August 22, 2012Doug Hadden
Lesson Learned on Specializing in Software for Public Financial Management (PFM)
Doug Hadden, VP Products
What is the need for PFM and GRP specialist organizations?
- The quality of public financial management (PFM) systems is a key determinant of government effectiveness. The capacity to direct, manage and track public spending allows governments to pursue their national objectives and account for the use of public resources and donor funds.
- Governments are increasingly adopting Commercial-Off-the-Shelf (COTS) software to replace legacy and custom developed software applications for financial, budget, expenditure, tax, treasury and civil service management.
- Government organizations can chose to acquire Enterprise Resource Planning (ERP) software from large software firms whose software is used in multiple “vertical” markets or Government Resource Planning (GRP) software designed exclusively for governments.
- Research shows that there is significant risk of cost overruns, late delivery, poor Total Cost of Ownership (TCO), payment problems and failure to meet objectives in COTS software for PFM.
- There is a need for organizations that provide PFM products and services to help governments overcome risk factors.
What is the appropriate “business model” for GRP success?
- In the book, Discipline of Market Leaders, authors Michael Treacy and Fred Wiersema suggest that successful businesses adopt “operational leadership” “product leadership” or “customer intimacy.” Treacy and Wiersema suggest that market leaders can only focus on one of these areas to become a market leader.
- Customer intimacy is defined as “selling the customer a total solution, not just a product or service.”
- In the book, Blue Ocean Strategy, authors W. Chan Kim and Renée Mauborgne suggest that businesses should find new strategies that make competitors irrelevant. Traditional business methods should be questioned.
- The emergence of the “social enterprise” model, in the global context, is an opportunity for businesses to create a sustainable business model.
- The increase in open source infrastructure, global connectivity, social media, VoIP and mobile is an opportunity for organizations to rethink traditional business models.
- The traditional business model for technology manufacturers is “product leadership” while many service providers focus on “operational leadership” or “customer intimacy.” The traditional technology supply chain creates incentives that add risk to GRP implementations.
- A customer intimate and social enterprise approach that avoids the traditional supply chain can make competitors irrelevant. A “solution” focus enables organizations to rethink the business environment by tailoring products and services to meet customer needs.
What is customer-centric product development?
There are many implications for software and technology manufacturers that wish to become customer intimate.
- Product complexity needs to be reduced to make implementations more sustainable. That’s because rarely can you find a technical assistance related document that does not refer to the need for capacity building in developing countries and the retirement of the baby boom generation in more developed countries. Software designed for GRP needs to be intuitive and designed for PFM. The systems administration burden to manage change and troubleshoot should be reduced. Methods to reduce errors and help users should be added.
- The GRP sustainability challenges, particularly in developing countries, necessitate different product designs. Connectivity is limited so large bandwidth computer applications do not translate well to the developing nation context. Access to electricity is also a serious problem, so there is a focus on low power solutions to make ICT sustainable. The environmental impact to generate electricity exacerbates climate change in fragile ecosystems. Inefficient software design draws hardware resources, power and bandwidth. This is known as software bloat: wasting power in smart phones to Enterprise Resource Planning (ERP) software. It’s also comes from squeezing more unneeded features into software.
- The need to support Green IT is a consideration in more developed countries.
- Customer engagement for product enhancement is critical. Software companies hoping to compete against traditional vendors must enable customers to adapt product roadmaps and release functionality when it is convenient to customers.
What does software architecture have to do with GRP?
- Most application software manufacturers sell the benefits of underlying technology. That technology is often “legacy” or designed for different industries. Any software architecture design requires compromise. The software infrastructure designed for the private sector may not meet the “non functional” requirements for PFM.
- Critical non-functional requirements for GRP include adaptability because governments change configurations to suit reform changes, optimal technical footprint and usability.
- GRP software should also be designed to support functional needs. Modern software design includes techniques to articulate the general scope of a domain like PFM.
- Functional and non-functional software design provides software manufacturers and government customers with potential to meet future needs, known as “extensibility.”
The PFM Component Map was developed for the design of the FreeBalance Accountability Suite
What are some relevant differences between public and private sector “enterprise software”?
How does the technology supply chain impact reform?
- The traditional approach to GRP implementation through 3rd party systems integration firms with little or no involvement of the software manufacturer increases risk in developing countries.
- Some systems integration firms find incentives to increase costs and reduce financial sustainability. Some software manufacturers form part of “devil’s triangle”
- Standard project management techniques have not overcome difficulties in implementing software in developing or developed countries. GRP implementations require more concentration on capacity, communications and change management.
- GRP solutions that rely on code customization add complexity and cost. This complexity reduces momentum to the point where technology inhibits rather than enables government transformation.
- Software manufacturers who hope to achieve success in GRP must have appropriate governance mechanisms whereby governments drive product enhancements.
- Holistic methods can provide reform roadmaps based on the country context. Lessons learned can be used to improve GRP products.
How does a “solution” focus change the services approach for software manufacturers?
- Holistic process to integrate product development directly with support and implementation enables customer-centric product development with a solutions rather than product focus. Systems integration firms are engaged to ensure sustainable reform.
- Customer support must be enabled as a key company distinctive competence. This means more than an empowered customer support organization – it means action to bring experts from all parts of the company to solve problems. It also means a linkage to product implementation to address problems before they start and end the “hand-off” culture of most companies.
- Implementation Services need to be directly aligned to product and support. Customer needs must smoothly, without friction, pass into the product development organization. And, professional services processes need to adapt beyond simple Project Management 101 and product expertise to provide holistic solutions. This is a critical factor because many companies, when faced with a customer problem or opportunity, drop the ball because they think it’s outside their business. Customer-facing staff must advocate product and process changes to satisfy customer needs.
What typical industry processes can be improved?
- Organization structure: eliminate barriers between support, services and product development groups
- Marketing: focus on understanding the GRP domain to develop unique tools to align with government needs and engage with the PFM community at conferences
- Implementation: software vendors should take part in implementations to reduce customer risk while using lessons learned to improve product suites
- Partnerships: Selecting partners based on government experience, skills and commitment to sustainability
- Customer engagement: leverage customer steering committees with strong governance structures rather than user groups
- Troubleshooting: escalate critical problems to company executives and cross functional SWAT teams
- Performance Management: build company performance structure aligned to customer satisfaction and engagement with customer-centric development, the improvement of internal PFM knowledge and sharing of lessons learned with the PFM community
Conclusions: What are good practices for specializing in GRP and PFM?
- Adjust organizational structure and processes to address key GRP success factors such as usability, capacity building and adaptability.
- Adopt a customer intimate, social enterprise strategy and question typical technology practices.
- Implement methods to ensure that products and processes are aligned with customer needs.
- Build technology to suit government needs rather than use generic design.
- Seek partners who add value and are focused on sustainability.
- Create an internal performance culture aligned with customer needs.
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Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.
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