Business Transformation Was the Goal (Part 1)

As the Corporate market for ERP software becomes saturated, one of the biggest growth areas for new ERP sales is in the public sector area. Though it is still a relatively small percentage of total ERP sales, it is projected to grow at more than 20 percent a year for the next few years. Also, the scale of such projects can be quite huge as evidenced by the projected nearly $3 Billion that the US Navy will soon spend on its ERP implementation. However, working to integrate agencies and systems in the public sector can be quite different for the private sector and requires a different approach and model.

Public sector ERP projects

Much has been written to date about the relative success of ERP implementations in the private sector. With almost 80 percent of the Fortune 500 firms having implemented some form of ERP system, the growth of the private sector market for ERP has slowed considerably in the last couple of years. One area of potential growth for the ERP industry is in the public sector, where we are beginning to see some action around the world. For a variety of reasons, the public sector has been slow to adopt ERP technologies. Without the pressure to improve the bottom-line, governmental agencies have focused more on smaller applications designed to just maintain existing services. They have very little experience with ERP systems and often have the notion that their processes are unique from the private sectors’. Much of the impetus for new systems has led to new e-Government portals or GIS systems. But the impact of these systems may be limited by the level of integration of data on the back-end systems.
Some small-scale ERP implementations have been attempted in various governmental agencies in Australia, Germany and the US. In 1998, Queensland, Australia integrated all of their financials successfully using SAP R/3. The state of Arkansas is spending $30 million to integrate some of their financial and HR functions with SAP. One district in Bavaria also attempted to integrate some of their functions with SAP. The county of Sacramento, California integrated some financials and payroll functions in 1998. The state of Kansas was one of the first to attempt an ERP implementation in 1994 using PeopleSoft to integrate human resources, payroll, and benefits. The city of Phoenix integrated their legacy financial systems with their web applications in 1998. The US Navy is in the midst of a $200M ERP pilot using SAP and many other states such as Delaware, Florida, Ohio, Tennessee, New Jersey, California, South Carolina and North Carolina have either started or are seriously looking at implementing an ERP system. The $250M Imagine PA ERP project for the state of Pennsylvania is the first, large-scale public sector ERP implementation and has been attracting a lot of interest from governmental bodies worldwide.

Faced with almost 60 state agencies…

The Commonwealth of Pennsylvania is one of the largest and most diverse state economies in the U.S.. The state government consists of 59 agencies ranging from the state Auditor General’s office to the Department of Transportation. Some agencies like the Department of Corrections are relatively large with over 14,000 employees while others like the Environmental Hearing Board consist of less than 18 employees. Supporting the operation of this diverse group of agencies were 16 data centers running a wide variety of different information systems.
By 1999 many of the financial systems that had been put in place in 1985 were requiring more and more maintenance to keep them running. Coincidentally, the year before, the state legislature had passed a new procurement code that allowed the state to open up the procurement process much more than previously. The CIO of the State of Pennsylvania was also under pressure to make sure that all the state’s systems were certified as Y2K compliant. He saw this confluence of events as an opportunity to accomplish a number of goals. He knew there had been much debate among the 18 members of his CIO Advisory Board about their experiences in implementing ERP systems. On the top of this, Hershey Corporation was just down the interstate from the capital, Harrisburg, and the CIO was all-too familiar with their much-publicized ERP project.

…and aging systems

Faced with aging systems Pennsylvania was dealing with a similar problem that many government agencies and institutions must consider. They must decide whether to try and get more money for new systems, try to make do with the existing systems, which will generally entail cutting some services, or redesigning systems to improve the overall system efficiency. Being familiar with the concept of ERP systems in general, the CIO floated the idea of applying this technology to the state of Pennsylvania’s problems. After considerable research and debate, the decision was made to recommend ERP as a solution. Following the Governor’s approval, Gartner Consulting was also brought in to evaluate the feasibility of this idea and they also validated the concept.
The idea of integrating functions across multiple agencies was relatively unknown to the systems people in the state government. They knew that there would be many obstacles to overcome. With almost 60 different state agencies and their legacy systems running on different platforms scattered throughout the state, this would be a monumental task. Recently, the state had managed to standardize all the desktop computers throughout the state agencies and was even one of the first states to sign a state-wide license with Microsoft, but this was integration on a scale that had not been attempted before. The state also had a robust web site and had experimented with putting some forms online, but these applications were not linked into an integrated database. With strong backing from the Governor’s office and help from Gartner’s consultants, it was decided to go ahead. But instead of trying to quickly implement it to ameliorate their Y2K problems, it was thought that they would patch the existing systems to get through Y2K and then this would allow them to take the time to properly implement the ERP system.

A unique “battle” of vendors

With assistance from Gartner Consulting, it was decided that they would use off-the-shelf ERP software so that they would have the least amount of customization. The six major ERP vendors were invited to participate. The Commonwealth identified seven hundred high-level functional requirements that would be the basis for the competition, where each vendor would have to run a script to show how their software would handle each of the major processes. Given these requirements, only two of the original six vendors (Oracle and SAP) agreed to participate in the ERP “bake-off”.
In a unique battle of the vendors, each of these two vendors demonstrated their products in an auditorium in front of 150 business process employees, The consensus pick by the audience was to go with SAP’s product,, since 78 percent of the state’s needs would be met by MySAP right out of the box. In a separate bake-off, BearingPoint Inc. was determined to have the integration expertise for such a large scale, public sector ERP implementation.

Layout of the project goals

Given the record budget surpluses and strong backing from the Governor, project goals were laid out. The overall desire was to show that Pennsylvania was a World Class government and that it was a leader in the world of technology. At the beginning it was decided that this would be a business transformation and not a system replacement project and that employees would be empowered to help re-design existing processes and make decisions about the “To-be” processes. The new system was supposed to enhance performance by giving customers and employees access to real time data that was shared across agencies. SAP also tried to streamline the implementation process by using their industry “best practices” as a starting point in the reengineering process. In evaluating their core processes, the state discovered almost 90 percent of what they did was related to procurement of goods and services. Surprisingly, it was found that after much discussion by process owners in the various agencies, they adopted 92 percent of SAP’s suggested best practices.
A steering committee was formed from the functional business owners and representatives from the Departments of Public Welfare and Corrections. The scope of the Imagine PA project was determined to encompass the following areas:

  • Accounting
  • Budgeting
  • Payroll
  • Human Resources
  • Procurement
IMAGINE PA Cutover Plan
IMAGINE PA Cutover Plan

After the steering committee had determined the goals of the Commonwealth of Pennsylvania ERP project, with urging from the Governor’s Office, 53 state agencies agreed to participate in the ERP project. The only major agencies not participating in the project were the Departments of the Auditor General and State Treasury, and the state legislature itself. Based upon the size, projected difficulty, and the functionality required, it was determined that the overall project would take 33 months to complete and was broken into four distinct phases or waves. Wave 3 was later broken into two parts, A and B, and it is anticipated that there will be two additional waves (5 and 6) for adding automated time rules and value-added HR processes such as Recruitment and Training and Event Management.

Business Transformation instead of mere system replacement

Because the state was very concerned with how the knowledge about the ERP system would be transferred from the consultants to the state, parallel project teams were developed at all levels. State agencies had representatives on most of the project teams and at the Steering committee level were high-level administrators. The subject matter experts from the agencies were empowered to take a hard look at all the existing AS-IS processes and to develop and recommend the TO-BE processes.
Part 2

The author would like to extend special thanks to Mr. Rodger Cerritelli of BearingPoint, and Mr. Donald Edmiston of the Commonwealth of Pennsylvania.

Ph.D. William P. Wagner
Ph.D. William P. Wagner