Achieving government transformation through ERP systems.

• Author: Miranda, Rowan A.
• Position: Enterprise Resource Planning

Editor's note: This article is adapted from a forthcoming GFOA book entitled Enabling Technologies for Government Transformation: ERP and Beyond. The authors are co-editors of this book.

The public sector has marched steadily toward the adoption of enterprise resource planning systems. ERP systems are software applications that support an organization's finance, human resources, payroll, procurement, and a broad range of other administrative functions. These applications are more advanced than the mainframe-based software that was the backbone of transaction processing in large organizations from the 1960s to the 1990s. The major advantages of modern ERP systems include the consolidation of data from diverse business processes into a single information repository, the incorporation of "best practices" and other features that allow organizations to reengineer their business processes for greater efficiency, and the ability to disseminate information through all levels of an organization. And because ERP systems are "off-the-shelf" rather than custom developed, they are potentially less costly and theoretically "obsolescence proof" if the periodic upgrades keep pace with advances in technology and management practice.

Although there is consensus on what ERP systems are capable of, there is lingering debate about the value that is actually delivered. Early ERP implementations in government were driven by technical objectives (the millennium bug, for example), and "on-time/on-budget" was used as one of the main indicators of a successful project. Governments evaluating projects after an ERP implementation were hard pressed to identify concrete areas of cost savings or examples of better decision making. Although ERP systems have not delivered everything vendors promised, these systems are nevertheless a solid foundation for transforming government into lower cost, higher performing organizations that focus on continuous improvement and customer service. This article takes up the question: How can governments fully realize the value of their ERP investments? We present and discuss five main observations about the state-of-the-art regarding ERP systems. Much of the discussion will focus on how governments are extending capabilities or realigning organization structures to achieve high performance.

ERP ISSUES AND TRENDS

I) Organizations are strategically investing in technology. As a result, ERP investments require a much stronger business case and return on investment analysis than in the past. ERP investments also face greater competition from other technology and non-technology initiatives.

With shrinking IT budgets and legislative bodies wary of projects that turned out to cost more and deliver less than expected, governments are taking a more cautious, strategic approach to technology investments. This is in sharp contrast to organizations that, until recently, purchased the latest technology to maintain the perception that they were on the leading edge. A 2002 Morgan Stanley survey of 300 chief information officers found that some 20 percent had unused ERP licenses. Another survey found that the unused software rate for online analytical processing software averages 39 percent and for some brands is as high as 62 percent. (1) Statistics such as these have led to skeptical governing boards; major IT investments now require a detailed business case that clearly identifies the rationale for the project, the expected benefits to be achieved, investment levels needed in terms of staff and financial resources, sponsorship and governance structures, risks and associated mitigation strategies, and an implementation roadmap. State governments such as Iowa, Virginia, and Washington are leading the way in establishing detailed business cases by which their major future IT initiatives will be judged. (2)

Business cases have also become more sophisticated in recent years due to advances in benchmarking techniques by organizations such as The Hackett Group that specialize in measuring the efficiency and effectiveness of administrative functions. The Hackett Group maintains a performance metrics and best practice database of more than 3,300 commercial and government organizations for finance, human resources, payroll, procurement, and IT. Hackett uses strictly defined question sets along with stakeholder interviews to measure the efficiency and effectiveness of "as is" processes and then compares these performance metrics to both peer group averages and top-quartile ("world class") performance (Exhibit 1). The use of such benchmarking techniques helps establish "value targets" (the gains from implementing new technologies, practices, delivery models, and processes) that help quantify the business case for investment.

Implications: A strong, outcome-focused business case using benchmarking data should be established before beginning a major IT project or business process improvement project such as ERP. The role of the business case should not end when the project is funded; the objectives and target metrics should be used to better focus the ERP implementation on the business objectives to be achieved. Post-implementation evaluations and benchmarking can also help assess whether the return on investment specified in the business case is being realized.

2) Early ERP projects succeeded in business process automation and addressing challenges posed by technology obsolescence. By contrast, modern ERP implementations are relying on a multi-faceted approach to achieve whole-scale government transformation. Because project failures were being widely...