Keynote address
Govt Procurement Summit – National Convention Centre
Canberra 18 February 2003
E-Procurement alternatives and barriers to entry
With over 1.1 million Small to Medium sized businesses currently registered in Australia, employing some 3.3 million people, it is essential to take stock of the capabilities of SMEs to engage in and benefit from government eProcurement strategies.
Governments must therefore lead by example, to encourage the adoption of e-commerce by small business. This includes Business to Government, Business to Business and Business to Consumer transactions. The Governments represent biggest single purchasers in Australia so they are uniquely placed to be technology change agents.
ABS for the period 2000/01 released information pertaining to the business use of information technology, which indicated that only 54% of businesses with the employment size of 0-4 people access government services. This figure increases to 86% for businesses who have in excess of 100 employees.
Why is this? Well their experience with online services to date has influenced take up. If these really small micro-businesses have one bad experience, they are far less likely to persist. Experiences such as the early problems with the implementation of the GST and the nightmare BAS forms are an example. This was a golden opportunity for the Government to generate goodwill and support for online services in the micro business community, some of whom were using a computer for the first time. But what a debacle it turned out to be. The Tax Office software download didn’t work. All those small businesses trying out a government online service for the first time were now once bitten, twice shy.
The Coalitions’ lack of foresight has prevented e-government services from reaching their potential. I say this because I believe that Australia could be the best in the world delivering e-government to citizens.
Australia has the pre-requisite strengths to achieve this goal: internet usage rates, early adopters, solid base of disparate online services within government at the various levels, and most importantly the creative talent and vision amongst our people – with ICT Small to Medium enterprises at the forefront of this innovation.
A recent study into the uptake of e-commerce by SMEs indicated that there is a need to;
…seek greater co-ordination of training and education activities, greater co-ordination of government initiatives in IT areas, and more focussed provision of information in an effort to reach more SMEs more effectively.
According to the Yellow Pages e-business report the issues surrounding security remain of primary concern to SMEs. Some 42 percent of e-commerce orientated businesses reported Security as a major issue and 36 percent identified lack of personal contact is still an issue.
Published Visiting Fellow to the Australian National Univerisity Tom Worthington points out in his paper Making sense of developments in eBusiness, eCommerce, ePublishing and eLaw that the 2002 Yellow Pages E-business report suggests that small businesses aren’t adopting more than e-mail and simple web sites because they can’t see how to make money out of it.
He recommends that SMEs be given a solid case, which shows how to reduce costs or increase profits with e-commerce. Offering complex, unproven new technology, will just increase business skepticism. Another area is the skills and confidence to use the technology. Most small business people are extremely busy without the time to invest in new skills or time to get comfortable to do things new ways online, and this makes changing work practices around new technology even harder.
Until issues such as these have been addressed SMEs will not advance any further into the realms of e-procurement under the current model
Unfortunately the government responsible for implementation of in E-Government is the same government that dreamt up the whole of government IT Outsourcing initiative which effectively excluded SME’s through the structure and complexities of its tendering processes.
Industry development and the contributions of SMEs have been shown less and less priority, so it comes as no surprise that the introduction of government strategies concerning e-Government are not providing the uptake rate with SMEs that the strategies forecast in the Commonwealth Electronic Procurement Implementation Strategy 2000.
Yes, E-Commerce activity among SMEs has definitely increased, but the approach must be all encompassing, realising that many SMEs are not ready to exclusively deal in e-commerce. This is not because they are backward, but because they are busy, because they don’t have the time to develop the technological skills to deal with situations such as the GST BAS forms problems.
A report written last year which took its sample primarily from Small to Medium Enterprises titled - e-procurement Practices: An Australian Survey 2002, gave an excellent insight into the e-procurement practices of some 38 businesses surveyed.
It was found that a majority of companies in the survey predominately utilise facsimile and mail as the transaction medium for their procurement function. It was also found that most of the surveyed companies relied on one medium for the majority of their transactions.
When businesses surveyed were asked about the future intentions in relation to e-procurement, the results indicated that while they were intending to move away from mail, fax and telephone based transactions, the companies did not foresee a change in the next 12 months.
This report, perfectly encapsulated the major barriers facing SMEs today: Inadequate technological infrastructure; lack of skilled personnel and lack of integration with business partners. For example, in many cases, e-business software is designed for larger companies with computer support staff.
But all these issues point the finger to the SME. This is only half of the story. If Government purchasing policy is failing SMEs, then this policy much be improved. The endorsed supply arrangement (ESA) managed by the Department of Finance and Administraion (DOFA) is almost a farce. The complexities to become an endorsed supplier are rigourous, but there is no less complexity in subsequent tendering as an endorsed supplier.
Some of the problems include:
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Contracts are becoming more complex – not less so; |
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Tender specifications demand capability way beyond actual requirements; |
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Time frames to respond to tenders are absurdly short; |
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Professional indemnity insurance is unreasonably high. |
Each of these issues must be addressed before SMEs will even begin to look at increasing their participation in E-Procurement.
So given this information, what are the alternatives?
Government must provide services to online and offline citizens alike. Why? Because they are citizens, not customers or consumers and they are entitled to service.
SMEs are corporate citizens, so they deserve the same service, off and online too. Government e-procurement should aim to be so compelling, easy to use and practical, that the service ‘pulls’ business in. This is a far better model that having a lesser service that forces businesses to use it because there is no alternative. It is eqauitable and it means the services need to respond directly to the needs of the ‘market’.
So when I talk of innovation and being the best in the world in e-government, this has to occur in tandem with the traditional means of delivering services. At least for a generation, whilst ever there are people who are not online.
In the circumstances faced by SMEs, it is easy to see they are flat-out coping with just responding to an RFT, let alone getting creative. This is a hard reality to many in government who are used to promoting technological innovation as a way to cut costs.
The first lesson is to understand that technological innovation, like the internet, does not always equate to direct or immediate savings. As I said, for at least a generation, there will need to be dual mode of service delivery. This means the investment in a web presence is likely to add to the department’s annual expenses.
The National Office for the Information Economy states that;
E-government will involve the transformation of government service delivery through the appropriate use of new technologies. This phase has the potential to provide better customer focus and access, greater availability of information, improved business processes, and efficiencies. It will improve the lives of Australians by delivering better government and better services to citizens and businesses.
NOIE goes on to say that;
New technologies, however, are only part of the solution. While they provide the tools or ‘enablers’, it is the transformation of the business processes of departments and agencies that will deliver the benefits and outcomes.
By stating the obvious – the government has committed itself to be responsible for the advancement of e-procurement as part of its overall Online Strategy – which of course includes Small to Medium Enterprises.
However actions speak louder than words and with the government undermining the importance of the use of new technology among other things, it also fails to address the concerns of SMEs.
The Report and action plan by the SME E-Commerce Forum Taskforce into the uptake of e-commerce by SMEs mentioned earlier, quite clearly states in its first pages, that;
Government Intervention at all levels, could play a major role in accelerating the up-take of e-commerce by SMEs.
The message from this is that SMEs needed to be led into faster adoption of electronic technologies for business activities.
They needed support, assistance and, above all, leadership – with peer group influence playing a major role.
Creating opportunities for Australian businesses to sell their products and services to all tiers of government is both worthy and important and critical to our economy. Government business is potentially a reference site for small companies to grow and export. They are more than just a capability register.
However, experience to date shows us that to impose technological procurement processes like a web-based e-procurement strategy on an unprepared local small business sector will have a negative effect.
The challenge lies in the use of suitable technologies and processes in order to meet the needs of its clients – the citizens of Australia – which includes SMEs.
And it must be emphasised that Government departments cannot put a bad system online and expect it to become a good system. Getting SME procurement systems online must be taken as an opportunity to review the processes and get them right before they enter the world of e-commerce.
Under the Australian Government Online Strategy, all Federal Government departments and agencies were required to ensure that all appropriate services were made available online via the Internet by December 2001. Progress against these targets has been patchy at best, but I give credit to those who have driven their online agenda in difficult circumstances.
However the real challenge lies beyond just migrating existing services into online services. It is about transformation of government through the intelligent use of technology.
This current government has been negligent in its slowness to realise that IT and the internet are completely central to the core business of government.
To make matters worse, the Coalition engaged in a particular style of outsourcing that not only transferred all the technology assets into the hands of the vendor, but managed to shed the corporate knowledge and essential technical expertise as well.
This rapid loss of capability in the public service has contributed to agencies and departments becoming ‘captured’ by their vendor.
Many Departments and Agencies trying to improve their online services are doing it in this environment. They are having to build a web offering that are not interoperable with the legacy systems.
But even if they [the departments] have the worlds best web interface for their procurement needs, DOFA and legal advisors to them, ensure that their view prevails.
This is where real change needs to occur. Genuine standard clause contracts, and realistic professional indemity for SMEs are key to this process. As is the importance of having the response to RFT timelines geared towards ensuring SMEs can participate. They must have an ESA that cuts tender red tape, or don’t bother. There should be no ambit in specifications and payment received in 30 days.
These are some examples of what government can do. We have heard for years what SMEs are capable of, it is now time that the government meets their challenge.
The other issue here is about the qualitative nature of tendering, knowing your clients, and knowing your partners. It is about the people and not having the important qualitative approaches stripped out of the process.
The irony is that Australia boasts the best small and medium sized enterprises in software and digital content creation and yet the opportunities for them to secure prime government contracts has been far too rare.
Finally, I would like to conclude on a related area of opportunity. Open source software should begin to get some oxygen in government: its strengths in crucial areas such as security.
Open source software is backed by a system of peer review – the toughest test for building secure software is to have the code open and out there for anyone to try and breach it.
The source code can be accessed by anyone seeking to exploit security flaws, and it can be accessed and modified by anyone seeking to fix security flaws.
This in turn leads to greater trust by users in the software – cited as THE major issue for Small to Medium Enterprises. With open source they know what they are getting.
The adoption by the government of such strategies would be twofold. Not only do ICT SMEs have the skills and industry knowledge to develop and implement open source solutions, but it would greatly enhance the capabilities of SMEs to participate in eProcurement.
How novel – that ICT SMEs could be utilised in implementing e-procurement for other SMEs!
Australia can take the lead on eProcurement, but it needs strong leadership and good solid policy which makes sense to small business.
Exciting and innovative technology is what ICT SME’s do best, remembering that innovation and being the best in the world in e-government, has to occur in tandem with the traditional means of delivering services.
Strategies in these areas must be phased in, education provided and support and encouragement must ensue if SME’s are going grapple with the myriad of issues surrounding dealing the with government and indeed other business in the form of e-Procurement across all industries.
