Sustainable Public Financial Management

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 #6

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

As described in the ”Customization” is increasingly used to meet end-customer needs. This customization is developed by this “channel” that may generate, on average, between 3 and 5 times the software license revenue.

Emerging Trends

• High costs to customize and maintain these customizations across product releases has exposed high Total Cost of Ownership (TCO) in traditional ERP models
• Increasing adoption of cloud computing is driven by a need to manage IT costs more predictably and further reduce TCO.
• Complexity and costs have made customization one of the most “dreaded” term in enterprise software
• The customization approach and use of the channel is logical, but, in enterprise software, what should work often doesn’t.
• Many ERP clients find that customization creates barriers to change and process improvement.
• There is increasing recognition that customization is good for software vendors and implementation partners, but not so good for customers.

Public Financial Management Good Practice GRP TCO by FreeBalanceGRP

FreeBalance Approach

FreeBalance has a different approach to “product” than legacy Enterprise Software companies. For one thing, we’re focused on solutions that meet government requirements. That means that products and methodologies need to be adapted and integrated for the government context. Specialization is a compelling advantage to customers faced with complex and generic ERP options.

• FreeBalance is a fully “configured” solution with no code to add new fields of information, add validations, translate to another language, configure any system entity, determine mandatory fields and change workflow.
• As a specialist that commits to government projects, FreeBalance adds any missing features to the core product to eliminate customization and upgrade costs.
• FreeBalance works closely with channel partners to contribute to customer successes.

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.

Enterprise Software Success Myth #4

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

Improving process efficiency within an enterprise structure, particularly through Business Process Management (BPM), is considered a “best practice” within the Enterprise Software market. Standardization is often seen as improving efficiency. In this case, efficiency is achieved through improved and granular articulation of business processes that are common across the organization. Many large governments are attempting impose standardization.

Symptom

Best-of-breed workflow and BPM suites have been available for decades. Major Enterprise Software vendors including BPM functionality within product suites. Interest in workflow and business process re-engineering seems to come and go in waves in the technology press.

Emerging Trends

• Lean processes, as described a href=” http://theleanstartup.com/” target=”_blank”> by Eric Reiss in the Lean Startup demonstrates the high cost of building the wrong products when using the best process practices.
• Many organizations are finding diminishing returns to BPM by introducing unnecessary complexity that often fails to consider the human factor that provides context.
• Social media has introduces new forms of engagement as described by Ray Wang of the Constellation Research Group that largely defies articulation as business processes.
• There seems to be the realization that tools for creativity and innovation requires a different paradigm than BPM, although workflow is a part of a comprehensive enterprise software solution.

FreeBalance Approach

FreeBalance recommends practical approaches to improving GRP processes.

• Good practices that are appropriate for organizational risk and capacity should be leveraged. These are practices that are better for government organizations based on their context.
• Practices should evolve and mature based on the changing context such as government mandates, public service capacity and the results from performance audits.
• Financial and budget controls are critical to government fiscal discipline. But, the depth of these controls and the extent of discretion should be set based on context and risk. There is no improvement in efficiency by having complex but standardized processes.

Enterprise Software Success Myth #3

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

Large enterprise software companies frequently introduce new products and upgrade existing products. These introductions are presented, by these companies, as innovations. There seems to be increasing “innovation” hyperbole coming from the larger ERP companies. This innovation is rarely incremental innovation and never disruptive innovation. In fact, minor feature enhancements are presented as innovation.

Symptom

The enterprise software market business model is being disrupted through cloud computing, open source, social media – factors that Gartner calls the Nexus of Forces , what Altimeter calls Four Disruption Themes for Business and Constellation calls Engagement Systems.

Emerging Trends

• Enterprise software and ERP companies are witnessing a slow-down of “organic” growth.
• Enterprise software and ERP companies continue to acquire additional companies to overcome innovation limitations
• Innovation such as open source, open systems , cloud computing and new architectures challenges existing business models and supply chains. This often leads to the “The Witch is Dead” phenomenon of killing internal innovation in larger companies

FreeBalance Approach

Small and medium sized software companies that do not innovate do not last long. Our approach to innovation differs from what I’ve witnessed in larger companies:

• Innovation is not just about product because there are innovation opportunities in process including services, methodologies, go-to-market and business models. More modest-sized companies can focus on unbeatable products and services.
• Larger companies build proprietary technology in order to increase “intellectual property”. This technology is sometimes arguably incrementally better than commercial or open source alternatives but provides little additional value to customers. This is especially true of middleware that has rapidly become commoditized. FreeBalance focuses on the value provided in the applications seen by users.
• We make no claim that feature enhancements are “innovations”.
• Our focus for incremental innovations is to determine how to reduce the Total Cost of Ownership experienced by customers. That means looking for better ways to configure and adapt software easily to meet unique government and language needs. It also means finding ways to reduce the maintenance footprint and upgrade costs.

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

We started a sharing good practices white paper series last month. This is part of our mandate, as a social enterprise, to share lessons learned in technology and good governance to the broad Public Financial Management (PFM) community. We published our latest good practice document to coincide with the upcoming East and South Africa Association of Accountants-General conference next week in Botswana.

The genesis for this good practice document is interesting. FreeBalance is a Canadian company based in Ottawa with a large installed base in the Canadian Federal Government. So, we have some insight into the complexities of public finances and human resources in a G8 country. Canada is considered to have one of the most advanced structures for governance in the world. And, our Canadian customers, thanks to the governance of “clusters”, have driven our products for almost 30 years.

Our mission has been to take our robust Government Resource Planning (GRP) software to less developed countries. Good governance, in my opinion, is not a “zero sum game.” It has a network effect in that improved governance in one country has positive effects in other countries.

The dark side of success?

In the course of events in the past decade, procurement cycles for government Integrated Financial Management Information Systems (IFMIS), as they are often called, were accelerated for post-conflict countries. The international community recognized that software and capacity building was necessary to rebuild government. And, FreeBalance software that was highly flexible for government, and only government with support for Canadian government requirements from decades past, gained a foothold.

The ultimate reward for success in fragile states – the only COTS vendor to have success under these difficult conditions – was an assumption that our software and expertise was only viable for “underdeveloped countries”. That’s certainly been the fallacy that major Enterprise Resource Planning (ERP) like to propagate.

There are some interesting observations that I have made from our on-going research into the PFM domain that may be of interest to you:

1. Many developing countries have leapfrogged developed countries particularly with the support for International standard, budget transparency and multiple year planning. Some might say that there is a double standard where donor countries and multilateral financial institutions expect better governance mechanisms in post-conflict countries than they support themselves.
2. The success rates for ERP software in government is meager. In very developed countries with high human capacity and good project methodologies. We encounter so many stories of ERP problems in government that we often fail to realize that ERP does not have a good track record in the private sector. The “enterprise” sector. It’s true that we update our ERP failure ERP Fail page as we learn about problems that have been reported publicly. We learn about far more failures and issues that are not reported. Which stands to reason – it is very embarrassing to country governments or IFIs to expose these problems.
3. The term “innovation” is frequently used in the enterprise software domain to the point where it’s lost all meaning. Vendors tout mobile technology yet the core of their software is client/server. They throw hardware (in-memory) to accelerate processing as if this hasn’t been done before by anyone. And, they continue to present the fiction that the larger the company then the lower the risk to customers.

Good Practices in Government Resource Planning, Developed vs Developing Countries by FreeBalanceGRP

Doug Hadden, VP Products

We released a set of Public Financial Management (PFM) documents last week following on our mandate of sharing good practices for the community.

The first released document, embedded below, describes methods of calculating the Total Cost of Ownership (TCO) for Government Resource Planning (GRP) systems. I think that this could also be used in general TCO analysis for Enterprise Resource Planning (ERP) systems in the private sector.

TCO is a critical concept in GRP because of the high risk of IT failure in the public sector
and the high failure rate of ERP in government . The monitoring of upgrade costs, employee retention, customization burden and electricity draw is an early warning system for IT failure. And, TCO tells you whether your GRP project is financially sustainable.

FreeBalance Good Practice GRP and TCO by FreeBalanceGRP

Doug Hadden, VP Products

We participated in the Financial Management Institute of Canada Professional Development week in Ottawa, November 26 to 30th. The theme of the week was Focus on Value. This is a large and well-run annual event with almost 5,000 people attending. The conference is focused on government financial management – in particular, at the federal government in Canada. As always, there were some high-profile public servants who spoke at the conference.

I don’t want to “bite the hand that feeds”. But, frankly, I think that many of our senior public servants presented some curious, confusing and contradictory messages around information technology directions. There’s no need for the messaging to be so contradictory. Sure, it’s always nice to cover all the “motherhood and apple pie” basics. But not at the expense of clarity. I think that most of the public servants attending FMI are now more confused about IT direction in the Government of Canada.

Standardization and Standardization

There was significant rhetoric about standardizing business processes within the Government of Canada. This has been a standard theme for a decade or more coming from the Treasury Board Secretariat. And, there is value that could be achieved through process standardization.

Yet, there was no talk about IT standards that have far more potential value. No talk of open standards, web services, service-oriented architectures. It seemed as if the Government of Canada may be adopting monolithic proprietary IT standards and will not achieve economies of scale.

Standardization and Transformation

Many of the speakers spoke about process standardization and government transformation in the same breaths. Process transformation is all about new “leapfrog” processes that are “out of the box”. It’s about looking at the role of government in a completely different way. The result of transformation is improved effectiveness.

Process standardization is all about consistency and predictability. Standardization, in many ways, is the enemy of transformation. Transformation is about creating distinct value while standardization is about eliminating distinctiveness. Process standardization often imposes inefficiencies in order to improve manageability.

Legacy Technology and Legacy Technology

The Government of Canada is trying to reduce IT rust – legacy systems that generate high costs to maintain. (And, to reduce the number of systems.) There was a lot of rhetoric about “legacy systems” at FMI from senior public servants. Yet, many of these public servants proposed that the Government of Canada should use legacy Enterprise Resource Planning (ERP) software. It was as if few of the public servants were aware that technology has changed dramatically in the past 10 to 20 years.

I’ve written about the widespread use of proprietary legacy client/server code among ERP vendors. These vendors claim to have web-based software – but, for the most part, they don’t – by any strict definition. And, integration methods are also complex and proprietary. Unlike, the use of open standards.

Innovation?

I am troubled by the rampant use of the word “innovation” to describe systems consolidation in the Government of Canada. Is the use of “shared services” a sign of innovation or is it a return to the mainframe world of chargebacks? Where is the innovation in legacy technologies? How is treating the government as an “enterprise” a new and innovative concept?

Here’s the open secret: ERP was not designed for government. ERP architecture is monolithic and does not adapt to a shared service model that requires any flexibility to support regulatory process differences.

Some Advice for the Government of Canada on IT Rhetoric

I am concerned that the Government of Canada is trying to solve 2012 problems with 1990s solutions.

The Treasury Board Secretariat and Public Works and Government Services Canada should either admit that they want to use comfortable legacy technology or decide to transform government. Possibly to try tactical uses of innovation in a mostly legacy environment.