IT giant fined € 21 million after SVB fiasco
Some of you might have seen recent news reports about the unprecedented penalty levied against a multi-national consulting and technology giant, which led to the termination of a major ICT project, by SVB the Dutch pension agency. In a report to the Dutch Lower House, the responsible secretary for the agency submitted, as follows:
“ there was a big difference of opinion about the quality of software delivered to SVB. The software contained too many imperfections, and in some parts complex and difficult to maintain, and also the system proved unstable when tested.”
The report also states that some of the software was written in India, which could be true, but is not the primary reason for the failure of this initiative. I would like to take this opportunity to explore the fundametal problems with big-bang government ICT initiatives, and the reasons for their failure.
Big-bang government ICT projects – failure is the norm, not the exception
What happened with SVB is neither an exception nor aberration. Unfortunate reality is the fact that failure of big-bang government ICT projects is the norm. Most ICT projects initiated by public agencies end up in massive delays, cost overruns, and fail to meet the business objectives stipulated in the contract. Over the past decade, numerous Dutch government agencies including the Tax Office, UWV, Defense, and Justice have all spent hundreds of millions on ICT projects, that either failed or mal-functioned. The following chart shows the breath-taking magnitude of the failure of government initiated ICT projects.
Antiquated ICT strategies
There are a multitude of reasons for the catastrophic failures, inordinate delays, and mind-numbing cost overruns of ICT projects. Some of the key reasons for this precarious state-of-affairs are listed below:
Big-bang approach: I strongly believe that a big-bang, transformational approach of government and public agencies to ICT projects is one of the biggest reasons for their failure. The notion that we think that we know all the requirements upfront prior to the start of any initiative, leaves little room for discovering the real system or user needs, and any scope change will have a cascading effect in terms of cost, time, and delivery. Also, such an approach makes it very difficult to adopt new or emerging technologies, respond to evolving requirements, and fails to prioritize as the final delivery is in a distant horizon.
Project-driven mindset: The challenge starts from the conceptualization and visualization of the ICT project itself. The typical public-procurement approach of government agencies will be to initiate a RFP process, which tries to define everything from vendor selection criteria, application requirements, performance goals, timelines etc. Very often, getting out the RFP and defining the scope, deliverables, and specifications becomes a herculean challenge of its own. In a fast-changing landscape, where complex software is continuously evolving, any attempt to freeze the requirements, scope, and timelines for multi-year long ICT projects, is doomed to fail. Assuming that building software products of this magnitude can be approached as a one-off project with a clearly defined end is wrong.
Seeking safety in size: There is often an unfortunate tendency to seek safety in size. Sad reality is the fact that big-name, size, or past track-record is not an indicator of ability to deliver in the current context, as every complex ICT project is unique. The truth of the matter is that in todays world it is not big vs small anymore that will make the difference. It is all about slow vs fast. It is all about who can offer more innovative, flexible, collaborative, and cost-effective services. Often small in this respect is better then large.
Cheap can be expensive: Exclusive focus on cost-savings is another major reason behind the failure of ICT projects. There is ample empirical evidence to indicate that what appears cheap in the short-term, can be expensive in the long-run. Bidding with a TOP-line perspective, and submitting a low-ball offer for winning the bid, with the implicit assumption that scope creep, and inevitable delays will provide opportunities for back-loading and cost inflation. This is all possible using a project-driven approach. If the vendor is selected on the basis of initial-cost projections, then it is safe to assume that in the absence of payment-linkage to business value delivered, the final cost incurred will be in multiples of the initial estimate.
Failure of governance: In traditional ICT outsourcing projects, contract management and inadequate governance are some of the biggest risks. Thanks to the rigid nature of engagement, the relationship with the vendor is often governed by the contract and overseen by a top-heavy management structure. This leaves very little room for developing trust and transparency between the execution layers of the client and the vendor, which are so essential for the success of any complex project.
Innovation must be rapid, continuous, and evolutionary
As I have outlined above, propensity for big-bang transformations, antiquated sourcing strategies, and wrong starting assumptions are some of the key reasons for the failure of complex ICT projects in the public domain. With our impeccable track-record of helping numerous technology companies to scale up, we have the perfect recipe to address this challenge, and put public ICT initiatives on a firm foundation to success, as described below:
Rapid and incremental approach: One of the biggest changes that must happen is getting rid of the propensity to launch big-bang, multi-year, transformational ICT projects. Instead, it must be replaced with a mindset that any technology innovation must be rapid, incremental, and continuous. Emphasis should be to start small, demonstrate quick results through pilots and POCs, validate assumptions, prioritize key needs, and focus on building modular solutions that can deliver continuous value. This should be reflected not only in execution, but also in conceptulaizing modular solutions with flexible, and scalable architectures.
Product-centric mindset: Adopting a product-centric approach to developing complex ICT solutions will enable discovery of real requirements as they evolve, as opposed to trying to solve perceived needs. A product-centric approach will also nurture a culture of experimenting and prototyping, which can be invaluable in making the right technology choices, and validating the solution direction, very early in the life cycle, before committing scarce public resources. It will enable building a continuously evolving system with intermediate deliveries, that will be useable on its own, and start of subsequent phases will be initiated after re-evaluation of the next phase of requirements. At a more fundamental level, this will bring about a transformation in the whole gamut of project conceptualization, RFP, sourcing, and vendor management processes.
Co-innovation and partner ecosystem: The traditional customer-supplier model for ICT services must be ditched, as it is absolutely unsuitable for technology-led innovation, and must be replaced with collaborative multi-sourcing, and long-term strategic relationships with best-of-breed partners. This calls for a fundamental shift in mindset from sourcing to collaboration and partnerships. This also places a premium on integrity, competence, and compatibility of the partner, and not on size or splash. This will also eliminate the need for complex contracts, and over a period of time, the relationship will drive the engagement and deliver tangible business value.
Transparent governance and periodic assessment: There should be a transparent and robust governance mechanism to periodically assess and evaluate the effectiveness of any major ICT initiative. At a minimum, a quarterly review and assessment must take place to ensure that any ICT initiative is on track in realizing intermittent milestones, meets the quality and performance criteria, and is within targeted budgetary and delivery timelines. Also, the transparent nature of engagement will ensure that key stakeholders from both sides are involved in making all important decisions, and are not blind-sided by any unforeseen eventuality.
Risk-sharing and outcome-driven: The shift to a collaborative model will also mean that there is an equitable sharing of risks and responsibilities. There could be a fair-and-balanced model of financial payments tied to meeting the intermittent milestones, which incentivizes the relationship from both sides.
In a rapidly changing technology landscape, big-bang, project-driven, transformational ICT initiatives are doomed to fail. An incremental, evolutionary, collaborative, product-driven approach will deliver rapid innovation, and help avoid the pitfalls of cost overruns and catastrophic ICT project failures.