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Weekly UpdatesConsortium buying has been a hot topic among local governments of all sizes for more than a decade, but few have implemented successfully the concept beyond group purchasing initiatives. Yet, when faced with limited budgets and a costly upgrade for their existing business systems, three Texas cities--Arlington, Carrolton and Grand Prairie--decided to address their common technology needs with a consortium strategy By agreeing to buy and share the same business software, the cities determined they could purchase and operate technology collectively that they could not afford on their own.
The three cities approached the North Central Texas Council of Governments (NCTCOG) to buy and host the software on their behalf to help minimize the costs and risks associated with a major software implementation. By adopting this shared services model, the cities have saved taxpayer dollars by procuring and operating their business software, hardware, and professional services jointly
In 2003, the cities of Arlington, Carrolton, and Grand Prairie independently operated aging business software to support their human resources, payroll, finance, and purchasing operations. The cities realized they needed to upgrade or replace this existing software because it offered limited functionality, lacked current features that could improve both operational and user experience, and had grown expensive to maintain and upgrade. In addition, all three cities lacked adequate back-up and disaster recovery capabilities for these core business systems. When the cities analyzed the upgrade costs it caused "sticker shock" and created an incentive to consider replacement as a viable option. Subsequently, the cities faced overall budget constraints, motivating them to reconsider all options for system replacement. As a result, the cities decided to collaborate in the replacement of their business software.
The cities turned to the NCTCOG for assistance because the organization already provides shared services to member cities in the region for a variety of governmental services, including technology support. The NCTCOG is a voluntary association of, by, and for local governments established to assist members in planning for common needs, cooperating for mutual benefit, and coordinating for sound regional development in the Dallas/Ft.Worth area. The cities approached the NCTCOG with the concept of both coordinating the procurement of the new software on their behalf and operating a shared services center for them post-implementation. The NCTCOG service center would provide the cities with a hosting service that included redundant, high-availability systems, network and systems administration, and support for each city's information technology department.
In assessing their technology replacement needs, the cities first considered carefully the reasons for a consortium approach, including:
* The complex nature of the procurement process
* The difficulty of the implementation
* The costs of ongoing operational support
The cities viewed the procurement of new business software as a complex, specialized, and expensive undertaking. However, due to the underlying commonality of the functional and technical requirements among the cities, they determined that a collaborative procurement would optimize their collective investments in the procurement process for the best outcome.
As a result, the cities and the NCTCOG hired a consultant to ensure identification of all key functional and technical requirements and drive effective management of the procurement. The cities followed a standard RFP process, resulting in 20 vendor proposals. This approach ensured effective due diligence and that the cities selected the best system in terms of solution fit and cost.
The cities determined that by combining forces they could take advantage of economies of scale in the implementation phase as well. By having one project/implementation team work with all three cities at once, they avoided the costs of three separate implementations. At the same time, the cities also leveraged their collective knowledge of city operations to configure and implement a better system than each could do individually. Finally, sharing operational costs for infrastructure, backup and disaster recovery, help desk, and systems administration on a common software and hardware platform after the implementation would be cheaper than maintaining them separately at each city. The cities also hoped that this common platform could serve as a foundation for other cities to join the consortium in the future at a very cost-effective price. The benefits of joining forces to procure, implement, and operate the new hardware and business software were such that all three cities and the NCTCOG concluded that a consortium model offered the best solution--both individually and as a group.
The experience of the NCTCOG and its member cities high-lights specific advantages and disadvantages inherent in a consortium-buying approach. The clear advantages include economies of scale, knowledge sharing, and collaboration along with joint project and operational staffing. The disadvantages include cultural fit, functional compromise, technical limitations, and governance.
BENEFITS OF THE CONSORTIUM MODEL
The economic value of consortium buying, implementation, and operations is very clear. All three aspects are costly and working as a group reduces substantially the associated costs for each city. The NCTCOG members experienced significant cost savings for the purchase and maintenance of the new business software, associated hardware, and the system implementation. For example, the three cities received a volume discount on the software and hardware, which the NCTCOG can extend to future members that may join the consortium. And, the implementation costs were approximately 50 percent less than if the cities had implemented the new software separately This is because the team of consultants conducted the implementation for the three cities concurrently, thus reducing the total level of effort required for the project.
Knowledge sharing and collaboration turned out to be a powerful benefit of the consortium strategy that was far greater than anticipated. By procuring and implementing collectively the hardware and business software, each city was able to benefit from the best practices of the others. While having roughly the same functional requirements for processes like payroll, procurement, and finance, each city approached its business operations in these areas in a slightly different manner. By collaborating during the implementation, they shared ideas and approaches that led to an overall improvement in the business operations of each city.
Project staffing and post-implementation operations also benefited from the consortium approach. By sharing knowledgeable staff, each city was able to reduce the staff required from both the functional and technical areas to support the implementation. For example, one core group of employees from across the cities handled the project's technical infrastructure instead of having each city provide a complete team to deploy the system separately In the functional areas, key leaders in human resources, finance, and purchasing were able to guide the implementation with less overall time commitment than if each city had conducted the project separately This staffing strategy created a strong, collaborative bond among the city employees assigned to the project because they had the opportunity to work closely with peers from other cities in their region. These benefits were a powerful motivator and the "glue" that kept the consortium strategy moving forward during all phases of the project--from procurement and implementation to ongoing operations.
CHALLENGES FACING THE CITIES
Yet, the consortium strategy also posed several limitations, including functional compromise, technical limitations, governance, and cultural fit. In working through the software configuration, the cities decided to follow government best business practices to help simplify the implementation. In other words, standardization among the cities for software configuration decisions would be the preferred outcomes thereby limiting any system customization. This decision ensured implementation of best business practices and that future upgrades would be as simple as possible. As a result, each city had to compromise on its own preferred functionality and, at times, change its core business processes--something they would not have done if operating independently. The project team enforced this functional compromise by requiring that any deviation from governmental best practices, or one-off business process changes, required the approval of the project's executive sponsor or governing body dependant upon the impact of the deviation. This enforcement mechanism dramatically reduced the number of issues that arose around customizing functionality for an individual city and will minimize the cost of future system upgrades.
By sharing a common technical platform each city also had to cede control of some of its core autonomy in terms of managing and modifying the system's underlying technology For example, security required consortium-level management rather than control at the city level. And the governance structure required to manage the procurement, implementation, and operations was complex and time consuming. To facilitate this, the cities and the NCTCOG created a Shared Services Board with representatives from each city, the NCTCOG, and the software/implementation vendor. Because the governance structure is ultimately a political process with vested stakeholders whose needs must be addressed, balancing sometimes conflicting requirements required a considerable amount of effort and energy from all parties. The Shared Services Board spent significant time conducting meetings, handling dispute resolution, and communicating to all parties to ensure everyone understood project status and action items.
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