Why OMB is heading down the wrong path with shared services

The federal government needs to rethink what it is doing with financial management shared services. Why? Because the current effort does not promote competition among financial system providers and without competition there will not be innovation.

Is there hope? In January, the Department of the Interior announced that it had completed migration of its financial systems to the cloud, the first federal agency to make this move. And it got me thinking, why aren’t other agencies and federal shared service providers planning their own transition to the cloud?

The answer is complicated, so a history lesson might be in order.

Mike Hettinger argues that OMB's approach to shared services needs fine tuning.
Mike Hettinger argues that OMB’s approach to shared services needs fine tuning.

On June 28, 2010, a memo from then-OMB Director Peter Orszag (M-10-26) halted all new investments in financial systems projects and upgrades. And then on March 25, 2013, a memo from then-OMB Controller, Danny Werfel (M-13-08) directed all executive agencies to a shared service solution for future modernizations of core accounting or mixed systems. Follow on policy has identified four federal shared service providers (SSPs) at the departments of Transportation, Treasury, Agriculture and Interior, as the only options to which agencies may migrate. Sadly, none of these four FSSPs run cloud-based systems. Interestingly, the federal government’s cloud computing strategy was released on Feb. 8, 2011, after the memo halting new financial system investments but over two years before the memo directing agencies to shared service providers.

Confused?

Let’s see if we can figure it out. First off, you need to understand that the vast majority of the federal government’s financials run on some variation of Oracle’s legacy e-business suite, or “EBS.” EBS was first introduced to the market in the early 1980s. The most current version, Release 12, was introduced in February 2007. EBS is a collection of enterprise resource planning (ERP), customer relationship management and supply chain systems. The ERP line includes financial management (FM) and human capital management. Other companies such as SAP, CGI and a handful of smaller companies provide similar software to the federal government, but Oracle is the dominant player. Other than required maintenance, little has been done to upgrade these systems in years primarily because of the OMB memos described above.

So the government halted investment in financial management technology almost six years ago and as a result hasn’t taken advantage of cloud and related advancements. No big deal, right?

Actually, it’s a huge deal, and here’s why. Technology has come a long way since the last version of the federal government’s financial management software was released in 2007.

Don’t believe me? Let’s look at what else was introduced in 2007: first and foremost, the very first iPhone (i.e. the world’s first smartphone). I am sure that all of us are still carrying around our original iPhone, right? Well, no, because there have been six new versions introduced in the last nine years, along with nine new operating systems.

The iPad didn’t debut until Jan. 27, 2010, and if you said “cloud” in 2007, you were definitely only talking about the weather. What’s my point? It’s time for an upgrade.

The Department of the Interior proved that leveraging the cloud is an option in financial management, and rumor has it other agencies are thinking about similar moves. But here’s the disconnect: The four OMB-approved FSSPs have no plans, to my knowledge, to move any operations into the cloud – not even Interior, which runs its own FSSP and just moved its departmental FM system to the cloud.

Yet by OMB directive, the FSSPs are supposed to be the backbone of the U.S. Government’s move to shared services, with plans for multiple large cabinet level departments to migrate to these FSSPs in the next few years.

We know these FSSPs don’t have the capacity to handle these large agency migrations (probably why Interior went to the cloud and not its own FSSP), so why aren’t we looking to cloud and other innovative solutions and ensuring there is competition at the shared service provider level? The answer is unclear.

As Interior has shown, there is room for innovation and cloud technology in financial management, and we should leverage it.

So here’s my idea: why don’t we take a step back from what is currently being proposed for federal financial management and get the financial management modernization in line with the rest of the federal government’s (and the world’s) move to the cloud.

This means OMB should rescind Memos M-10-26 and M-13-08, open the market to new entrants, stop the lift and shift, mandated move to FSSPs and their decade old technology and begin the strategy anew focused on providing innovative cloud-based financial management solutions to federal agencies. If we don’t rethink the current effort, we are wasting time, effort and taxpayer dollars on legacy technology.

Do it now before we start speaking of today’s financial management software in the same vein as we talk about the dreaded COBOL systems currently.

Mike Hettinger is the president and managing principal of the Hettinger Strategy Group LLC.

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