July 16, 2013Doug Hadden
Doug Hadden, VP Products
Many people I encounter in the Public Financial Management (PFM) and government information technology market provide very disappointing answers to "why government?". Some answered that government looks like a recession-proof business. There is rarely a passion for the market expressed.
You might be wondering what we are trying to achieve with all the activity on our blog and on Twitter. We seem to talk very little about FreeBalance and a lot about public finances, transparency, anti-corruption and social enterprises. This is a contrast to most companies in the enterprise software business who use all media to promote themselves. (Which strikes me as odd because the point behind social media is to be social, not to broadcast.)
We're very passionate about improving government effectivess to spur growth and reduce poverty. We believe that our Government Resource Planning (GRP) software and implementation methodologies help governments achieve goals. And, we focus on how we can improve the software and methodologies further. We are passionate about these goals. And, we share what we learn to the broader PFM community.
- The reason that we call our product the FreeBalance Accountability Suite is that it enables accountable government. The controls within the Suite and the ability to audit all activity enables governments to improve processes and outcomes. We do believe that technology is necessary to achieve accountability, but we are interested in other factors such as audit organizations, civil society, parliaments and the courts.
- Many of our government customers receive foreign aid directly or indirectly. There has been some controversy about aid effectiveness. We believe that the move to aid transparency through the International Aid Transparency Initiative (IATI) and the trend to aid collaboration and the use of more rigorous evidence is improving aid effectiveness. We believe that the proper government financial management systems can enable direct budgetary support that will increase aid effectiveness while reducing overall corruption.
- Corruption, bribery and graft reduces government effectiveness significantly particularly in the areas of procurement, human resources and revenue. There is no acceptable level of government corruption. Financial management software for government is a powerful anti-corruption tool when combined with political will and strong institutions.
- Governments are only as effective as the combined capabilities of their public servants. Governments need to continuously improve public service skills to improve effectiveness and efficiency. Our view is that government financial management systems should be configured based on civil service capacity and modernized as capacity improves. We also believe that vendors should have practices that help improve capacity and software features that make systems easy to use for public servants.
- The introduction of new financial information systems to governments is a change management challenge. These systems introduce fear and distrust. And, the need to continuously modernize and reform in government re-introduces change management burdens for every new phase. We believe that vendors should have strong change management practices that enable "selling" the advantages of these changes and ensuring that stakeholders are involved in mapping out these changes.
- Non-Governmental Organizations and the media contribute to government accountability. Civil society needs to be empowered through government reporting and transparency. We believe that governments should engage civil society when considering requirements for government financial management technology. We may, from time-to-time, disagree with the perspective of a specific civil society organization, but we value the interaction because it can only help imorove governance.
- Technology vendors tend to follow the "innovation" or "operationally efficient" business models. We believe that the customer-centric model is far more effective in public financial management. We also believe that we have achieved levels of "customer innovation" through techniques such as problem "SWAT" teams and the use of the FreeBalance International Steering Committee (FISC) rather than so-called "user groups." We believe in sharing the lessons that we learn publicly and enaging stakeholders in social media.
good practices vs. best practices
- We believe that the term "best practices" is, for the most part, an invention to enable technology companies to sell more. There are very few "best practices" in PFM, if any. There are, however, numerous "good practices" that are appropriate based on the government and cultural context. For example, it makes sense for a highly developed country to move to full accrual accounting, but it makes little sense for a post-conflict country.
- We see "governance" as the activity of governing a country and governing a project. We believe that software manufacturers should not be at arm's length in government implementations – they should be part of the governance structure and committed to project success. The subject of governance touches many elements beyond the scope of what FreeBalance does, but we are very interested in lessons learned in successful and failed projects.
Government Resource Planning (GRP) vs. ERP
- We fundamentally believe that software designed for the private sector (Enterprise Resource Planning) has no place in government financials. ERP software has significant limitations because it was designed for the private sector. GRP software was designed for the unique characteristics of government. The evidence shows a much higher success rate (on time, on budget, total cost over time) with GRP than ERP in government.
- We do not believe that generic project methodologies are good enough for government implementatons. There are significant challenges that are encountered in the public sector that are rarely encountered in the private sector. And, we believe that the software manufacturer should have purpose-built methodologies for government and should be part of the project team.
Information and Communications Technology for Government (ICT4D)
- We believe that technology can help governments in developing countries modernize faster than was experience in developed countries. However, generic technology that worked in developed countries may not be effective in developing countries. Therefore, ICT4D and Mobile for Development (M4D) must consider capacity, cost, bandwidth and power constraints. We also believe that less developed countries can use technology to leapfrog more developed countries.
- We believe that the term "innovation" is overused and often refers to little more than a set of new features in software. We are more interested in "disruptive" innovation than small advances. We also believe that customers can be the source of innovative ideas and that processes can change to be more innovative.
open data, open government, Government 2.0, e-government
- We believe that web-based technology enables government to drammatically improve outcomes. This includes traditional e-government technology that is more transaction-based, open data that enables citizens, businesses and civil society with transparent information, open government and Government 2.0 that provides collaboration within government and with citizens, businesses and civil society. The role of government is adapting from providing physical infrastructure, rule of law, social programs, security etc. to providing virtual platforms or what Tim O'Reilly calls "government as platform". It only makes sense that governments who have been providing physical platforms will also provide digital platforms to enable country growth.
open systems and open source
- Propietary technology is useful in the early stages of any market. Yet many governments have implemented proprietary software that does not enable integration among systems. This technology makes it difficult for "horizontal" policies that cut across numerous ministries and sectors. Open systems are needed for integration. Open source alternatives within the software stack is more cost-effective and of higher quality that proprietary solutions. We understand that the open source does not have as good a Total Cost of Ownership as proprietary software in some cases but we believe that governments should always consider open source particularly for middleware.
performance (in government)
- Performance management is far more difficult in government than in the private sector. Businesses have the advantage of profit and standard accounting concepts like "return on equity". Outcomes in business such as customer satisfaction rates impact profit. Therefore, it is possible to identify outcomes whose improvement can increase profitability. Outcomes in government are the results. It is, therefore, difficult to determine whether measurements are effective. Nevertheless, evidence-based decisions in government are critical. We believe that this can be done through root-cause analysis, open government and the use of balanced scorecards. We believe that performance needs to be built into budget processes.
Public Financial Management (PFM)
- Governments operate with different accounting methods that the private sector such as the use of commitment accounting. We see PFM as the entire discipline of managing public finances including budgets, accounting, expenditures and revenue. This includes State-Owned Enterprises. It also inlcudes financial and related non-financial characteristics. For example, budget management should include the financial controls and the desired outputs and outcomes. PFM includes all the rules and practices (including informal practices). PFM is enabled through GRP software. So, the implementation of software from companies like FreeBalance should be considered as a PFM enabler. (That's why we realize that PFM initiatives that involve information technology are not IT projects – these are organizational transformation projects.
- Governments around the world are modernizing. This includes governments in developed an developing countries. We believe that reform sequencing should follow the needs of governments, so sequencing of reforms is different depending on the context. We do not believe that reform sequencing is primarily at art form. We believe that the appropriate sequencing of government reform is more of a science than an art form. We also believe that there are good practices that should be adopted based on the context and that there are few, if any, universal "best practices".
shared services (& cloud computing for government)
- There has been significant discussion about the use of "shared services" and "cloud computing" in government. Most shared services implementations of financial, budget and human resources technology has failed to meet cost savings and transformational objectives. We believe that this is because legacy ERP technology that was not designed with shared services or the cloud in mind has been used. This technology requires a high degree of process standardization that introduces inefficiency and a high degree of customization that introduces high maintenance costs. We believe that public cloud services provide a far better value to government than private cloud/shared services. However, issues of security and privacy need to be overcome to increase public cloud adoption in government.
social enterprise (socent) and Corporate Social Responsiblity (CSR)
- Many observers distrust CSR activities by large firms. They see this as either marketing fluff or as an unjustifiable business expense. There has also been a movement to social enterprises where social responsiblity is core to how the company operates. (This is in the sense of enterprises whose mandate is to address a particular social issue rather than an enterprise that uses social technology.) There are for-profit and non-profit "socent" models. FreeBalance is a for-profit social enterprise. We believe that this business model focuses us on what is more important and gives us a strong ethical compass. We also believe that CSR is maturing and that socents will become more frequent and will see significant growth. (That's not to say that we don't have CSR programs in addition, we do – but we don't use these programs to influence customers into buiying, it's just part of the ethic of working at FreeBalance.)
- Sustainability is usually thought of as environmental in nature. We agree that environmental sustainability is critical. We also see the need for software solutions to be financial sustainabile by governments. And, there is a linkage between the two particularly in developing countries where high costs are indicative of environmental costs. For example, inefficient software design requires more ccomputing power and bandwidth that requires more equipment that expends more energy. That's why we focus on financial sustainability in our blog.
Total Cost of Ownership (TCO) and fiancial sustainability
- TCO is also an indictor of the financial sustainability for software. Governments often have high after-sales costs including the need for hiring outside consultants at high rates, not to mention high training and staff retention costs. That's why the cost of software licenses is sometimes not indicative of the costs incurred by governments.
- We believe that government transparency, particularly fiscal transparency, is critical to improving governance and enabling accountability. Some observers believe that transparency is irrelevant without accountabiity. We disagree in the case of PFM because we have seen behaviour change. We believe that accountability mechanisms are needed in order to leverage transparency effectively.
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