Small business making small steps

By GovTechReview Staff
Friday, 22 October, 2010

Preparing for a potential terrorist attack is serious business, and it’s expected that government authorities would choose serious tools for the job. Yet that does not, as Sydney-based developer Noggin IT found, necessarily preclude the use of applications built by small local companies: the NSW Department of Premier and Cabinet (DPC), for one, chose Sydney firm Noggin IT’s OCA Incident Manager over a number of overseas rivals to support a pair of systems in the State Emergency Operations Centre – including one so secret that it cannot be named.

During simulated counter-terrorist exercises, the application helps coordinate and log communications between up to 700 government bodies and private-sector stakeholders, ensuring that all are working from a common information base to support their unified decision-making. It’s a crucial platform, and is now delivered from a pair of ASIO-certified data centres as a fully hosted software-as-a-service (SaaS) solution.

So how did a small local company pip bigger competitors to win out on such a big contract? Noggin IT had a certain measure of incumbency, having worked on other projects in the past. But when it came time for the department to choose a platform for these high-level systems, the choice came down to issues such as local relevance and rapid responsiveness, said a department spokesperson who requested anonymity for security reasons.

James Baddam-Whetam Noggin IT

James Baddam-Whetam
Noggin IT

“It’s great that Noggin are local and they can pop around, sit in on a [counter-terrorism] exercise, and watch how their system is being used,” he explains. “We can say ‘we could do this quicker if we had this shortcut’, and they are able to take away real lessons. They’ve never failed to meet any of our requirements, and they’ve been able to handle changes without delays. I’ve jokingly told them that if they go to a larger company’s model, where we can’t speak to a human, we’ll stop working with them.”

Yet Noggin IT’s success with the DPC is based on more than just a firm handshake and a smile: given the sensitive nature of the department’s operations, Noggin IT also went to considerable time and effort to secure EAL2+ certification from the Defence Signals Directorate – certifying that its platform is secure enough to support sensitive government operations.

The high barrier for EAL2+ certification makes it relatively rare even in larger companies’ products, and pursuing such an intensive certification didn’t come easily for Noggin IT – like most small-to-medium enterprises (small business), it only has so many resources to go around.

The certification process was “pretty full-on,” recalls Managing Director James Boddam-Whetham. “Our director spent 14 months writing and rewriting the security documents. But because we do a lot of work with government, and some of the information they deal with is classified, EAL2+ was quite an important string in our bow.”

The small business dilemma

Not all small IT businesses have Noggin IT’s motivation to get ready to work with government. Indeed, statistics and anecdotal reports suggest that government bodies remain stubbornly difficult for many small businesses to supply to. Even getting on supplier panels can be an exercise in frustration, with seemingly unending governance and surety requirements creating a massive barrier to entry to the multi-billion-dollar government ICT market.

This result is nothing new: a 2005 Department of Communications, Information Technology and the Arts-commissioned report by Intermedium found the level of small business participation in government ICT procurement contracts was 27.5 per cent in 2001-02 and 29.9 per cent in 2002-03 overall. Small business handled 60 per cent of government contracts in 2001-02, but just 25 per cent by value, and there’s no indication that these percentages have improved significantly throughout the decade.

The heavily skewed profile of small business towards lower-value work is inevitable, given that many higher-value government contracts relate to specialised high-end computing or data management requirements, or involve a geographic support requirement that most small business just can’t match.

Yet even seemingly commoditised systems can exclude small businesses that haven’t managed to get onto government purchasing contracts, says Elaine Lacey, a Queensland Health Assistant Manager who deals with high-value, high-risk ICT procurement. “If we have [an internal] client that wants six business analysts, that’s fairly easy to fill,” she says. “But if they want someone to help with Citrix or some kind of [specialised] system, that’s a specific capability – and that restricts to what vendors the RFI will go.”

Among the policies resulting from these findings is a mandate that, when executing contracts worth $20 million or more, FMAA
government agencies meet minimum targets of 10 per cent small business involvement in hardware purchases and 20 per cent or more in service acquisition. These guidelines were in addition to Commonwealth Procurement Guidelines & Best Practice Guidance that set a minimum level of 10 per cent small business involvement overall.

Yet despite such token moves to improve small business participation and access to larger contracts, the realities of government purchasing persist: never-ending policy changes, shifting government priorities, uncertain budgeting practices, spending freezes, the sheer effort required to deal with large government bodies, and months-long process delays have made the government a no-go zone for many small businesses that can’t afford the uncertainty involved in tapping the government market.

Dean Calvert, Calvert Technologies

Intense competition doesn’t make the process any easier for small business, adds Dean Calvert, Managing Director of Adelaide-based network management solutions provider Calvert Technologies. “It can be quite a costly sales exercise, both from an efficiency perspective and just having that personal touch,” he explains.

“They may ask for a quote on some software, you provide the quote, and it might be two months before they actually get their order organised to come through. You try to get it if you can, but in the past many businesses with a high reliance on government work have seen their own business suffer when the government goes into shutdown or stops spending money for whatever reason.”

Dean Calvert

Calvert Technologies

That doesn’t bode well for small businesses that depend on reliability – and it’s a common thread through any discussions of dealing with government bodies. “You can spend a lot of time doing unproductive work negotiating contracts,” adds Kee Wong, Managing Principal of Melbourne-based consultancy e-Centric Innovations. “The cost of doing business with government is navigating the process and even getting to the start line; people are naturally risk averse, and when you transfer all the risk to the supplier, you spend a lot of energy getting that friction out of the way before you can even start moving.”                                                              

Even for those companies that manage to secure government contracts, things aren’t guaranteed: “The worst problem you’ve got with the government is getting paid,” says another small business. “Governments are trying to balance the budget every day, and there’s overcautiousness on behalf of public servants wanting to dot the I’s and cross the T’s. It’s shocking.”

Local government innovation

While Commonwealth departments are hostage to their own governance and process requirements, many small businesses report great success at the local-council level, where local participation seems to be highly valued and innovation is seen as crucial to that ever-present problem of doing more with less.

Darren Besgrove, Blink Mobile Technologies

Darren Besgrove
Blink Mobile

“We’re having a lot of success in markets like universities and local government, but not so much success in the upper levels of government,” says Darren Besgrove, a Director of Blink Mobile Technologies, a small business whose MyAnswers platform helps organisations quickly add mobile-compatible front ends to improve customer service. Besgrove believes the solution “has great applicability at the state and federal level, but we haven’t been able to get anybody to look at what we’re doing, nor to get any traction. But it’s not for lack of trying.”

The company scored three 2010 Australian Business Awards in categories including Best E-Business Product, Product Innovation, and Best New Product. Other customers are coming onboard so quickly that the company has grown from six to 10 employees in the past six months, and Besgrove expects this to reach 14 by early 2011.

This rapid growth is coming on the back of interest from private businesses and local-government bodies including Brisbane City Council, Tweed Shire Council, and Wyong Shire Council, which “are blazing a trail on the back of our platform,” Besgrove says. Wyong, for one, is using MyAnswers to deliver paperless reporting for lifeguards across the 10 beaches in its council area, halfway between Sydney and Newcastle.

Keen interest in the beach solution from other local governments echoes the idea that local governments are happy to consider field-proven innovations that have worked elsewhere. Besgrove, for example, has been targeting other councils with beachside areas and found them quite receptive – as opposed to state bodies where inertia can often be stifling. “It’s a lot easier to move your way through a market like that than to bash your head against the wall at state level,” he says, recalling some state government contracts that required significant expenditures in time and energy, but eventually fell off the radar into a procedural morass.

“It was supposed to have been concluded in a six-to-eight-month period,” he explains, “but we had month after month of delay in what just became a very frustrating activity. If you’re a small business and even half-planning on those revenues, you might as well just put it in your bottom drawer and focus on more predictable bits of business. If it comes off, it’s Christmas, but there’s a very low chance of return in many instances; we’d think long and hard before doing another one.”

Yet these sorts of difficulties can’t always come as a surprise – just the sheer number of small businesses means that there’s always going to be intense competition to provide solutions. At the state level, this effect is compounded – not only by practical limits such as manpower and access to legal and financial resources, but by the relatively small number of bodies into which any particular solution might be sold. And, no matter what the deal, there are always going to be more small business losers than winners. “You’ve always got to rely on someone taking a bit of a punt on you,” says Noggin IT’s Boddam-Whetham.

There are ways to tilt the scales in smaller providers’ favour, however, as Noggin IT found: for example, EAL2+ certification helped it stand out in a crowded field. The prevalence of panel-based buying at state and federal levels means that small businesses serious about servicing those markets simply need to bite the bullet and push their way through panel approvals to make sure they can get into the same room as their larger rivals.

That was the solution for ComOps, a medium-sized provider of enterprise management tools with around 100 employees and an extensive government client base. It found the going much easier after its 2007 acquisition of human capital management specialist HCS, which brought it relationships with government bodies including the Queensland government, Queensland Rail, and NSW Lotteries.

“It’s like anything else: once you’ve started building success and have a reputation, you find your way to other departments,” says Managing Director Richard Bradley. “Public servants are a different breed of people, and from their perspective it’s all about protecting arses. Jumping through their hoops is not easy and usually quite expensive, but once you get a leg or two in, other public servants are happy to talk to you on the basis that you’re already doing work for the government.”

Getting government onboard

If small businesses are finding it tough selling their solutions into government bodies, IT strategists within those bodies are finding the situation equally frustrating. Even simple technical requirements can be extremely difficult and time consuming to fill due to the requirement for due diligence, and many innovative and perfectly acceptable solutions from smaller companies are disqualified at the start because the companies don’t have panel accreditation or the resources to get it.

Yet after years of lobbying, state governments are finally taking concrete steps to facilitate better small business access to their lucrative markets – and tap into the innovation that small business are known for. Victoria, for instance, recently reported its first successes after last year’s launch of the Smart SMEs Market Validation Program (MVP), a $28 million initiative in which the state’s 300 government departments submit Technology Requirement Specifications (TRSes) and small businesses are actively invited to submit proposals to solve their problems.

For example, a VicRoads submission hoping to address the issue of dangerous train level crossings led to a relationship with DiUS Computing which provided $1.5 million in funding that the two organisations are now using to pilot-test an in-vehicle early-warning system that sounds alarms whenever the vehicle nears a level crossing.

“The program gave us the ability to develop proper methodologies, look at things properly, look at leading-edge technology suppliers, and provided an opportunity to do extensive R&D and do it properly,” says Ross McArthur, Manager of Vehicle Safety and Policy with VicRoads. “We think it will yield new technologies that can actually be implemented.”

As well as facilitating relationships, the program includes funding for pilot programs, R&D funding for four years, and retention of related intellectual property with the small business – an important benefit that addresses disputes over IP ownership that have been all too frequent in the past. Nine programs – some related to ICT, some in completely different fields – have entered the proof-of-concept stage. Those are from an initial field of 74 TRSes. The MVP is now assessing entries for its second round, which attracted 55 more TRSes.

Margot Ingoldby, Victorian Market Validation Program

Margot Ingoldby
Victorian Market
Validation Program

By extending a hand to local small business with official government blessing, the program has not only addressed draconian governance requirements, but opened doors that might have otherwise remained shut. “Given that they’ve completed a difficult and complex task for the Victorian government, it’s a gold-plated reference for them,” says MVP Program Manager Margot Ingoldby. “It’s very unusual for small business to get a first opportunity with government agencies, and this provides it.”

Other states are continuing to refine schemes for mandating the interests of small business within government bodies: Queensland recently amended its ICT SME Participation Scheme, for example, reducing the threshold for qualifying as a small business from 500 employees to 200 and requiring government bodies to actively recruit small business to different extents based on contract size.

Programs like the Australian Technology Showcase and Victorian Industry Participation Policy have broader scope, but the Australian Information Industry Association’s CollabIT and NICTA’s Australian e-Government Technology Cluster are actively engaging governments to ensure small businesses are given adequate priority in ICT-related purchases.

Recognition of the problems facing small business is so broad that the Department of Innovation, Industry, Science and Research earlier this year appointed small-business owner Don Easter as the government’s first-ever ‘IT advocate’, working under the auspices of the government’s $8.2 million Supplier Advocate Program.

While he lacks prescriptive powers, Easter has spend the first half of his year-long appointment speaking with public and private-sector CIOs, government IT managers, small business and other stakeholders to identify stubborn hindrances to small business involvement. Next year, he’ll lodge a report that will provide a framework for further action.

“The public sector is bound by process, but those processes don’t exist in [private] firms; the way things are happening at the smaller end is showing more innovation and flexibility,” Easter says. “I would like to think that could happen [in larger government bodies] without increasing risk in the procurement process. We’ve got this massive shift in the way technology is used and to support the way IT is used, but if the government continues in a very controlled way, it won’t be able to cope with the creativity and innovation that’s happening in these sectors.”

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