices and PFM futures with the broader PFM community.
• Local hiring to scale implementation commitments, build local capacity and improve insight into changing customer needs.

Doug Hadden, VP Products

A study sponsored by ERP vendor Unit 4 by Cindy Jutras is a sobering read.

I winced a few times.

Agility is part of the Unit 4 positioning. The fact that the sponsor is company positioned as agile found that ERP customization is costly doesn’t make the study incorrect. Or, the conclusions any less frightening.

High Total Cost of Ownership (TCO) and restricted business agility are the open secrets of the Enterprise Resource Planning (ERP) world. Why? The technology used by leading ERP vendors is, frankly, obsolete. Not all of it: just the core. The foundation.

So, it’s no wonder that methods developed in the 90s to solve pre-Y2K problems have started to show their age. Especially in cloud computing. And, the opportunities and threats that come from globalization.

The value of this report is that it goes beyond the impact of ERP customization as a high implementation cost that generates delays. This study looks at the impact of making changes to ERP customization to support compliance, reorganization, improved processes etc.

What is this “customization”?

Jutras doesn’t define customization. Many observers see customization as all adaptations to software from configuration through to software code development. My sense, based on the results of the study, that customization is defined as changes that require some element of coding. This includes Business Process Management (BPM) tools that requires elements of coding, scripting, call-outs from the ERP software to other code, and software code customization.

ERP vendors developed customization methods to enter new markets: different verticals, countries, customer sizes. And, customers needed to implement competitive differentiated practices. So, high cost and long implementation cycles. Which is why there is so much guff about implementing so-called “best practices” to reduce the customization hangover experienced by so many organizations.

No customization in FreeBalance?

FreeBalance provides Government Resource Planning (GRP) software. One of the characteristics of this software is that there is no customization as I have defined it with the exception of integration with sub-systems and some elements of business intelligence. (And, rather than make integrators or customers build functionality that we don’t have, we commit and put this functionality into the main line of the code.)

FreeBalance supports this no customization model because we can and we should. We can because we’re focused in one “vertical market”. We should because it is ethical. In my opinion, it is not ethical to force high costs to public organizations. As you can see from our government customer list , long-term financial sustainability is a critical factor. Our GRP software has to affordable in the long run to enable developing nations like Afghanistan, Kosovo, Sierra Leone, Suriname and Timor-Leste to grow and improve governance.

Government is the ERP customization canary in the coal mine

Jutras found that more than 1/3 of the organizations surveyed have implemented extensive ERP customization and almost 2/3 have experienced moderate customization. Only 4% of respondents reported little or no customization.

Which makes the “good practice” guff from ERP vendors a “buy case” and not a “use case”!

You may be surprised to learn that governments require more agile business systems than the private sector. Yes, governments are not known for agility. What they need are systems that enable change – more change than is experienced by the private sector including:

• Legal reform that changes GRP configurations because governments cannot adopt new processes without a legislative approval. So, governments change configurations often.
• Organizational structures change more frequently based on government objectives that includes merging ministries, eliminating ministries, splitting out ministries, and privatization.
• Moves to transparency and accountability that are orders of magnitude more complex than compliance changes in the private sector.

ERP systems used in government tend to be more customized that in the private sector. One analyst commented on an ERP implementation in a G8 country as being so highly customized that it bore no resemblance to the original code. It’s frightening how much public money is wasted needlessly because of ERP adoption in government.

To be fair, there is only one publicly reported incident of Unit 4 failure in government and that could be explained through a number of factors. (And, from 2004) But, the leading 2 ERP vendors have a lot of explaining to do.

The other ERP open secret is that governments that have departmental level ERP systems have completely different customizations. So, the move to “shared services” to share a single ERP in these governments to save money is, frankly, a pipe dream . CIOs looking to implement ERP shared services using one or both of the 2 leading vendors need to read this report so that they are not complicit in wasting public money.

Doug Hadden, VP Products

FISC 2013 is our Seventh Annual FreeBalance International Steering Committee conference. The FISC approach differs from the traditional technology user group conference in many ways – good ways, we think

For one thing, FISC is about enabling customers to influence FreeBalance, not the other way around.

And, FISC is about gathering Public Financial Management (PFM) professionals from different countries around the world to help share good practices. We often have keynote speakers. And, we share our research and experience well beyond the narrow boundaries of being a software company. That’s our mission. I looked through past public FISC presentations (and those adapted from FISC and made public) and found my 7 favourites :

1. Sequencing Public Financial Management Reform

David Nummy from Grant Thornton providing practical experience about PFM reform in developing countries. PFM reform sequencing is a critical concern in developing countries and was of great interest to our government customers. This resulted in a brainstorming session and spirited discussions. It was agreed that capacity building was the most critical factor for reform success for the first stages. But, the importance of capacity building never dropped below “very important” for every stage of PFM maturity.

2. Governance Valuation

We’ve taken lessons in PFM sequencing over the years further to provide tools to help governments decide on the most effective reform courses of action. This presentation, slightly adapted from FISC 2012, was built on many of the ideas from the brainstorming from FISC 2008.

3. IFMIS of Tomorrow

We use FISC to help us understand the future of Public Financial Management. We also share our research with government customers. We adapted this from the presentation we gave at the first FISC in 2007. Some of the predictions did come to pass.

4. Technology Leapfrog

Leveraging technology for governance is a concern for a software company like FreeBalance. Our government customers have been leveraging technology from FreeBalance and other vendors to enable reform and transparency. This often enables these governments to “leapfrog” more developed countries. This presentation was adapted from content given by our customers at different FISC events. Ever government that attends FISC provides an overview of PFM lessons learned: challenges, solutions, achievements with an emphasis on initiatives from the past year.

5. The Social Future of PFM

Social media, open data, Government 2.0 and crowdsourcing represents significant opportunities and risks for government. We reflected on this last year at FISC in the wake of the Arab Spring, the Ushahidi platform and the Tea Party movement. And, we presented this at the ICGFM conference later that year.

6. Lessons from Fragile States

Steve Symanksy, formerly at the IMF, provided insight based on his experience in fragile states. He explained that the view that PFM reform should start with proper planning is incorrect: fragile states should start with budget execution and control first.

7. Post-Conflict Lessons

FreeBalance has been successful implementing sustainable Government Resource Planning (GRP) systems in post-conflict countries. (This seems to be confirmed in a recent World Bank report.” We’ve also been successful in more developed countries in achieving low costs for customers and ease to adapt software to changing needs. We reflected on the post-conflict experience using some of the content from customer presentations.