Government ICT: Letting in the New Zealand SMB

g-cloudOne of the continuing complaints by small to medium business in New Zealand is the “locking out” of government tenders in the ICT area. Large contracts that are signed often still go to global multi-nationals at great expense while the process of responding to a tender is onerous for a SMB.

As we know, the Wellington ICT company directory is impressive, with just a small smattering of companies showing at Wired Wellington last month with John Key. It’s not just Wellington either. Christchurch and Auckland have their own burgeoning ICT companies.

These are companies that are making more money in the export stakes than they are at home. They tend to be extremely innovative, share ideas with each other in common forums, and don’t suffer the problems that a large multinational brings.

So why don’t they get a look in? There are a tonne of reasons.

We are coming out of the decades of buying large back end enterprise systems from the IBM’s, HP’s, and Oracle’s of the world. Twenty years ago the mainframe, mini, and large open systems arena dominated ICT however as we’ve become more distributed, started the move to Cloud, and away from proprietary systems we don’t need to limit ourselves to that purchasing limitation anymore. Simply, twenty years ago, there were very few local ICT companies that could do what was needed.

These days that’s changed, but the attitudes of the decision makers haven’t. There is a cultural hangover, driven by an older generation possibly, that is still fixated with the large multinationals. They believe it is too risky to bank on a local ICT company as opposed to a global giant. So what’s wrong with that attitude?

Firstly, all that money goes offshore to another country. That makes it super expensive in comparison to local offerings and open to currency fluctuation. We also know that the amount of tax they pay is often “fiddled” with a New Zealand operation funding overseas activities to reduce tax exposure. I worked with a large multinational that used the New Zealand operation’s revenue to almost fully fund their overseas marketing bills in Asia Pacific. They paid almost no tax here at all. That’s quite common.

Further, the contracts are onerous and one-sided. Good luck getting any multinational to agree to any kind of contract terms that leave them with liability should they screw something up. They see the world through legalistic eyes and are simply here to do one thing, get our cash.

IBM, Oracle, HP, and other large multinationals are in trouble. Cloud is starting to eat around the edges of their profit making and they are too heavy and slow to respond adequately. This means that the technology they are selling is often proprietary, older, more expensive, and less flexible than new sets of services coming through.

If we are serious about keeping our data onshore, then we shouldn’t be buying from overseas companies. Again, they will move to a full deployment model for Cloud eventually (Microsoft is likely to be the first to achieve this), which means that if we want to buy those services we’ll be forced to offshore our data. Oracle is a classic example of this. They are still hell-bent on getting their customers into their “Cloud”, what appears to be a deliberate lock-in attempt while probably trying to recoup some of the massive cost of their Sun acquisition.

Finally, the cost model is horrible. It’s expensive because the local salesman clips the ticket on the sale, then the country manager, then the regional manager, then the VP’s, then the shareholders, and so on. Keeping all them happy drives margins of 90% on average.

That revenue pressure drives a particular behaviour. Selling you stuff you don’t need. In a desparate effort to meet quarterly targets multinationals will oversell hardware and software relying on a mix of fear and over-engineering solutions.

The difficulty for local companies is competing against multinationals is that multinationals are happy to drop their pricing by 85 basis points (you know who you are) in a dutch auction to secure a locked in contract.

Worse, the government contracts are ridiculously complex, driven by the legal department who think they understand ICT, they often included breach clauses which would simply drive a local SMB broke if invoked let alone the amount of money needed up front to try and get advice.

There are no standards in government when it comes to purchasing. While we have had the Government Supply Board for a long-time, large agencies and the DIA have moved to try and create their own standards in a scattered “All of Government” model. Of course, the competition between those agencies is legendary with rumours of referees needed at interagency meetings in some cases. The “lead agency” model is flawed due to the administrative overhead and cost recovery demands on participating agencies.

Internationally the model we should be moving toward is the United Kingdom G-Cloud or the United States Fedramp. The G-Cloud is not just for Cloud, it includes a host of ancillary ICT services and related products that government agencies can purchase and because the process is standardised and open, the SMB is taking great advantage of it. The G-Cloud also has something else on its side, the UK Politicians have made it a requirement for agencies and have also supported making it easier for the SMB to do business with government.

Effectively, once approved by G-Cloud you can put your products up into a Cloudstore once you’ve achieved an accredited status, in fact, for those of you that are interested, you can see it in action here. Agencies are then strongly encouraged to consume those services via that method.

And you know what? It’s working. More and more SMB’s in the U.K. are getting access to the government ICT space.

In the U.S. its known as Fedramp and is more related to Cloud.

Now this method works. Because it gets rid of all the individual agencies and their various contracts and legal constructs and drives them through a single, standard framework, that is administered by an independent government body giving a) great transparency, b) the inability for bad deals to be done, and c), as a result, excellent probity.

That model could easily work in New Zealand. It would unlock the government space to the SMB, provide a standard process for the contract & legals, accredit ICT Companies once, reduce the risk of continuing to feed our addiction on overseas proprietary driven multinationals with massive lock-in, unlock innovation, and save a tonne of cash.

The best part is that because the U.K. Government has already done it, we don’t have to reinvent the wheel. In fact, why isn’t our Government asking the U.K. G-Cloud to manage our own New Zealand G-Cloud? We’re tiny in the scheme of things, they are a strong relationship, we could outsource the entire business of accrediting SMB’s and purchasing ICT services via their service in eighteen months.

Sadly, that kind of forward thinking is missing from the local environment, which is chaotic to say the least. Rumours still persist that Treasury will take the ICT Capital Budgets from agencies in the next year or two, effectively requiring agencies to justify all ICT spend of significance from a bunch of bean counters out of a massive bucket. Here’s hoping that isn’t true, it would be a disaster of the highest order.

The reality is, that with a Cloudstore like G-Cloud, we could invest in our local SMB’s (who quite frankly are better at ICT than most of the multinationals), while saving money and setting our ICT strategy on a good path forward.

Now. All we need is a leader…



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