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ASP implementation of ERP for the Macedonian Government

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					ASP implementation of ERP for the Macedonian
Government
From fiction to reality

Mijalce Gjorgiev
Faculty of Economics – Skopje
University “Ss Cyril and Methodius”
Bul. Krste Misirkov bb
1000 Skopje
Macedonia
mijalce@eccf.ukim.edu.mk
Mijalce Gjorgiev is Junior teaching Assistant for group of e-business subjects at the Faculty of
Economics - Skopje. He earned his Bachelor of Science in International Marketing Management at
the Fontys University from Eindhoven, The Netherlands in January 2003. He is enrolled on MSc in E-
business at the Aberdeen Business School, at the Robert Gordon University, Aberdeen in Scotland.

Abstract

Analysis of the current situation and readiness of the Macedonian government for e-government. Assessing the
appropriateness for ERP and ASP in developing E-governemnt and at the end identifying possible problems and
issues in the implementation of ERP through ASP. Offering a model and process for implementing ERP through
ASP in the Macedonian government.

Keywords: e-government, ASP, ERP, Developing countries,



1. Introduction
Macedonia is young country, established in 1991. Since then it has had to establish a structure and
an administration through which the country can be governed. Macedonia is working towards this with
100.000 employees, supported by a legacy system of public administration that is generally suited to
fit the pre-democracy years. Furthermore, accession to the European Union, economic integration
with Europe, integration into world economic trends and co-operation with international financial
institutions has had a strong influence on the start of this reform. For this reason Public Administration
Reform was started in 1999 to further the development of the democratic society and to support the
                                     1
development of a market economy.
To achieve public administration reform the Macedonian government needs to downsize the number
of employees, redesign processes, improve services, offer more services over the Internet and take
into account that the country’s administration should function like those in developed countries.

2. Aims
The aim of this paper is to see is Application Service Provider (ASP) appropriate for the Macedonian
government through it to reform its administration process, redesign it and start offering its services
online.

3. Methodology
Through an extensive literature review I identified articles that should help me understand the
functions of the government, the problems the Macedonian government is facing, understand and
critically evaluate the ASPs and identify the process of ASPs business application in the Government.
I found these articles through a computer research of databases of published works in the area of E-
government, ASPs and ERP (Enterprise Resource Planning). The goal was to find at least two
articles that will explain and discuss one issue.
To gain knowledge and analyze the current situation in the Macedonian government I used the
reports and surveys conducted by various consultancy houses and the Macedonian government.

4. Business situation




                                                     1
Governments have developed processes and systems through which they serve the citizens and
govern the state. These processes have been operational for a long period of time. But, in the past
decade, with the emerging of the Internet and electronic communications, the governments wanted or
were pressured to move forward, towards E-government. “E-government is the use of information and
communications technologies (ICT) to transform the government by making it more accessible,
                           2
effective and accountable” , also “E-government is the use of information and communications
                                                                                   3
technologies and particularly the Internet, as a tool to achieve better governance” . Macedonian
government has also identified E-government as their priority through the strategy for E-government
                                                                 4
prepared by the Commission for Information Technology (CIT) . The ICT priorities within this strategy
are:
     - Lowering the costs for the public services
     - Increasing the efficiency of the government bodies
     - Intensifying the productivity of the public administration employees
     - IT solutions for increasing the agility of the administration
     - Increasing the effect of the IT investments
                                                                                                5
Macedonian Government has developed this strategy but the current situation is as follows :
    - only 3 million dollars from the budget is intended for ICT (it is not clear for what the money is
         intended for – cartridges, printers, paper, staff salaries or for investments in the infrastructure
         etc)
    - some ministries do not have IT budget
    - lack of Intra-governmental coordinated approach to IT
    - majority of the processes are paper-based
    - little or no (1) joint planning or joint buying; (2) shared resources or obsolescence planning;
         (3) common standards, applications, and tools; (4) standardized tender documentation; or (5)
         planning for a GOM-wide Enterprise Architecture
    - Small percentage of employees are IT trained
    - “Digital country divide” between the capital city Skopje and the other cities
    - CIT has been unable to fulfill its mandate, largely as a result of organizational, budgetary, and
         task- delegation problems.
    - Hard to keep high quality IT experts
    - IT market in Macedonia’s private sector is not stable enough to permit significant outsourcing
                                                                                             6
Due to these reasons, Macedonian e-government is in the enhanced presence phase which is
characterized by: increase of the number of official websites; frequently updated content consisting of
more dynamic and specialized information; sites linked to other official pages; availability of
Government publications, legislation, newsletters; availability of search features, and e-mail
addresses. Macedonia wants to move towards Transactional Presence phase characterized by
complete and secure transactions like obtaining visas, passports, birth and death records, licenses,
permits where a user can actually pay online for a service, pay parking fines, automobile registration
fees, utility bills and taxes; digital signatures may be recognized in an effort to facilitate procurement
and doing business with the government; presence of secure sites and user passwords.
                                                                                  7
In order to reach this phase, Macedonian government has to transform itself . One of the aspects
which should be transformed and reformed are the processes and the relations between the governed
and the governor. The first step in this reorganization should be to streamline and consolidate offline
administration processes before putting them online. This is part of the core disciplines of E-
governance framework are:




                                                     2
With regards to the purpose of this paper and the space available, I will focus on the E-administration
and try to propose a solution through which the transition can be performed. In that process, the
following issues will be taken into account:
     - Macedonian Government has old paper based legacy systems
     - Low IT (E-government) budget
     - Poor IT infrastructure and interconnections
     - Hard to attract high skilled IT personnel
     - Employees have insufficient IT knowledge
     - Macedonian IT sector weak for outsourcing

5. Business application

The Macedonian government needs to leap-frog from old paper based system to the new one to
improve its administration and to move towards e-government. In order to do this, it has to work on its
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back end system, not visible from outside. Operations that are included in the back office and should
be taken in the selection of the business application include:
    - Organizational change
    - Leadership
    - Central coordination
    - Collaboration
    - Ensuring skills
    - Public-private partnership
    - Managing risk and cost
    - Monitoring and evaluation

The business application has to provide all of the above or most of it in order to be considered. From
the literature review and analysis which I have conducted, the only solution that has such coverage is
Enterprise Resource Planning (ERP).
In continuation ERP is appropriate because of:
     - (Organizational change ) “do it all” system that performs everything from entry of sales orders
          to customer service (Shehab, 2004); Complete digitalization of the governmental processes.
     - (Collaboration) Automating and integrating business processes across organizational
          functions and locations; Macedonian government institutions are not linked and there is no
          continuous information flow between them




                                                   3
   -   (Monitoring and evaluation) Enable implementations of all variations of best business
       practices with a view towards enhancing productivity; identify the processes of the EU
       countries and select process which fit best to the Macedonian situation and implement it
   -   (Central coordination) Share common data and practices across entire enterprises in order to
       reduce errors; duplicate processes which are performed in several ministries now, can be
       eliminated and/or improved.
   -   (Managing risk and cost) Produce and access information in real-time environment to
       facilitate rapid and better decisions and cost reductions (Nah et all, 2001). It will significantly
       improve the response time to citizens/businesses requests and the inter- organizational
       requests
   -   (Public-private partnership and ensuring skills) Contract with a private vendor and outsourcing
       contract

   According Huang, Z. and Palvia, P. (2001) the ERP implementation is affected by two broad
   categories of factors: national/ environmental and organizational/ internal.




                                    Macedonian scores
Low                             Between low and medium            High
Infrastructure, Economy and     Government,                       Business size
Economic growth,                Management commitment
Manufacturing, regional, BPR
experience, Computer culture
and IT maturity

Additionally there are drawbacks to the ERP shown in Figure 1.




                                                   4
Figure 1: Drawbacks of ERP System

   -   The cost and implementation drawbacks are more significant for the Macedonian Government
       since it doesn’t have that much money, and due to political changes cannot afford long
       implementation period and the customization process may face hard resistance.
   -   Functional drawbacks. I think these drawbacks are not so significant because ERP will be
       used to enhance the functionalities and will provide functionalities that the Macedonian
       government is missing now.
   -   Technical drawbacks. I believe that there isn’t going to be a conflict between the old IT legacy
       systems and the new ones, since they have not been developed in such a large scale in the
       past; however creation of IT infrastructure that will support the ERP can be a problem and
       very costly.
   -   Usability drawbacks. The low IT related knowledge of the Government employees can
       increase the resistance towards the actual usage from the employees and create
       unpredicted delays.
This drawbacks and the framework previously mentioned are in favor of the DECISION NOT TO GO
FOR AN ERP SYSTEM FOR THE MACEDONIAN GOVERNMENT.




                                                  5
But moving towards e-government and increasing the efficiency of the government is its priority and
this process has to be done. To identify what other options are available and is Macedonian
Government capable for it I will use the “make or buy decision tree” (Chen and Sloiman, 2002), to
select the best design strategy and make rational decision about whether and what should we use.
The factors influencing the decision are: Core competence, Production cost advantages, Transaction
costs, Asset specificity, Internal Expertise, Maturity of technology, ASP value chain, Application media
fit.
The alternatives are:
Alternative A: Develop and maintain in-house
Alternative B: Traditional outsourcing
Alternative C: Outsourcing using ASP vendors
Alternative D: Hybrid solutions




                                                   Figure 2
                                                   Make or buy decision tree




The first step: development of ERP (or other IS) systems is not a core competence of the Government
The second step: Production cost advantages can be lower and transaction costs higher if developed
by the Government than having it provided by other party. The other factors are favorable.
The third step: There are vendors which offer complete and stable solutions
The forth step: the end of Telecommunication monopoly by January 2005 will create opportunity for
high application media fit.
As a result of this “decision tree” the proposal is to outsource the implementation of the ERP systems
and to do it through an ASP vendor because the Macedonian government can not do it in-house or by
traditional outsourcing.
Using the two methods we received two different proposals regarding the way the Macedonian
Government should redesign its processes and improve the services.
The main factor for successful development of E-administration is the competencies the Government
has. If the Government is not able to develop them quickly with a certain level of quality it will delay
the process, increase the old and create new problems.

From this aspect the DECISION TO GO FOR ERP SOLUTION THROUGH ASP IT IS BEST FOR
THE MACEDONIAN GOVERNMENT.


6. Other countries e-government experiences
Almost all countries in the world are developing and implementing e-government. According to the
results from the UN e-government readiness report the most successful countries in e-government
                                                                9
implementation are located in Europe and North America region . The developing countries are in
second half of the ratings.



                                                   6
E-government projects are followed by certain failure rates. Survey and poll results produce the
following working estimates about e-government initiatives in developing/transitional countries:
      35% are total failures
      50% are partial failures
                            10
      15% are successes
                                                                      11
There are several reasons why so many e-government projects fail:

First, in a manner similar to the `dotcom doom', many governments simplistically assumed e-
government to be a technology program.
Second, e-government initiatives will surely fail if they do not enjoy the unstinted support of the top
political leadership,
Third, attempts to implement e-government by merely `bolting on' a Web-enabled front office to
existing back-offices without re-engineering their internal functions and processes and without
computerization and networking of the back-offices have seldom resulted in sustainable success.

Additionally reasons for failure are: started too big, not understand what change should be made, a lot
of money was poured in infrastructure which latter was not used, development of systems that were
not used latter, additionally set of competencies which were missing.

All these reasons lead to the major reason why there was a failure of the projects and that is the
design-reality gap analysis in technology, objectives and values, information, staffing and skills,
processes and management systems and structures.

Beside this there is more and more evidence that the lot of governments and governmental
                                    12                           13
institutions in developed countries and in developing countries has used or are in process of
implementing ERP and comparison and experience sharing will be possible. The ERP is implemented
from some narrower activities like accounting and HR to complete solution that will cover all the
functions and activities in the government. The Egypt government in its e-government strategy states
                                                             14
that it will use ERP to modernize the work in the government . This trend of ERP implementation in
the Governments is followed by the ERP providers by developing tailored solutions for the Public
sector. These solutions are also offered online, opening the option software to be loaded on a server
                                  15
or in hosted remotely by an ASP .

9. Is the ASP approach the right approach?

Macedonia is among the last rated countries in Europe on e-government rankings (United Nations,
2004). The concept of e-government in this survey espouses two aspects:
     The capacity of the public sector to deploy ICT for improving knowledge and information in
         the service of the citizen. Capacity espouses financial, infrastructural, human capital,
         regulatory, administrative and systemic capability of the state; and
     The willingness, on part of the government, to provide information and knowledge for the
         empowerment of the citizen.
Based on these aspects the Macedonian Government has low capability for introducing e-
government. To improve its capability through the capacity Macedonian Government needs to make
drastic and complete changes through incremental steps. ERP is the solution which can help the
Macedonian government to do this faster, drastically and completely. But the Macedonian
government neither has the finances to completely buy this solution nor the skills and knowledge to
develop this solution in-house, and even worse: it does not have the infrastructure, software and
hardware to successfully implement either of these solutions. Further on, development of e-
government on a large scale is one of the main reasons for failure.
The ASP model of ERP implementation can improve this situation because:
    - We can access the application at lower costs than delivered internally because we do not
         have the skills; the development time might be too long and again we will need to develop the
         same processes that the EU countries are.
    - We can access high-end application with little investment in advance. If the complete ERP
         solution needs to be paid for in the beginning, that will not be possible because of the weak
         budget; however, the problem can be diminished by smaller payments each month, that we
         can manage




                                                    7
    -   The infrastructure costs. Macedonian government has poor infrastructure and in this way can
        avoid the huge investments in infrastructure
    -   Predictable costs. In this way the Macedonian Government can project next year costs in the
        budget and make sure that this money is enough for normal functioning of the system.
    -   The latest versions of software and modules are available. EU changes in the policies and the
        processes of work will be immediately reflected in the ASP software and available for usage
        from the Macedonian government.

But there are major problems which should be addressed adequately if we want the process to be
successfully implemented. Issues like security, bandwidth, reliability, support, loss of control,
integration and customization should be addressed.

    -   Security: information about the citizens will be transferred through the systems and stored in
        the databases. If some of this information is stolen from third party it can be used for various
        purposes. Additionally, if there is corruption in the functioning of the system, people may
        abuse it for not paying taxes.
    -   Bandwidth: problem can arise with the local Internet providers if they do not have the quality
        to support the applications. Apart from that, if a dedicated line is required, it might mean
        additional burden on the budget.
    -   Loss of control: this could be very hard for the politicians to accept, because sometimes they
        want to manipulate the processes.
    -   Integration and customization: Macedonia is a developing country and the legacy systems it
        has must be taken into account by the developer. This integration and customization can be
        hard because there will be need for BPR in the government and I believe that in this moment
        unfortunately, nobody understands these processes.


8. Implementation issues

These and some other issues that can arise in the meantime should be adequately addressed before
the start of the implementation with the Service Level Agreement and to follow an implementation
path that will increase the possibilities for success of the project.
SLA is an agreement between the provider of a service and its customers which quantifies the
minimum quality of service which meets the business need (Hiles, 1994).
The companies are now offering standard SLA I will put emphasis on the issues which should be
closely monitored:
    - The purpose of the SLA. The purpose of the SLA has to be clearly defined because the
         Government does not have clear business goals and this can become a significant problem in
         the advanced phases
    - Service availability and peak period services. Some services are needed in some particular
         period like for example tax payment etc. In this period the particular service availability has to
         be clearly defined and how it will be handled in its peak time.
    - Security and contingency. This was already discussed
    - Problem management and escalation. How will the problem be solved, who will be contacted,
         how fast, etc.
Overall of these issues I have to stress several implementation issues which should be taken into
account for successful implementation of ERP (Nah and Lau, 2001).
    - ERP teamwork and composition. It should involve representatives from the vendor but also
         representatives from the governmental institutions who need to be dedicated, stimulated and
         familiar with the processes
    - Support from the top officials in the government i.e. the Prime Minister
    - Effective communication among the supplier-customer, employees, and the top officials in
         the government
    - Project champion which will have the power to make decisions, for example the president of
         CIT
    - Change management program and culture. This should be managed even before the start of
         the negotiation with the vendors because this changes take time
    - Business process reengineering: this is a necessity in our case if we want the project to be
         successful




                                                    8
    -   Monitoring and evaluation of performance, verification of success should be created in the
        beginning to manage skepticism, analysis of the feedback and tie the compensation to the
        performance.
At the end I give ASP general ERP and vendor-related risk items with resolution strategies that should
be taken into account (Bryson and Sullivan, 2003).




                                                  9
9. Conclusion
Macedonia has to improve its administration and it must offer its services online. I have presented
ways in which this can be done. I tried to objectively support it. ERP implementation through ASP is
the solution which I propose because Macedonia needs to implement quality solution quickly and it
does not have skills to go for “offline” ERP, it does not have the infrastructure and finance for building
that infrastructure. But the security is an issue for which I propose additional in depth analysis.
Additionally, the Macedonian government has to dedicate serious resources, people, time and
leadership if it wants this to be success.
At the end, I would like to state that this paper should be used as a basis for additional in-depth field
research through which detailed ASP step by step implementation process will be developed and
ASP will be selected.




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Reference and Endnotes
    -   E.M. Shehab, M.W. Sharp, L. Supramaniam and T.A. Spedding (2004), “Enterprise resource
        planning: An integrative review”, , Business Process Management Journal, Vol. 10 No. 4,
        2004
    -   Nah, F. Lau, J. and Kuang, J. (2001), “Critical factors for successful implementation of
        enterprise systems”, Business Process Management Journal, Vol. 7 No.3, pp 285-96
    -   Huang, Z. and Palvia, P. (2001), “ ERP implementation issues in advanced and developing
        countries”, Business Process Management Journal, Vol. 7 No., 2001
    -   Chen, L. and Sloiman, K. (2002), “Managing IT outsourcing: a value driven approach to
        outsourcing using application service providers”, Logistics Information Management Vol. 15
        Nu. 3, 2002, pp. 180-191
    -   Ekanayaka, Y., Currie, L.W., Seltsikas, P. (2002), “Delivering enterprise resource planning
        systems through application service providers”, Logistics Information Management, Vol 15,
        Nu 3, pp. 192-203
    -   Sharma, S. and Gupta, J.N.D (2002), “Application service provides: issues and challenges”,
        Logistics Information Management, Vol. 15, Nu. 3, pp. 160-169
    -   Hiles, N.Andrew (1994), “Service Level Agreement panacea or pain?”, The TQM Magazine,
        Vol. 6, No. 2, pp.14-16
    -   Bryson, K. and Sullivan, W. (2003)” Designing effective incentive-oriented contracts for
        application service provider hosting of ERP systems”, Business Process Management
        Journal, Vol. 9 Nu. 6 pp. 705-721
    -   Heeks R. (2003), "Most eGovernment-for-Development Projects Fail: How Can Risks be
        Reduced?" Published by: Institute for Development Policy and Management University of
        Manchester
    -   United Nations (2004), "Global E-Government Readiness Report 2004: Towards Access for
        Opportunity", UNPAN November 2004
    -


1
   “National Case-Study: Public Administration in the Republic of Macedonia” - Lovren Markic, Euro-Balkan
Institute, Center for Public Administration and Public Policy
2
  “The E-government Handbook for Developing Countries” A project of InfoDev and the Center for Democracy
& technology, November 2002.
3
  “The E-Governemnt Imperative – OECD e-Government studies, OECD 2003
4
  http://www.kit.gov.mk/default-mk.asp?ItemID=3919D20DD5DF194CAF2884074A4CDD5F
5
  “Macedonia Trip Report, Workshop on E-Government and Follow-On Meetings with Government Officials &
Stakeholders” Edward Malloy, USAID Economic Growth Bureau - March 14 -- 19, 2004 Skopje, Macedonia
6
  “Benchmarking E-government: A Global Perspective – Assesing the progress of the UN member states” –
United Nations DREPA, ASPA
7
  “The E-government Handbook for Developing Countries” A project of InfoDev and the Center for Democracy
& technology, November 2002.
8
  The E-Government Imperative – OECD e-Government studies, OECD 2003
9
  United Nations "Global e-Government readiness report 2004: towards access for opportunity"
10
   http://www.egov4dev.org/sfoverview.htm
11
   http://www.blonnet.com/2003/11/15/stories/2003111500050800.htm
12
   http://www.washingtontechnology.com/news/1_1/daily_news/24297-1.html
http://www.zdnet.com.au/insight/software/0,39023769,39161210,00.htm
http://www.washingtontechnology.com/news/15_13/cover/1804-1.html
http://www.governmententerprise.com/showArticle.jhtml?articleID=47901151
http://www.deloitte.com/dtt/case_study/0,1005,sid%253D3630%2526cid%253D80674,00.html
http://www.manchester.gov.uk/corporate/egovernment/2004/part6.htm
13
   http://www50.sap.com/southafrica/publicservices/1.asp
http://196.30.226.221/sections/business/2004/0411051112.asp?A=ITG&S=IT%20in%20Government&O=FPT
http://www.nccmembership.co.uk/pooled/articles/BF_WEBART/view.asp?Q=BF_WEBART_113276
14
   http://www.egypt.gov.eg/english/about/
15
   http://www.govtech.net/magazine/gt/2000/nov/productFocus/index.php




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