news The Federal Government has started discussing the possibility of setting up a shared services function that would provide centralised Enterprise Resource Planning services to various departments and agencies, despite the fact that this very same model has abjectly failed several Australian State Governments over the past half-decade and been abandoned.
The news, first reported by iTNews yesterday, is contained in a series of briefing documents which the Department of Finance has recently published. Finance houses the offices of both the whole of government chief information and technology officers for the Federal Government. The briefing documents relate to an investigation which the department is undertaking into the most efficient approach to providing ERP services such as finance, admin and payroll systems to the public services over the medium to long term.
There are two key briefing documents which the department has published with relation to the scheme. The first, relatively brief document (PDF) published in September last year merely states the nature of the project being undertaken by Finance. It notes that the devolved nature of the public service has resulted in Federal Government departments and agencies implementing different, often customised, ERP systems over time. This fragmented approach might have reduced the overall efficiency and effectiveness of government operations, the document notes, adding that the department will investigate the best future for the provision of ERP services in future, with a report on the issue due to Government in 2015.
A second, much more detailed briefing document (PDF) which the Department published this month outlines the situation in significantly greater detail.
The document notes early findings from the project, including the fact that there is an “understanding” across the public service that “the current state of ERP processes and systems is not sustainable”, and that the situation must be improved, for reasons ranging from cutting costs (the Government paid ERP vendors a total of $730 million over the past four years) to the need to garner better data from the systems, to provide greater transparency and use new technologies such as software as a service (cloud computing).
Some of the short-term options canvassed to help resolve the situation, such as identifying a pipeline of ERP investments to allow departments and agencies to better work together, developing guidelines around ERP deployments (including for negotiating collective agreements), improving vendor management and considering how new and emerging technologies (such as SaaS) could be harnessed are not controversial, and would appear to reflect best practice for cross-government collaboration around ERP projects.
However, one of the medium-term options listed which could help tackle the problem runs directly counter to best practice thinking in this area in Australia.
One option canvasses the idea that the Federal Government could develop an “opt-in centralised shared services model” for providing ERP systems. The document states: “This could be achieved by having either one whole-of-government ERP system or a system of ERP clusters or hubs similar to that implemented in the UK.”
It adds: “An opt-in arrangement could be achieved by hosting the ERP system/s on a whole-of-government cloud. The ability to quickly scale up at marginal cost under a cloud arrangement would allow entities to shift to a centralised ERP model as their platforms approach the end of their useful life.”
However, the document does not acknowledge that this ERP shared services model has broadly failed in Australian State Governments over the past five years and is being comprehensively wound back across the board.
In June 2010, then-Queensland Premier Anna Bligh revealed the state would abandon its centralised IT shared services model as its exclusive structure for delivering IT services in the wake of the Queensland Health payroll disaster and damaging revelations of widespread problems in associated programs. The Queensland Health issue alone has cost the state more than $1 billion in cost overruns. Queensland’s IT shared services model was started after 2006 and aimed squarely at ERP packages, as well as centralised email systems.
Western Australia’s own shared services project was kicked off back in 2003 with the aim of consolidating financial, procurement and human resources back-office functions from agencies to three shared services centres — covering the health and education portfolios, as well as a number of other agencies. At the time, the state aimed to cut about $55 million out of its annual $315 million corporate services bill. However, after a string of failures, the state abandoned the program in July 2011.
In August 2012, a landmark report into the management of the NSW Public Sector commissioned by the state’s new Coalition Government described how dozens of overlapping and competing systems and services providers have created “chaos” when it comes to the state’s current IT shared services paradigm.
And in Victoria, the Victorian Government has gone to market for IT outsourcing partners to replace large chunks of the service delivery functionality currently provided by its extremely troubled IT shared services agency CenITex, after the agency suffered long-running and extensive problems delivering on its mandate. CenITex did not specialise in application-level shared services such as ERP systems, but more on IT infrastructure, but largely failed at that task.
Uniformly, in most of these cases, government auditors have found that much of the problems with ERP shared services schemes has rested in trying to apply a ‘one size fits all’ model to departments and agencies which have significantly different needs and business processes.
The Department of Finance’s information briefing does acknowledge some of the risks inherent in the model, noting that the purpose of any such arrangement must be “clear, consistent and specific”; up-front costs and the need to manage existing investments must be identified; the ability to implement standardised services must be able to be varied between different agencies; a robust framework of service level agreements must exist; and that cultural change must be managed and leadership buy-in achieved.
The document also notes that if a shared services arrangement were mandated, “it would be necessary to manage agency expectations and establish a clear framework for where opting out would be permitted”.
However, the document also notes that the new Abbott Government’s National Commission of Audit has made investigating an IT shared services function a priority. The document states: “Of particular relevance to the Project is the requirement of the National Commission of Audit (NCoA) to report on options for greater efficiencies in the Australian Government, including through the consolidation of government support functions into a single entity. Studies of past shared service implementations in Canada, the United Kingdom and state governments within Australia suggest that for a shared services arrangement to operate efficiently and effectively it needs to be well implemented and organised to produce high quality, flexible and resilient services.”
News of the Government’s interest in the area comes as prominent analysts have also recently criticised the shared services paradigm. Gartner distinguished analyst Andrea Di Maio wrote in November 2011, for instance:
“… it appears that shared services are having a hard time. Queensland, Western Australia, South Australia, Victoria have all had their fair share of issues with shared services, and this is happening quite consistently in other parts of the world.
There is no doubt that duplication of services and spending across different government agencies makes little sense. But experience shows that there is insufficient attention to the governance aspects (agencies want to have a say in how the shared services are structured) and – more recently – to technology evolution that is making some of the technology that is being targeted through shared services more and more commoditised.
The challenge is no longer to put one organisation in charge of delivering shared services, but to look at how to support agencies in efficiently buying the same service from external service providers.”
Delimiter has invited the Department of Finance to comment on why the Department is investigating the possibility of instigating an ERP shared services scheme in the Federal Government, when such schemes have failed in states such as Western Australia and Queensland and been formally abandoned by those state’s leaders; How the Department would characterise the risk inherent in such ERP shared services schemes; and whether the Department has discussed this sort of scheme with leaders involved in the state-based ERP shared services schemes.
Update: Delimiter has received the following statement from the Department of Finance:
“The Department of Finance is undertaking an investigation into optimising Enterprise Resource Planning systems across the Australian Public Service. Through the investigation, the Department of Finance is exploring options for improving the effectiveness and efficiency of Enterprise Resource Planning processes and systems. The Department of Finance considers it appropriate to analyse shared service arrangements as one potential option.
In an effort to improve the effectiveness and efficiency of Enterprise Resource Planning systems across the Australian Public Service, the Department of Finance is consulting with state and international governments as well as industry about their experiences and lessons learned. Finance will provide its final report to government, including an assessment of risks, in the context of the 2015-16 Budget.”
I’m fairly sure my opinion on this issue is clear. The evidence from virtually all of Australia’s State Governments and, as Di Maio pointed out in 2011, internationally, is that IT shared services arrangements are fraught with danger. Based on the available evidence, it does not appear as though the Federal Government is paying enough attention to that danger. In the context of catastrophic ERP failures such as the $1.2 billion Queensland Health payroll nightmare, that kind of naivety is unforgivable. I’ll be watching this one with a great deal of concern. At the very least, the Federal Government will not be able to say it wasn’t warned about this.