Here we are, in the final days of 2016, contemplating the challenges of implementing financial management systems in government at the Inter-American Development Bank workshop, The Cutting Edge on Information Technology on Public Financial Management.
And, we’re talking about the challenge of integrating these systems with the latest technology. In supporting results-based budgeting. In leveraging the latest technology. In improving technology.
But, the context has changed.
At the moment when deep understanding of government financial systems are close at hand, the rules change.
And, new challenges emerge.
Figure and Ground
Core back-office technology: the famous 3 letter acronyms of ERP, SCM, CPM, CRM, PPM, GRC are no longer the leading enterprise technologies. We’re in a SMACT world (Social, Mobile, Analytics, Cloud, Internet of Things), not an ERP world.
Governments are looking to digitally transform. Legacy technologies and legacy project thinking are not digital transformation enablers.
Technology for the management of public finances – call it IFMIS or government ERP, or what we like to call ‘GRP’, is no longer the big thing in government technology.
What is going on? Have back-office systems become obsolete?
This is a technology phenomenon known as “figure and ground” coined by media theorist Marshall McLuhan. Back-office systems, or “Systems of Record”, have become the foundation, or context for the new technology. It’s much the same way that social media has become the defining figure, supplanting television. Like television, “Systems of Record” are still important in that they contextualize what is grabbing our attention: social. It’s the era of “Systems of Engagement”.
Why Systems of Engagement in Government?
It’s been half a decade or more since Geoffrey Moore defined this concept.
Moore suggests that Systems of Record improve efficiency while Systems of Engagement improve effectiveness. Systems of Record focus on cost, quality, standardization and compliance.
Effectiveness, in the form of performance and results, has become an important theme in government reform. The IDB agenda referenced the “definition and use of performance data.” Systems of Engagement promise to facilitate complex interaction across government, government tiers, international organizations, civil society, and citizens. It’s an optimistic and compelling vision.
There has been some resistance to the concept of “social” in government. Yet, the purpose of government is social. Governments are faced with “wicked problems” of sustainability, inequality, resilience, growth and well-being. These problems cannot be overcome through traditional governance methods. Engagement is necessary, and back-office systems need to support this.
A recent IBM Whitepaper describes how Systems of Engagement differ from Systems of Record:
“Social Applications. The best way to encourage employees to leverage information is to allow them to collaborate. Whether it be on project management, development, or research, social applications can facilitate the transition from a systems of record enterprise to a systems of engagement enterprise.
Integration of systems which still are not ‘connected’. Whether it be supply chains, partner eco-systems, HR systems, etc., for a system of engagement to function as a cohesive whole, the technologies will need to be integrated.
Appropriate Platform Technologies. In order to integrate systems, as well as offer new systems to support enhanced collaboration–which is what systems of engagement is all about, in the end–appropriate platform technologies will need to be deployed. While most will be cloud-based, they may be represented as SaaS, PaaS, or IaaS offerings, as appropriate.”
Roadmap from Systems of Record to Systems of Engagement
The IDB has been active in promoting government financial transparency and participatory budgeting. The workshop agenda identifies many of the hurdles that prevent government systems from enabling engagement. This is part of Public Financial Management (PFM) modernization worldwide. The modernization roadmap matches four workshop themes:
Integration: Government financial systems in Latin America and the Caribbean lack integration among subsystems. Budget and accounting classifications often differ. And, major financial sub-systems like payroll and procurement lack budget awareness. The agenda points out the need for “better integration between the budget information and the accounting registration in order to produce the financial statement in a timely and automated manner.” This is important for efficiency, cost and compliance in Systems of Record. Systems of Engagement need more than integration, they need unified metadata. They need much more than timely reporting, they need current information and early warning.
Transparency: “Fiscal transparency to enhance the accountability of the public policies in a user-friendly way,” is another workshop theme. Transparency and accountability are important compliance enablers in Systems of Record. This includes government oversight like audit, and civil society oversight. Transparency is integral to Systems of Engagement. The burden of government fiscal transparency is complicated when metadata differs among systems.
Performance: The workshop identifies the need for the “definition and use of performance data” and increasing “the use of IFMIS in the decision-making process.” Performance management is much more difficult in the public sector than the private sector because of complex organizational structures and the absence of profit as a bottom line. The journey to government performance management often begins with defining objectives and programs. Outputs and outcomes augment planning and assessment. A unified public accounts classification that supports the progressive activation of performance features across all financial subsystems is necessary. It is only with this performance structure that governments can engage civil society by linking plans to results. Otherwise, budget allocation is about inputs, and there is no objective information to prove whether the government is succeeded with national objectives.
Risk: Systems of Record support the “C” in Governance, Risk and Compliance (GRC). The agenda points out the need to “support the management of the certain fiscal risks, such as those that are generated by Private Public Partnerships.” New fiscal arrangements like PPPs, performance contracting, outsourcing, and revenue sharing are all about engagement. This engagement promising breakthrough performance but increase government risk. Systems of Engagement are necessary for governments to collaborate to mitigate risk.
Beyond Technical Integration
Tight integration is necessary to support Systems of Engagement needs of transparency, performance and risk mitigation.
It was a sign, years ago, when Microsoft Word spelling check recommended changing “seamless integration” with “shameless integration.” That’s because integration within major enterprise software suites were difficult. Integration beyond these suites were even more complicated. Metadata was hard to manage and minor changes to any system presented errors. The web services standards helped to some extent, but the consolidation of enterprise software compounded complexity. Many Enterprise Resource Planning (ERP) customers are shocked to learn that it’s normal practice to define metadata differently among subsystems in so-called “integrated suites.” Large ERP vendors, for example, promote integration as a benefit of their product suites. This is most often hyperbole with complex integration mechanisms, especially with software products from vendor acquisitions. Our definitions are:
- Interface: a way to get information from one system to another that often requires a manual process (such as importing batch data) or a poor practice (such as flat files and direct database calls)
- Integration: automated method of getting transactions from one system to the other that tends to use good practices (such as web services and APIs) but may not include all transactions
- Interoperability: automated method of integration of all functions from all applications across the PFM lifecycle, including central metadata management
My recommendation to government organizations looking to modernize to Systems of Engagement is to focus on unifying metadata as integral to design. Unified Government Resource Planning (GRP) systems, like the FreeBalance Accountability Suite, facilities modernization.
Beyond Systems of Engagement?
Systems of Engagement is not the end game. The unified design of Systems of Record will be needed for engagement context. Ray Wang, of the Constellation Research Group, has identified the weak signals that show the emergence of experiential and personal fulfillment systems. Analysts at the Gartner Group, like Michael Guay, describe “Systems of Innovation” and “Systems of Differentiation”.
Therefore, governments need to get integration right.
Personal Action Item
My FreeBalance Latin America and Caribbean colleagues will be paying close attention to lessons learned at the workshop. Follow my @dalytics Twitter feed on the 19th. and stay tuned to my observations later this week.