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Lessons learned from a quarter of a century in the federal government ERP landscape

Federal agencies must carefully choose ERP systems, ensuring competition, strategic evaluation, and long-term efficiency.

Why am I writing this article?

I must be getting old when I start to put pen to paper on the state of play with ERP systems within the federal government and I feel like Bill Murray in that quintessential movie Groundhog Day. However, I feel compelled to continue as more than 60 federal government agencies are about to commit hundreds of millions of dollars to upgrade their ERP systems over the next three to five years and select a path that can’t be changed for decades. It seems an opportune time to ensure we learn from past experience in the ERP space, make sure the current challenges are addressed and ensure we maximise the opportunities of current and future technologies.

Why is this important?

If I asked you:

What part of the administration of every Australian government program and agency touches every APS employee, every contractor, every procurement and the entire annual Commonwealth capital and operating budget?
What is the primary driver of the efficiency of your internal and external business processes?
What costs millions of dollars to implement and can only be changed once every quarter of a century?

So….what is the issue?

The international marketplace for ERPs is very broad with a plethora of vendors providing solutions that can be tailored to fit most industries and sectors including government. Why is it then, that the current federal government ERP landscape is dominated by only two vendors?

The answer lies in history. In the late ’90s, Y2K was forcing the world to upgrade all of its IT systems. This caused every federal government agency to assess its ERP system and many to implement new systems. A predecessor organisation to the DTA, the Office of Government IT — OGIT — decided to help by establishing a set of panels from which agencies could select their new ERP systems. Sound familiar at all?

Herein lies the seed of how we ended up where we are today. Two separate panels were created, one for finance systems and one for HR/payroll systems and the two inter-departmental committees making these selections didn’t talk to each other. SAP was the only single vendor on both panels and TechnologyOne Finance system and Aurion Payroll/HR was the only other mixed vendor solution with an established presence in town.

Over the next decade individual agencies went to market, one by one, most of them looking for or preferring an integrated ERP solution. Not surprisingly SAP and the TechnologyOne / Aurion proposals were the only proven solutions in town with an established eco-system of qualified personnel to implement and support. Hence, they achieved market dominance and all the other major vendors including Oracle, Peoplesoft (subsequently bought by Oracle) and Microsoft vacated the federal government market and never came back. It was not worth the investment given the single agency deals were all that were on offer as agencies came to market one by one.

Ever since, over 25 years, it has been a two-horse race for any agency looking to upgrade or change their systems.

Federal government agencies are now about to spend hundreds of millions of dollars collectively and will be committing their organisations to core business systems for the next quarter of a century.

So, what lessons can we learn from history?

What should be done going forward?

An observation I have made over the decades, which is underpinned by numerous ERP selection decisions in which I have been involved, is that the correct strategic direction for your agency will come down to a small number of Fundamental Evaluation Criteria (FEC). Yes, you will go through the detailed functional and technical requirements specification and undertake a comprehensive and laborious tender evaluation process. However, there is only a handful of federal government or regulatory-specific requirements that are mandatory and at the end of the day, the strategic FEC will override other minor gaps or features available in any particular solution.

So what are they?

Vendor lifecycle

This criterion involves an assessment of the vendor itself as much as its product. As these decisions will set the business process and technical platform foundations for the next quarter of a century, you need to select a vendor and product that is on the upward trend of its lifecycle. There are two key determinants here.

Selecting a vendor that is in a growth phase with increasing sales and customer base.
Vendors’ ongoing product development is funded from sales and as these start to wane
so does the ability for the vendor to keep investing and modernising.
Selecting a product that has its foundations in contemporary technologies. Currently, that would include products that have been built for cloud and SaaS (software as a service) operations and are aligned with your agency’s enterprise architecture.

Overall solution architecture

Obviously, your selection must meet your business requirements. But the primary concern here isn’t ensuring compliance with a list of hundreds of detailed requirements using weighted criteria to judge the best functional fit. After all, you should endorse the “adopt not adapt” principle, where as far as possible you will use the standard features of the product selected rather than customise it to meet your exact requirements.

More important is to look at the broad solution architecture being proposed across the entirety of your requirements (at a module level). This might include interfaces required with your other operational systems and other non-functional requirements such as workflow, master data management, security and alignment with your agencies’ IT strategies and architectures.

I would recommend ensuring your evaluation includes all “edge” requirements as well as your core finance, HR and payroll requirements. This includes expense management, time sheeting, rostering, contract and contractor management, service costing, financial statement preparation, IT financial operations (FinOps) and external budgets. The benefits of obtaining as much of your solution from a single vendor or as an integrated solution are significant over time providing integrated data sets (single source of truth), better workflows, simpler upgrade paths, tighter security and a consistent user experience.

Long-term return on investment (ROI)

Given the long-term nature of the decision being made, a minimum 10-year whole-of-life cost comparison must take into account both external vendors’ costs (licencing, implementation maintenance, upgrades, etc) as well as your internal people and infrastructure costs. There is a well-trodden path of agencies who have been wowed by upfront discounts and faster, cheaper implementation only to find they need large ongoing support teams or that every business process or organisational change results in a costly enhancement project. And don’t forget the costly version upgrade processes if you are not going for a pure SaaS solution.

Price

Of course, you must consider price, and, as stated above, this needs to be on a whole-of-life cost basis. The variability in vendor pricing across industry sectors and individual agencies can be significant.

So how do you ensure you are getting the best price?

First, ensure your process is a legitimate full market test with a shortlist of vendors who meet the fundamental criteria for your business. You may be surprised by the discounts that are offered at the eleventh hour of an evaluation or by new entrants who need their first toehold in the market.
The challenge I see for the Federal Government market at present, given the two-horse race mentioned above, is how you get more competition in your approach to market. One solution would be for several agencies with similar requirements to co-ordinate their procurements providing a greater incentive for new entrants to respond, increasing your purchasing power as well as ensuring there will be a sufficient ongoing eco-system of skills to support your selection over the long term.

No one wants to go it alone, do they?

But if the conditions aren’t set for new entrants, you will be missing opportunities to capitalise on the full breadth of options available in the international marketplace.

Other considerations

Other considerations will impact your decision, including:

Size of agency – your size will determine the range of options available to you.
The complexity of your finance structure – do you have administered and departmental funding, multiple programs, and many integrated systems?
Managed services – do you want or have the internal capability to manage your ERP platform yourself or are there managed service options available?
Security and sovereignty requirements
Business process automation and optimisation
Data reporting, analysis and visualisation including the future of AI.

These will be topics for discussion another day!

Conclusion

In summing up, federal government agencies are on the precipice of making significant investments of public funds and setting the ERP platforms that will prevail over the next quarter of a century. Some of us may not be around to witness the full ramifications of the decisions being made now, however, I believe that taking a longitudinal perspective, focusing on the strategic fundamental evaluation criteria and opening up the Federal Government market to more competition will deliver world best practice solutions that will strengthen Australia’s public administration for the next 25 years and beyond.

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