UNIT4’s central UK government deal implies a shift in thinking around shared services

unit4 screenHot on the heels of winning an important deal with other government departments and pivoting its own business model, UNIT4 announced its first central government shared services deal, this time as the solution provider to the Department of Transport. The deal, which is rumored to run low eight figures over the life of the services agreement, sees UNIT4 make its first major strike against the SAP/Oracle hegemony.

Arvato, a German business process outsourcing provider is the main contractor in the seven year arrangement. It is the first time that the UK government has chosen to outsource a shared service center to the private sector.

According to Information Age:

The “planning assumption” of the project is that other government departments, including Culture, Media and Sport and the Department for Communities and Local Government, will in future also use the outsourced function as a shared service.

Commentary

This is an important deal at multiple levels. Here’s why:

  1. The accepted SAP/Oracle hegemony is now under question. Calls to Oracle partners suggest they believe the UK government will never be able to get away from using their software because they are so deeply entrenched within government. Only recently, it is said that Safra Catz, Oracle president cut a substantial deal with government over payroll upgrades. The Arvato deal puts a question mark over those assumptions.
  2. While UK government might well continue to award large contracts to the ‘usual suspects,’ the planning assumptions outlined above suggest a different strategy that gives a seat at the table to smaller, more nimble and cost effective alternatives. In essence, those large contracts will now come under increased scrutiny.
  3. None of the parties to this deal are disclosing costs or anticipated savings. This should not surprise given the UK government’s long history of failed or expensive projects. However, UNIT4 does have a track record of success in this area. In Norway for example, it has 115 departments running off a single shared instance. In Australia, it counts Queensland as a success, contrasting with IBM and SAP’s recent troubles at Queensland.
  4. UK government has set itself a stretch goal of £600 million in IT savings over the coming years. Sources say the low end of expectations is in the £128 million range. Much depends on the ability of departments to learn from project success and collaborate with one another. That is always difficult where politics are involved. However, the changed mood suggests that in the UK at least, government is determined to wring significant change out of its IT investments. Whether this translates into strong growth for firms like Arvato and UNIT4 remains to be seen.

2 thoughts on “UNIT4’s central UK government deal implies a shift in thinking around shared services

  1. Dennis, I find it interesting that UNIT4 got this deal not by directly selling to the UK government, but through a BPO provider (Arvato). As you know, many large enterprise software projects at governmental organizations have not gone well. Perhaps working through a BPO provider–who is totally vested in a successful outcome–will lead to a more positive outcome.

  2. Shared services for government financials has had a higher failure rate than general shared services such as e-mail. My sense is that shared services using tier 1 ERP has been very difficult because of the high burden of customization. Governments looking to create a shared service from multiple organizations often have to rationalize multiple customized versions.

    Unit4 appears to have more flexibility than the tier 1 providers. Hence, there is a higher likelihood for success in this situation. However, there remains additional problems that can be encountered:

    1) Process rationalization and the creation of standards to be used across organizations often introduces inefficiencies where some parts of the organization are forced to use unnecessary complex processes that are necessary somewhere else.

    2) Project governance becomes more complex. Needs have to be rationalized across multiple organizations.

    3) SLAs can become difficult because organizational units will demand better services from a shared services vs in-house facility.

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