August 30, 2013Doug Hadden
Doug Hadden, VP Products
Governments in Australia have joined the United States Department of Defense as the "canaries in the coal mine" demonstrating the high failure rate of Enterprise Resource Planning (ERP) projects – especially 'shared services' in the public sector.
- Numerous revelations of DoD ERP projects over budget costing American taxpayers billions of dollars wasn't enough – a recent audit shows that cost estimates for on-going projects are wildly inaccurate.
- The West Australian Government has decommissioned an ERP shared services projects began in 2005 at a net loss of AU$370M. "Extensive customisations…contibuted to stability and cost issues."
- Queensland and Victoria governments are making significant changes to shared services organizations and portfolios.
- Queensland banned IBM because of its role in a billion-dollar blowout of a payroll system for its health department. (IBM blames the government for problems on the estimated AU$1.25B project)
- Northern Territory's large ERP project "hits the rocks" blamed on a high turnover in Fujitsu consultants.
- Meanwhile, The New South Wales Department of Trade has gloated that its ERP payroll system rollout has been much more successful so far compared to the botched Queensland Health payroll system implementation.
Has it come to this: Governments gloating about ERP projects that do not fail?
What are ERP vendors doing about this high failure rate in government?
We believe that governments should leverage Government Resource Planning (GRP) software designed exclusively for the public sector. As a GRP provider, we've been collecting incidents of ERP failures in government that we seem to be obligated to frequenly update. There seems to be evidence that there are higher risks of failure in the public sector than the private sector. Yet, the public sector is a large and attractive market for major ERP vendors representing about 20% of the entire IT market.
ERP vendors are using a clever 4-prong strategy to shift the blame:
- Use of consulting firms for implementation, where the ERP manufacturer is at arms' length from any project governance structure
- Focus on so-called "best practices" to attempt to convince governments to run "out-of-the-box" functionality that is often inappropriate or illegal in government jurisdictions
- Present the notion that success only comes from very large shared services implementations – that benefits will only accrue on massive scale despite the huge governance issues that occur when rationalizing government processes across so many entities with so many mandates
- Market the idea that governments need to run like enterprises, hence should use "enterprise" resource planning, despite the fact that the software is filled with unneeded private sector functionality and massive customization is often needed
Therefore, any ERP failure can be blamed on the consulting firm or the government in the governance structure. Blaming the victim becomes subtle by pointing out that the government did not use so-called "best practices", was not able to articulate and standardize business practices and did not run as an "enterprise".
So what are the big Tier 1 ERP vendors doing to ensure higher success rates in government? Apparently: absolutely nothing.
What if FreeBalance doing about GRP failure in government?
One of the advantages of a large installed base in emerging economies has been to develop a more holistic view of implementation problems. Yes, we have a much higher success rate than ERP companies in situations where the failure rate ought to be far lower.
We've made some important conclusions:
- Government needs differ dramatically from the private sector, particularly in the need for continuous change to keep up with government reform
- Customization through programming code can be virtually eliminated outside of integration and complex reporting – this notion of "configuration" enables more rapid implementation and change to make systems more financially sustainable
- High costs are also incurred in ERP systems because manufacturers use legacy core code that requires more equipment and bandwidth than is necessary
- As the GRP manufacturer, FreeBalance must be part of project implementation and part of the governance structure – committing to any missing functionality and mentoring governments on public financial management, information technology and program management where needed
We've contributed a "good practice" document on how governments should govern software manufacturers.