Evolving ERP?

Enterprise resource planning systems take on unconventional tasks.

by / May 7, 2004
Despite the enterprise resource planning (ERP) disasters of the late 1980s and early 1990s, ERP continues to gain new customers -- sometimes in unexpected places.

The promise of ERP -- consolidating discrete computer systems used by enterprises to track accounting, budgeting, human resources or payroll, among others, into one supersystem -- attracted lots of attention when the software suites hit the market. Enterprises saw the need, ponied up their dough, then floundered through troublesome implementations.

Though plentiful, the horror stories didn't deter new customers from buying ERP systems, and companies got better at deploying them. The public sector jumped on the bandwagon too, and state and local governments -- including Pennsylvania, North Dakota and San Antonio -- have already put in place, or are beginning to implement, ERP systems.

Florida is looking at ERP for more than just HR and accounting functions. Over the last several years, Florida's Department of Revenue (FDOR) has put ERP-based systems through different paces. The FDOR's system for unified taxation (SUNTAX), which administers all tax and revenue collection in the state, is a hybrid software package from SAP comprising key bits of functionality from the company's ERP and CRM solutions.

The state is also working to extend the hybrid software package to child support enforcement. Observers say these could be the first steps in taking ERP software into areas of government not typically associated with ERP.

Collecting the Bucks
The FDOR's SUNTAX replaced a variety of independent legacy systems that supported specific functions, such as sales and use tax, corporate income tax and motor fuels tax or refunds, said FDOR Executive Director Jim Zingale. Employees previously had to query as many as 10 different legacy systems to find the right information to help a taxpayer with a problem.

An integrated tax system, such as SUNTAX, that uses single business identifiers for all aspects of taxation to enable easier processing is nothing new, Zingale said, and many states deployed such systems.

"They had done them primarily in COBOL-based systems and hierarchical databases," he said. "They were out there, and there were perceived real work-system advantages to being in an integrated environment versus a nonintegrated environment."

After looking at some of those systems' successes, he said, the FDOR went to the Legislature to explain the benefits of integrated tax environments and secure funding. The FDOR considered designing a general-ledger accounting system approximately seven years ago, but soon questioned that decision and looked for outside assistance.

"We came to the marketplace at a time when we didn't feel we could do it in house, or we didn't want a simple add-on system," Zingale said. "We knew big relational databases were out there. We knew advanced writing languages were out there and felt like they had evolved to the point where we wanted to look at one of them as a solution."

The FDOR put out a bid, got several responses and selected SAP in 1999. SAP's custom-built, ERP-based solution for revenue administration would accommodate the $28 billion per year the FDOR collects from the more than 36 taxes it administers, he said.

Deloitte Consulting was selected through a different procurement process (from a state contract) to help the state with customization and integration. The system was implemented in six-month contract increments as particular taxing functions, such as corporate income tax, were transferred out of the mainframe environment to the ERP client-server environment.

"We've got about another two and a half years before everything we need to take off the legacy is gone," said Zingale.

While the system was being built, the FDOR reduced its full-time employees (FTE) by 19 percent and salaries by 15 percent, he said, noting that the FTE savings alone paid for the system.

"You take, on the tax side, the operating costs shrinking and revenue increasing, and you get a very powerful rate of return on investment," he said.

ERP Everywhere?
From Deloitte's perspective, this could be only the beginning of what ERP-based software could do in the right environments.

"We're seeing the emergence of what I expect will be a significant trend," said Robert Campbell, Deloitte's U.S. Public Sector Practice leader. "Governments are beginning to use advanced ERP technologies to transform and improve efficiency of the administration of government programs in new, nontraditional areas that go well beyond those program areas where ERP solutions were originally applied."

Campbell said for certain government programs, typified by very high volumes, financial processing and a great deal of complexity, ERP-based solutions are an efficient way to develop and implement new systems and an effective vehicle to realize business process transformation.

Florida's use of ERP software in new business areas is seemingly possible only now with the maturation of ERP in general. Much ink has been devoted to what happens if an ERP implementation goes wrong, and enterprises of all kinds have suffered that fate. Still, diverse customers keep buying ERP systems, and extending ERP into new industries means constant refinements to underlying code, and arguably, increased software capabilities.

Los Angeles World Airports, which owns and operates LAX and three other airports, is one example of ERP's reach into new industries, he said, because it has implemented an SAP ERP system for airport operations.

"We're seeing this in revenue and tax administration, and the emerging area of child support enforcement," he said. "The use of SAP for child support enforcement is another significant prospective trend we're seeing. Florida is the first one. That project is only a couple of months old, and a few other states are keeping an eye on it. The technology could be applied to vehicle licensing and registration, driver's license administration and public health administration."

Other Approaches
Though Florida is satisfied with its decision to use ERP-based software, many states have done things differently for their unified tax systems, going with a software suite from companies like AMS or Accenture designed specifically for tax environments. As with other big technology decisions, each state decides its course of action based on its own situation. What works for one state may not work for another.

AMS has been busy in the tax and revenue area, and has implemented its tax and revenue solution in Virginia, Hawaii and California, among others, said Steve Kolodney, vice president of AMS' Public Sector Group.

AMS' approach is built on a platform of three planks: an application that helps states manage revenue flow, collection software that helps states target delinquencies and a decision-making engine that helps states analyze risk -- a tax account's likelihood of paying so states can make more informed decisions on using collection resources.

Kolodney said what differentiates AMS' solution from the package Florida chose is that AMS' software comes from the financial industry and is built on the functions of financial institutions, instead of pieces of generalized ERP and CRM software built to mirror such functions.

"The knowledge about function itself isn't built-in out of the box in those kinds of applications," he said. "You have to take a generic processing function and make it look like a tax/revenue process -- which is not a general process. It's very specialized because of the laws and requirements of a state."

The dilemma facing state tax agencies is they are often asked by legislatures to collect taxes on behalf of other jurisdictions, like local governments, which makes moving to a unified tax system difficult.

"The tax agency has to deal with the complexity of that kind of environment, and it has to make good decisions about how to stratify the cases it's going to put its resources against to collect revenues that haven't yet been collected," he said. "We don't think a basic ERP system is fundamentally well organized to do that, but therein lies the difference."

In many states with simpler taxing environments, tax agencies have turned to commercial off-the-shelf tax applications for their tax processing needs, rather than contracting with a company like AMS or SAP for an extensive tax system. States with more complex environments look for help from outside consultants.

Next Move
Because of SUNTAX's success, the FDOR wanted to tweak the ERP behind the system to administer another of its other revenue administration responsibilities: child support enforcement -- also an area not traditionally known for ERP systems.

The state began to consider replacing its existing child support enforcement system three years ago. An RFP was put out in 2002, and the contract was awarded in 2003.

The new system will be implemented in three phases, said the FDOR's Zingale. Phase one, which includes a compliance-enforcement process, is under way and will take approximately 24 months. Phase two has been approved for planning and design, and will include the paternity and support-order-establishment processes. Phase three will include the distribution processes.

Child support enforcement is a federally managed program with performance accountability measures, which include penalties if states do not hit the collection benchmarks and include incentives if they do, Zingale said.

Because of the federal involvement, the state received two-thirds of the money needed to build a new child support enforcement system, he said. The nature of the acquisition was completely different because the FDOR bought SUNTAX via a Florida bid process, and the child support enforcement solution is a federal procurement with all the attendant rules.

"We went to a full-blown RFP, including points, totals, two years' worth of protests, and it just happened that Deloitte/SAP was the winning bid," said Zingale. "I had to recuse myself from the RFP process, and a whole bunch of other people had to recuse themselves because we were using Deloitte/SAP on the tax side. It had to go through federal approval, and it had to go through some protests before they won the bid."

The move to a child support enforcement system based on an ERP made sense to Florida because the child support enforcement work system is similar to the general tax work system, he said, even though it might not seem that way.

SUNTAX uses a single business identifier to store financial and social information captured from various sources in a data warehouse. On the child support side, Florida maintains a database that uses a unique identifier for each child and contains information on custodial and noncustodial parents, which helps the state track liability and manage child support enforcement.

The ERP-based system translates well to child support enforcement, he said, because Florida is doing essentially the same thing as it is in taxation -- working with a known client, establishing liability through information collection and determining whether that client is conforming to the law.

All this has not been without a fair amount of customization, primarily on the back-end of the software. Because SAP is widely used in the private sector in banks, financial institutions and credit card companies, many of the front-end business processes were similar to what Florida wanted, and only needed modest customization, Zingale said.

But the back-end business processes, such as enforcement selection, discovery and enforcement work systems, will need more customization, he said, because they aren't private-sector processes that are baked into an ERP.

Using this transfer as a basis, he said, ERP could be extended to other agencies, like the Office of Insurance Regulation or the Department of Financial Services, because they all need a data warehouse, a general ledger accounting system, a remittance processing system and a call center to handle inbound and outbound calls.

"If you step back at the work system level and say, 'How many places in government have similar work?' there are huge overlaps in terms of this technology," Zingale said. "Anything that deals with major information collection and major money processing against a known set of accounts is all identical."
Shane Peterson Associate Editor