August 9, 2012Doug Hadden
Growth, Sustainability and Responsibility
Doug Hadden, VP Products
FreeBalance has a good business. And, a business that “does good.” This FreeBalance “social enterprise” mandate where Corporate Social Responsibility (CSR) may seem somewhat naive in the cutthroat world of large enterprise software vendors and global systems integration companies. Yet, this combination of FreeBalance company characteristics continue to attract new partners for us.
In the past, global systems integration firms engaged FreeBalance primarily for tactical reasons such as a sales opportunity. This dynamic is changing: partners now see the value of long-term strategic relationships with FreeBalance.
It’s a Good Business
Systems integration vendors are attracted by the growth potential of partnering with FreeBalance. It’s a good business that helps generate more revenue.
1. Government IT Opportunity
Governments represent one of the largest, if not the largest, “industry vertical” market. (It depends on how one classifies vertical markets.) The FreeBalance Accountability Suite has been designed exclusively for Public Financial Management. The Suite augments the government product and services portfolio for systems integration firms. This increases the product portfolio enabling system integration firms to compete for more opportunities in this lucrative market.
2. Emerging Economies Opportunity
FreeBalance has been successful in emerging markets. These markets are showing significant growth while traditional “developed nation” markets have become stagnant. System integration firms recognize that there is more growth and opportunity in these developing countries. They have also discovered that software that works well in the “west” is often less effective elsewhere. At the same time, there are innovation pressures to leapfrog developed countries. The innovative (all-web/no legacy) FreeBalance Accountability Suite gives systems integration firms products designed for emerging nations in mind that enables technology leapfrog.
3. GRP Opportunity
The Government Resource Planning (GRP) market has transitioned from the use of custom-developed applications and Enterprise Resource Planning (ERP) software as the main choice for governments. Government reform and the drivers for optimizing expenditures while increasing transparency challenges traditional approaches. Governments find that ERP software must be highly customized to satisfy requirements. ERP and custom-developed solutions hamper reform and change. Not to mention comprehensiveness. This new class of GRP software makes system integration companies a better and more compelling story of sustainable success for governments.
4. Competitive Edge
Systems integration firms need to attract new business and be competitive. Unlike developed countries, GRP opportunities tend to focus on turnkey implementations and Total Cost of Ownership (TCO). This exposes to the government additional costs such as services (because of complex software), upgrades (because ERP vendors force upgrades) and hardware infrastructure (because ERP vendors use legacy client/server code). The prices from government tenders in developing countries are often made public. Our study shows that the average FreeBalance proposal is slightly more than 1/2 the price of those from the leading ERP vendors. Partnering with FreeBalance gives systems integration firms a competitive pricing edge.
It’s a Business that “Does Good”
Many systems integration firms recognize that the right solutions for developing countries creates stability, reduces poverty and improves health and education. First with strong CSR programs are particularly attracted to working with FreeBalance.
Analysis shows that good governance has positive cross-cutting effects in developing countries. A recent World Bank report showed the relationship between PFM reform and government effectiveness. FreeBalance customers have seen significant improvements in Public Expenditure and Accountability (PEFA) assessments. FreeBalance government government customers perform, on average, much better in PFM reform than countries with higher capacity.
Systems integration firms can augment CSR programs through a partnership with FreeBalance. This also helps our partners to attract and retain talent because personnel are changing the world for the best.
6. Responsibility Marketing Impact
Social responsibility is rapidly becoming a way for business to differentiate. This generates positive returns. The increased scrutiny of CSR programs means that businesses can no longer “green wash” by using clever marketing to give the impression of social responsibility. The Internet and social media exposes spin.
FreeBalance is a socially responsible firm as a for-profit social enterprise. Systems integration partners can leverage our business model and good practices to improve responsibility. Good corporate responsibility is good marketing and lead generation.
It’s a Sustainable Business Opportunity
Much of the CSR discussion is about environmental sustainability. Financial sustainability is as important in developing countries. (There is, of course, a linkage between the two and developing countries are on the front line.) There is a reason why FreeBalance focuses on sustainability and calls this blog sustainable public financial management: governments are likely to buy more products and services if the current systems are environmentally and financially sustainable.
7. Focus on Customer Success
FreeBalance is a GRP practice leader. Studies show that there are high failure rates with ERP implementations in the private sector – much higher in government. FreeBalance has a much better success rate than competitors. Some of this can be attributed to software. The customer-centric process used by FreeBalance has ensured that the company has adapted methodology to ensure customer success and rolled lessons learned from customers into the software. Systems integration firms can leverage FreeBalance good practices to make GRP more financially sustainable by governments to help generate additional revenue.
8. Building Growth rather than “Devil’s Triangle”
Analyst Michael Krigsman has pointed out that IT customers can get caught in the “Devil’s Triangle“. Krigsman suggests that cost overruns for ERP implementations come because systems integration firms leverage complexity to generate more services revenue.
It is true that ERP vendors have many features that can generate more revenue for systems integration firms including code customization and proprietary middleware. Systems integration firms can leverage this to “own the customer” and extract the maximum services revenue as possible.
Not all systems integration firms operate on this notion of “value extraction” that sounds more like rent seeking. This is especially the case in the global GRP market where there is significant word-of-mouth. That’s why some systems integration firms are leveraging FreeBalance software to develop trust with government organizations in developing countries. This trust relationship enables systems administration firms to grow through providing more valuable services for government customers.
9. Competitive “Secret Sauce”
It’s very difficult to hide failure in the GRP world. Many government audits are made public and it’s not pretty. We track success rates for FreeBalance and ERP companies in developing nation governments. This includes implementations that have been publicly mentioned in the press, audit reports or at conferences as having significant problems. Of course, there is high risk in developing countries and we encounter many challenges. Our success rates are much higher than Tier 1 or Tier 2 ERP vendors.
The secret to our success is designing software and methodology to meet the true needs of government customers. This means configuration, progressive activation, adaptable help and optimized technical footprint built into the software. Systems integration firms are attracted to solutions that are more successful that reduce risk of cost overruns in fixed price contracts.
Systems integration firms can provide much of the GRP needs of any government. Partner programs for ERP companies tend to be rigid. Systems integration firms are often grouped into classes of vendors, have geographic or vertical market limitations and must investment significantly to become partners. These schemes often increases risks to customers. Costs can be higher as software manufacturers manage the channel. And, systems integration firms need to recover the high cost to do ERP business by charging customers.
The FreeBalance partner methodology customizes the relationship with partners. There are some restrictions because systems integration firms need to be trained. There are no other restrictions to the services footprint for systems integration firms in the design, implementation and support of GRP. With one noted exception: FreeBalance must be part of the governance structure with the government customer so that we can adapt products to meet unique needs (rather than forcing code customization), share practices to improve the success ratio and learn about emerging trends. For example, the FreeBalance International Steering Committee provides more effective governance for governments than the traditional “user group” method used by ERP vendors.
The FreeBalance partner methodology enables systems integration firms to leverage distinctive core competencies in public financial management, program management and customer support to reduce implementation risk and TCO.
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