Ever been ready to make a purchase with a card and the clerk says, “Sorry, cash only”? Or had a handful of bills in your pocket, only to learn the merchant requires payment via credit, debit or mobile? As consumers, those experiences are inconvenient. But in today’s “app” economy, identifying the right way to pay represents a growing challenge for state governments.
The scalability, flexibility, security and other advantages of “app” models—including Software-as-a-Service (SaaS) and cloud—are well known. As states work to meet demands with these new and innovative technologies, they also need new and innovative funding and financing approaches. Here is the issue: many complex IT solutions, including enterprise resource planning (ERP) systems, are no longer sold and delivered through traditional on-premises models. So when it comes time to pay for them, states cannot use a traditional approach.
Governments use a “decision tree” to determine how to fund projects through either operating resources (OpEx) or capital resources (CapEx). With most large, technology based, transformations, states have traditionally preferred CapEx, using tax exempt financing. But they can no longer count on tax-exempt financing, because SaaS and cloud technology solutions are not assets owned by government. Capital leasing isn’t an option, either, because SaaS solutions don’t meet the criteria (for example, the lessee doesn’t automatically gain ownership of the asset at lease end). It is true, taxable financing, and financing from software vendors, is possible but comes with a higher interest rate that’s unattractive in a business case.
Add it up and it’s clear: Without an “asset” to own and operate, CapEx funding and financing options won’t work, and states need to find ways to generate operating funding to support their SaaS/cloud transformation. Here are three strategies to consider:
- Develop analytics to identify, quantify and harvest immediate business value. Chances are you have pools of costs and revenues tied to old ways of doing business. Unlock that “trapped value” to provide funding to support your transformation business case.
- Implement a robust benefits realization framework and plan. Don’t just build a business case. Build momentum by creating a living framework—along with a clearly executed benefits realization plan. Articulate concrete targets, action plans and ongoing monitoring of improved key performance indicators that will yield the promised benefits.
- Take advantage of Industry Cloud Platforms. When states move to the cloud, they’ll need ongoing commitments of operating funds, and will inevitably compete against other demands for scarce general revenue funds. Innovative models that use an industry cloud platform can help. In these models, the costs of implementing, operating and maintaining the solution are borne by a third-party provider over a multi-year period. And the model is virtually all-inclusive, spanning the technology infrastructure and business processes associated with a major cloud-based system before, during and after implementation.
The journey to cloud is essential for every state working to modernize the core and transform public services. How to pay for it should be a speedbump—not a deal-breaker.
For a more in-depth look at the challenges and potential solutions, see Funding the Journey to Cloud: How Can Government Pay the Bill?