Despite all the focus on multi-billion pound outsourcing deals, sometimes smaller IT orders provide the most illuminating lessons.
In its review of local authority efficiency in 2000/1, the UK government’s Audit Commission identified London’s Hackney Council as a financial car wreck, giving it just 14 points out of 100 in its performance assessment.
Things had gone badly wrong on many levels at Hackney, the Audit Commission observed in a rolling series of reports, but its financial management system was particularly lacking.
“Hackney was perceived to be a failing authority,” says one IT executive close to the situation. For many years its financial management system had been based on an internally run implementation of Oracle Financials. Despite at least two attempts to implement the Oracle package successfully, management at the council had determined the package lacked significant functionality for its specific needs, and embarked on a major customisation.
“That made the system very inflexible, and resulting in the council’s senior executive being unable to oversee managers in local offices and unable to drive cost management to the levels they needed,” says one insider.
That was exacerbated by a highly complex infrastructure. Hackney was supporting financial management spread across 45 facilities, relying on a dispersed network infrastructure that included a mainframe providing remote capacity, applications run on Sun Unix servers at a separate location, and Windows XP systems running locally. The view of the Audit Commission, as well as Hackney executives: The systems had become constrainers rather than enablers. “The council lacks the ability to control its financial position,” the Commission said in July 2001.
Above all, managers felt the system was impeding their primary goal of driving major business change in the organisation.
The borough’s recovery plan was as radical as it was overdue. It involved abandoning Oracle applications completely, and, indeed, dropping any idea of directly licensing, developing or running its own financial applications.
“The Oracle system was so heavily customised it prevented them from making any change to their business processes,” says David Pattinson, head of product management at financial software specialist Cedar. “It locked them into the historical way of working, and they deemed that sticking with it was not going to drive cultural change, or drive improvements to systems or business processes.”
Sniffing a revolt, Oracle mounted no less than three bids with various consulting groups. But the outcome was always going to be governed by fact that the council had lost the appetite for running its own financial applications.
In July 2003, as part of a £6.5 million five-year deal, it handed the task to a consortium of vendors led by managed application service provider (ASP) Netstore. Instead of Oracle – which also bid an outsourced applications option – Hackney selected Netstore’s Cedar financials ASP service.
To support the remote access to the applications, the council will use a frame relay service provided by Cable &Wireless between Hackney offices and Netstore’s data centre in Gateshead. Initially around 600 users will be able to access the system, but as it is extended to employees in district offices who have procurement authority that number could rise to 2,000.
Track record clearly played a major role in the decision. Cedar’s browser-based system, E5 Financials, has been sold as a managed service to numerous councils including the London boroughs of Camden, Islington and Hammersmith and Fulham, as well as Liverpool City Council, Moray Council and Bridgend County Council.
The transition from an in-house Oracle system to the remote Cedar service may appear daunting to some IT managers, but it is fairly straightforward, says Dean Dickinson, Cedar’s deputy managing director. “We will be showing Hackney converted systems within four weeks, and go live in April 2004,” he says.
But the consortium bid was not just about applications functionality. One of its members, Hydra, has taken on the job of re-engineering many of the council’s financial business processes, drawing on previous local authority and corporate engagements.
Process above cost
As that suggests, cost reduction was not the overriding consideration. The primary goal was to establish a structure that could support the re-engineering of business processes, says Cedar’s Pattinson. And judging from the details of the contract, some of those processes were woefully weak.
One stands out: an astonishing 85% of Hackney’s suppliers have traditionally been paid by cheque. The new system will now push these payments through a standard BACS automated money transfer system.
At the same time, the new system and processes will support purchase order processing. Again there was little or no formal process for such administration at Hackney.
And lastly, new cash management software will be used to address the fact that the previous system was so centralised it severely delayed funds being distributed to different functions within the borough.
As those issues suggest, Hackney has only one way to go to get its processes in line with other, more successfully run local authorities. The fact that it has entrusted that transition to managed application services underscores just how far such services have moved beyond the proof of concept stage.