February 19, 2017

The Finnish tax administration has recently started the rollout of their massive IT system modernization project, and despite spending more than 100 million Euros on the implementation, the results have now been characterized as "a complete failure". What happened?

(NOTE: Since the discussion here is regarding an IT system in Finland, the external links are referencing content written in Finnish. This post itself is also fully available in Finnish: Click here for the Finnish version)

In 2013, the Finnish government tax administration started a massive project to modernize the IT systems of the tax organization governing the tax administration of entire Finland. The project involved (and continues to involve) the modernization and integration of reportedly 70 previously existing systems to form an integrated whole. The implementation project was awarded in 2014 to an American-Estonian consortium, and is scheduled to continue until 2019. The gradual rollout has now started, however, and the implementation so far, according to end users, is a "complete failure" (as reported by Kauppalehti, a notable Finnish business publication, as well as other media).

By conventional practice, in any organization that is facing an aging IT system (or a set of systems, as in this case), the decision makers will be given roughly two viable options to choose from (and this is what they would have been tackling with in 2013):

(1) Buy a ready-made solution that would at least roughly perform the equivalent functionalities as the existing one (or existing ones), and then customize the solution to match the precise and unique requirements. The apparent or supposed attraction in this solution is the fact that the since system is existing and possibly "tested and proven", the implementation is supposed to be less risky, less time-consuming and less costly. The amount of customization would of course have a very big impact potential on those benefits, however.

(2) Re-develop a new system from scratch that performs the functions of the existing system or systems, with necessary enhancements and upgrades as deemed necessary by business and customer requirements. This solution is obviously the more tedious one, time consuming, costly and carries the full weight of development risk. Then again, one should expect that the ultimate result would be near perfect, at least as far as customer requirements are concerned.

All in all, it would appear that especially in the case of Finnish organizations, solution #2 seems very popular (apparently, budget-consciousness in IT projects is not really a priority in Finland at this time?). However, in the case of the Finnish tax administration in particular, they had chosen to go with option #1, purchasing an existing tax management system named GenTax from Fast, an American company, then spending years to customize the system also with help of Nortal, an Estonian-Finnish company.

Just on face value at least, I find this to be a curious choice, not the least because the very strength of purchasing existing solutions would be in cases where the business rules or large parts of the functionality could be reused across different implementations in organizations that "play by the same rules". But by very definition of the Finnish tax system, there is no other place anywhere in the world that would have the same rules as the Finnish tax administration (and even if there was, surely that would be elsewhere in Europe and not in the United States?). The other benefit would potentially be in speeding up the implementation and keeping costs under control. Obviously in this case, with a EUR130M+ budget and a six year planned timeline, none of that is even meant to take place (especially considering that the competing proposal for the project was rejected precisely because the "price was too low" .. An argument that the tax payers would surely find worthy of discussion).

But let's allow the end user comments speak for themselves (as translated from Finnish):

"For small businesses, MyTax (the new system) is a complete failure. In Verotili (the old system), a one man company can quickly see at a glance where the money flows. In the new system, I am completely clueless as to what is going on"

".. in MyTax (the new system), VAT refunds disappear from all summaries. "

".. in MyTax (the new system), managing the overall picture is not as effective as in Verotili (the old system). In MyTax, there are individual menus, but you cannot see the big picture as you could in Verotili."

"I was informed by the representative of the tax administration that I am not the only one critizing the new service."

A lot of similar comments, as it appears, have been given. In essence, for the end users, the new system appears to be a downgrade as compared to the existing one. Indeed, it appears that the existing system had features that the users liked and were used to, which the new system does not have.

This is precisely the danger that one will face when upgrading systems following the two methods discussed above: The business rules and existing features of pre-existing systems (in this case, 70 systems!) are thrown away and discarded, and the work starts from scratch. Potentially decades of learnings are lost: Catching up might take decades again and, in the worst case, parity with the old systems will never be achieved during the lifetime of the new system (ultimately, the system will be due for modernization again).

This is why it is important for organizations to acknowledge the value that is placed in their aging IT systems. Just because the systems are old and non-integrated, and perhaps even built on obsolete technologies, does not mean that they have no value. And this is what the Finnish tax administration is also perhaps now observing: When we allow our IT systems to be an integral part of our operations, they become an indispensable part of it that contains unique information and knowledge about the business and/or operations of the organization. If we let go of them or their features, we may also be letting go of customer experience and satisfaction.

This is also why I feel strongly that the following should be a clear component of any modernization project, whichever route is otherwise chosen:

Incorporate the full implementation of all necessary functionality and business rules from existing and older systems as integral components of newly implemented systems, in whichever manner or on whichever technology platform the new systems may be deployed on.

Obviously the technical integration of the functionalities of old systems, implemented on different and many times obsolete technical platforms, is a real operational challenge, and deciphering sometimes millions of lines of code in old systems is no joke. For us at Eqela, we help customers manage this transition with the automated modernization approach of Eqela Transcend, where the existing systems can be processed, manipulated, transformed and integrated through the use of automation, not extensive manual labor, as perhaps is conventional.

In any case, the sample of the Finnish tax administration should be an interesting case study and learning for all of us. Since that project is nowhere near finished at this time, there is still a lot of chance (and a great deal of hope) for progress there. But as many similar projects are emerging all around us, let us make sure that we do not ignore the value, the features and business rules that are running our organizations today as parts of our existing IT systems. And let's not let the technical challenges prevent us from taking the correct actions: There are solutions that can help us overcome them.

Share this article: