IT Investment Isn't the Problem – Poor Project Management Is

Last week President Obama complained of the deplorable state of technology within public sector institutions. But are the obvious problems of the Obamacare website representative of what’s going on across higher education, healthcare, and government? And is the gap between the public and the private sector really as big as the President seemed to indicate? Data from The Hackett Group suggests that, in fact, perceived "failures" of the public system are not due to insufficient IT investment, but to poor project management The Hackett Group, which defines and tracks best practice performance metrics across all manner of industries and processes in IT and other business services areas, recently presented its findings on public sector services at SSON’s annual public sector conference for North America (Shared Services & Process Improvement for Higher Education, Healthcare and Government). For anyone analyzing IT investments and implementations, the public sector presents an interesting dilemma. Contrary to popular belief, the higher education, healthcare and government sectors are not trailing the private sector in terms of overall technology investments. In fact, when considered as a percentage of overall revenue, public sector investments are looking strong. And even when analyzing investment against the number of end-users, the public sector slightly trails the private sector. However, when it comes to the efficiency of IT implementations, public sector entities are generally aligned with the lower segment, or fourth quartile, of private sector companies, say Anthony Snowball and Mark Peacock of The Hackett Group. The root of the problem, according to them, is that investments are being inefficiently managed and returns inadequately tracked. [eventpdf] The Hackett Group’s research indicates that the public sector is being hindered on three fronts: first, there is inadequate cost-benefit analysis for IT investment projects; second, project management is sorely lacking; and third, the public sector generally operates in a highly fragmented and decentralized environment with little standardization. While in the private sector The Hackett Group finds that only 22% of technology initiatives are implemented without the support of a strong business case (the number is even lower in World Class companies), in the public sector the equivalent percentage stands at 70%. "So, right from the start there’s a question as to whether technology is being deployed in the right place – and whether it will yield impactful results," explains Anthony. Once a project is implemented, Mark explains, the issue that most frequently limits the public sector from experiencing higher returns on technology investments is the fact that only 21% of the projects are managed by a project management office, compared to 82% in the private sector and 96% in World Class companies. "This lack of a project management framework, with all the discipline and accountability that comes with it, goes a long way towards explaining the disappointing results we are seeing in public sector IT implementations," he explains. Perhaps the most fundamental hurdle the public sector faces, however, and the most difficult to get around is the complex and diverse IT environment that most of entities operate within. "Whether it’s in healthcare, in government, or in higher education, we see a trend of fragmented operations, lack of process consolidation, inconsistent use of technology, and complex platforms – all of which conspire against efficiency gains commonly present in the private sector. The public sector is certainly ripe for the kind of streamlining and standardization that you get as part of a shared services rollout," says Anthony. "Once that’s done, you could expect IT implementations, too, to show better results." Even where best practice technology applications seem obvious – take, for example, the automation of expense reports submissions – the public sector lags far behind best practice, with just 25% electronic submissions compared to 65% in the private sector and 84% in World Class companies. So, despite the fact that the public sector might be spending proportionately the same as the private sector – it lags in implementing the kinds of automation and self-service practices that are producing results for some of the better private sector companies. Drilling down into the numbers, The Hackett Group finds that transactions performed electronically compare as follows: Remittances applied: the public sector ranks alongside the private, and about 20% below the levels of what The Hackett Group deems World Class. The public sector compares well. Supplier purchase orders: the public sector trails the private sector somewhat (Higher education slightly underperforms the public sector here), and is significantly underperforming (by roughly half) World Class companies. Supplier payments: the public sector trails significantly behind the private, and again operates at just under half the level of World Class companies. Management reports distributed: the public sector is on par with the private sector, but still lags World Class companies by roughly a third Employee expense reports submitted: this area exposes a great opportunity cost in the public sector: – it significantly lags behind private sector companies (by about two thirds) and World Class by about three quarters Employee Benefits enrollment – the public sector compares relatively well in this area, yet still performs about 20% under World Class levels. As The Hackett Group demonstrates, there is an undeniable correlation between increased technology automation and decreased costs (see below) and this is where the public sector is failing to generate the return on investment: Procurement: limited by focus on transaction Within public sector procurement, technology investments tend to be overly focused on non-value-adding, transactional work instead of sourcing and supplier strategy, where real savings can be found, explains Anthony. As a result, the public sector has a much higher ratio of Purchasing Order FTEs per billion dollars of spend than the private sector or World Class companies (by a factor of 5). "The public sector would, in fact, derive significant benefit from allocating more FTEs to supplier management & development, and sourcing & supply base strategy, where it currently operates at FTE levels that are less than half the private sector’s and nearly a third the level of World Class companies," Anthony says. An increased focus on these areas would deliver the double whammy of reducing the absolute number of suppliers and eliminating suppliers that are contracted for one-time materials/service. This would result in better terms of payment and reduced total spend – "Both of which positively impact working capital", Mark adds. In conclusion, The Hackett Group has a number of recommendations for public sector entities to raise their game: Although technology investments are in place, the public sector is lagging in the extent to which it has refined processes and delivered technology benefits. Outsourcing is still relatively rare in the public sector, and warrants consideration from a cost and performance perspective, especially where provider scale advantages could be capitalized. The public sector is spending too much of its investment (time, people, money) in transactional work. It would benefit significantly from reducing the time spent on transactions and increasing its focus on value delivery, for example by maximizing supplier relationships and enhancing talent programs. Best Practices for Getting Returns on Technology Investments: project management office runs IT implementations cost-benefit business case is used as a discipline to manage IT investments; ensure process consolidation where possible single platforms with little technical diversity; centralized database and few applications If you want to see how the public sector compares across functions, click here to see a one-page summary of HR, Finance, Procurement and IT performance. More information on The Hackett Group

IT Investment Isn't the Problem – Poor Project Management Is

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