Oklahoma's administrative software was badly out of date. State officials agreed it was time to replace it with a suite of new, integrated systems to handle vital functions such as finance and human resources. But in an era of tight budgets, the state had to determine how it could meet the massive up-front cost of a major enterprise system implementation.
Oklahoma's solution was to make the vendor its business partner. After funding part of the implementation up front, the state will make further payments over time, based on the volume of business it transacts on the enterprise system. The better the system, the more state employees will use it and the more the vendor will earn. Money for the ongoing payments will come from transaction fees paid by state agencies.
"We wanted to give the vendor incentive to not just come in, sell us something and leave," said Tom Daxon, Oklahoma's director of state finance. "We wanted the vendor to have the incentive to continually upgrade, develop the system, be on the lookout for new things that could help us operate more efficiently and effectively as they become available."
Late last year, Oklahoma chose PeopleSoft 8, a Web-based enterprise system from PeopleSoft of Pleasanton, Calif. The state is implementing modules that address finance and accounting, purchasing and procurement and payroll and human resources. After the system goes live in the summer of 2003, the state expects to add more modules.
The systems Oklahoma will replace are inadequate, according to Daxon. "I can't even say the state has a real general ledger," he said.
To prepare the annual budget or respond to questions from the legislature, employees have to gather figures from disparate computer systems, plug the results into spreadsheets and massage the data. He said the procurement system in the state's Department of Central Services is so "old and brittle" that any more changes to the software could cause a breakdown.
Along with needing better software, Oklahoma wanted a system it could integrate with its new e-government portal
Oklahoma settled on the idea of transaction-based financing partly to spread its payments for the system over time. The three state agencies that led the procurement -- the Office of State Finance, the Department of Central Services and the Office of Personnel Management -- provided funding to cover the initial costs. To pay the ongoing costs, the legislature authorized the state to charge transaction fees back to the agencies.
Another reason for the novel arrangement is to make sure the top-of-the-line system the state puts in place remains top-of-the-line in the future. "One of the problems we have in state government is that often it's difficult to get the resources and expertise we need -- because you've got to pay for it -- to really maintain systems in first-class working order," Daxon said.
According to Gov. Frank Keating's budget proposal for 2003, the contract with PeopleSoft calls for seven years of consulting services and software updates, underwritten by fees state agencies will pay to use the system.
Better Software, Higher Volume
"This is a situation where the vendor comes in and does a good job of getting the basic system installed, people are happy with it, you're going to have more people using that system, and eventually using it to do more things," Daxon said.