Wanted – a new deal for New Zealand business

I am often asked to comment on the cost of publicly funded IT projects, especially where there is a perception that they are “too expensive”. The problem is that it is always hard to say what is good value for money and what is bad unless you have more detailed information than a general headline figure.

For example, many websites these days are just the public tip of an iceberg of complex business systems. Ignorance of this fact provokes the inevitable reaction - “You paid how much? For that!”. So I usually demur.

That said, there are public and private IT projects that are so badly conceived, governed and managed that it is clear from the start that the risks are high and failure is almost inevitable.

A lot has been written about Deloitte and Auckland Council contriving to blow at least $500 million of taxpayer money on their “new” system from multinational software company SAP. As was said in the film, The Guard, “dat's half a billion dollars, lads”. A lot of money – and rightly raising a lot of concern.

The beginnings of this big spend are lost in a mire of secrecy at the Auckland Transition Agency. But it is clear that a coterie of Deloitte consultants and Auckland Council have managed to construct a massive project. In doing so, they excluded the experienced CIOs (chief information officers) of the former Auckland councils from the ERP implementation steering committee.

This meant that the key advisers to the steering group came from Deloitte. Did that mean that the project was lacking in people with the required experience to review that advice?

Poor governance and massive cost overruns has followed. The “new-build” approach recommended by the consultants and adopted by the council appears to have been at the root of this high expenditure.

John Holley, former CIO of Auckland Regional Council and critic of this project says, “Deloitte quoted approximately $20 million in their proposal to implement SAP, this included items like Asset Management, which at the end of last year was approved at the additional cost of $8.6 million – the ARC/ARTA having recently spent $1.5 million with Deloitte to implement the same Asset Management module".

"The blowout of millions must be seen as a significant failure in governance. Why has Deloitte not been held to their proposal costs? Deloitte can certainly not claim ignorance of how the legacy councils ran.”

Apparently, the region's local government CIOs generally supported an approach that would see a clone of an existing SAP environment used as the basis for the Super City implementation. This approach was successfully used by Auckland Transport at the cost of just $3 million.

But the Auckland Transition Authority decided instead to follow consultants' advice and opt for a “green field” implementation. In doing so, the authority fundamentally failed the ratepayers of Auckland and hobbled them with millions of dollars of needless costs.

These points have been largely aired elsewhere. The reason I really wanted to comment on this story was because of the lost opportunity for Auckland businesses. Auckland is no exception to the desire of councils around the country and the world to strut their digital stuff.

To become a centre of digital innovation, creativity and IT prowess. No doubt they spend thousands of dollars on glossy brochures expressing this grand vision.

Local businesses pay most taxes, rates, create employment and give the opportunity for talent to live in our lovely cities like Auckland. This is not just hyperbole.

Economics New Zealand recently carried out a study for our company, Catalyst IT. Some key findings include:
 

• Local IT companies are cost effective, with a 25% to 35% cost advantage over Australian companies and larger cost advantages compared to the US or Britain.
   
• The multiplier and tax revenue effects of local procurement substantially reduce the net cost to the government of local contracts. As an example, the net cost of a $115,000 (GST inclusive) contract reduces to around $67,000.
   
• Local suppliers have untapped export potential and can also reduce our import bills. We already spend over half a billion dollars a year on imports of computing services, and another $235 million on computing royalties and licence fees.

But when the council had “half a billion dollars, lads” their first and only thought seems to have been to shovel it overseas, fast. The impact of spending that amount of money on IT systems locally would have been significant and long lasting.

Sadly, there was no-one willing to take a strategic view and align the massive spending with the city's digital aspirations. No-one wondering whether this could lead to the next Orion Health or Jade Software.

No-one looking at what NZ system such as Ozone from Origen or whether an open source alternative could be used, extended and generally given the sort of boost that would pay dividends to the council, New Zealand's export potential and our business health.

Investing in missing features in new or open source systems can have big advantages, especially if you are displacing old technology that comes at a huge costs.

Such blinkered thinking in today's era of austerity and global financial crisis has got to stop. The cosy relationship between overrated and overly expensive overseas consultancy firms and taxpayer representatives need to be terminated and a new deal for New Zealand business launched.
 

Don Christie is a director of Catalyst IT and co-chairman of NZRise (nzrise.org.nz)