June 6, 2012Doug Hadden
Part 2: ICT4D
Impact of IT innovation and focus on IT TCO
Doug Hadden, VP Products
This is Part 2 of 6 parts detailing the content in my Financial Management Institute of Canada lunch presentation What can we learn about Sustainability from Developing Nation Governments?
Impact of ICT4D
ICT4D is the concept of using information and communications technology to improve country development. This is applied to general economic improvement such as improving communications to foster business, sectors like education and health and to improve governance and reduce corruption. Studies suggest that there is a more significant positive impact to ICT in low and middle income countries than high income countries. Technology impact can be transformational in improving market efficiency, reducing financial transaction costs, and optimizing productivity.
Developing countries often lack legacy ICT systems. This “latecomer” advantage enables countries to “leapfrog” to use technology in more innovative ways. These countries can bypass older technology in use in more developed countries. Developing countries are leveraging the convergence of Internet and mobile technology to overcome the “digital divide”. The technology is adapted to the local context – typically at lower costs than legacy technology.
The Government of Estonia is a leader in the use of digital technology. Estonia has e-government, e-police, e-elections: e-everything. It’s an e-country. According to the President of Estonia: “98% of Estonians under 35 use the internet regularly and systematically”… Estonians are “e-believers.”
Following my previous post, the sustainability challenges in developing countries necessitate innovation. 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.
Hidden underbelly of the software industry: bloat
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 and more features into software – most are unneeded.
The FMI presentation was vendor neutral – a constraint that I don’t have in this blog. Software bloat is endemic in ERP software. This is particularly ironic because so many of these ERP companies now provide tools to measure power consumption and carbon footprints. These companies produce slick sustainability reports and yet do little to reduce the technical footprint of their software packages. This includes the unnecessary features that also require additional database storage operating on legacy code that isn’t efficient. It generates the need for an additional translation layer from client/server to web. The designs are monolithic meaning that you can’t package just the features that you want and there is a large minimal footprint just to run basic features. And, these companies have proprietary middleware for scaling, transaction processing, database connectivity, operating system porting etc. that is not efficient. My sense is that putting all of this into hardware appliances is not going to solve the power consumption problem. Not mentioning any names.
Developing nation governments do not have the luxury of NOT considering Green IT. The environmental impact has financial consequences.
Turnkey IT projects are rare in developed nation governments for public financial management. Hardware, software and services are often acquired on different purchasing vehicles and assembled. I guess the thought is that once you’ve seen one General Ledger, you’ve seen them all. This approach is thought drive costs down. At the cost of visibility. Software A may be less expensive than Software B. But Software A may require more services and more rigorous training. The impact of these two elements ranges around 60% for total cost across 3 years and the vast majority of total costs for the life of the software. A small difference in carrying costs for Software A could be material for the total cost of ownership (TCO).
Developing nation governments tend to acquire based on a 5 year TCO calculation. And, there is recognition that consultants, certification and future upgrades can make systems financially unsustainable. Therefore, developing nation governments attempt to become self-sufficient: ability to handle day-to-day operations, typical troubleshooting and system upgrades with no or little support from vendors.
FreeBalance and financial sustainability
Many international competitive tenders are opened to reveal prices. This enables us to track our turnkey price with competitors. The business case for ERP in government, when all price factors are considered, is quite weak. The typically 5 year TCO price for the two “top tier” ERP vendors averages 191% the FreeBalance price. (And, there is good evidence that the total price is more likely to increase beyond the original quotation. And, the upgrade costs are significantly higher.
That’s why we believe that software designed for the government context: Government Resource Planning (GRP) is more sustainable. Don’t let the promise of ERP “enterprise licenses” fool you: there are countless millions of dollars spent on ERP consultants in the Government of Canada. It’s a sad waste of public resources.
How is the GRP approach used by FreeBalance more financial sustainable for any government than ERP?
- Technical footprint is optimized for government with no wasted functions, no extra database tables
- Pure web design without a client/server to web translation layer
- Ease of use and ease of administration enable self-sufficiency
- No code customization that is expensive to implement and even more expensive to maintain
- Progressive activation to enable adding features and modernizing without changing the software
- No vendor-forced upgrades and 1 step upgrade from any version to any subsequent version of software
- Customer-centric approach where the FreeBalance adapts software to meet government needs, not the other way around
The Afghanistan case
The Government of Afghanistan was able to roll out FreeBalance software without our assistance to all regions. This is an important success story that demonstrates how powerful self-sufficiency is. Consider the huge cost overruns in developed nation governments for ERP.[And here, and here.]