The Problems and Prospects of Revising IT Funding by Government Agencies

Suspicions of Government Agency IT Funding

Before the results of the survey became apparent, government agencies' sponsoring of IT funding was surrounded by the encouragement of long-term negotiated contracts and cost maximizing. Software development and associated IT funding differs from most products and services in that the ordering company and the receiving company work cooperatively on a long-term basis in order to produce a final product, and thus numerous complicated issues are included. Presently, the average annual market scale of IT funding by government agencies has reached 1.1 trillion yen at the central government level, and 0.7 trillion yen at the regional government level. Combined, the information service market occupies around 20 percent of this total, and according to the government's “e-Japan” plan presented in 2000, it is expected that the scale of the market will continue to grow.

Within this situation, underbidding by major IT vendors came to be a problem between 2000 and 2001. The causes for this include: the reliance of the ordering party-government agencies-on the order receiver-major IT vendors; the development of redundant systems; task performance that relied on personalized ability; result orientation. In response to this, a reevaluation of IT funding by the central and local governments was conducted. Within the government, the use of Enterprise Architecture (EA) as well as the establishment of aides from the Congress of Industrial Organization (CIO) was proposed, and these are beginning to be introduced to some areas of the government's agencies and ministries.

The Reevaluation of Regional Governments' Problematic IT Funding

In the past, it was common for most regional governments to employ lock-step measures under orders from the central government. In regard to the reevaluation of IT funding, however, regional governments who are pursuing independent approaches are also gaining notice.

For example, in Nagasaki Prefecture the mayor issued two propositions: “(1) lower the cost of e-governance in prefectural agencies, and (2) provide opportunities for participation to local businesses”. In order to fulfill these goals, the system engineer (SE) of the Japan Research Institute, Hideyo Shimamura, was called upon to take the position as leader of information management and direction. Accordingly, Mr. Shimamura devised independently the “Subdivided Ordering Method”. The proposed method is being tested by segmenting system development into small units, thereby allowing the small and medium-sized businesses that dominate the greater part of Nagasaki Prefecture's software companies to enter into the system-development market. Additionally, open-source software such as MySQL's DB and PHP languages are being employed as developed technology. Furthermore, the development process itself is divided into four service units for outsourcing: specs creation, development, specs testing, and software testing. As a result, the period from 2003 to 2004 saw a rise of direct orders to local businesses from 18 out of 100 (a total monetary value of 15.1 percent) during 2002-2003 to 73 out of 96 (a total monetary value of 32.7 percent) in 2004.

Lastly, other merits were also produced by this method: as a result of prefectural workers taking the main role of writing specifications, costs related to system development were reduced by half, risk was reduced and dispersed through process subdivision, and the need for project management was practically eliminated.

As the latest method for open system development, the kind of ordering method used in Nagasaki can be considered a rational technique. The method of standardizing DB data and dividing and ordering each type of service application is similar to major IT vendors' practices of recommissioning to subsidiaries; if a project manager of Hideyo Shimamura's caliber exists on the administrative side, this method also verifies the possibility of subdividing order placement. Moreover, from the project's very first step of drawing-board design to the final verification of specs, on-site users settle all demand specifications, thus making it an extremely rational methodology. If this method were to be employed nationally in all regional governments, there is a distinct possibility that the architecture of heavy reliance on order receivers (major IT vendors) by ordering parties (regional governments) that has been dominant up until now could change as well.

Problems and Prospects

Of course, this kind of approach also contains various problems. For example, in Nagasaki Prefecture, in order to realize the “Subdivided Ordering Method” it is first necessary for the ordering party to establish rules for specs-writing know-how and standardizing DB that are not reliant on personalized ability. In order for this to be achieved, the reevaluation of agencies' internal personnel systems (i.e. personnel allocation and human resource development) is critical. Presently, the common-use DB design for the various services in Nagasaki Prefecture is actually becoming Mr. Shimamura's personalized role.

Additionally, when one considers that the downsizing plan for Nagasaki Prefecture's main system is scheduled to take eight years, Mr. Shimamura's leadership (or else the leadership of another SE who possesses the same level of ability) will at the very least be required for several more years.

At the same time, the development of a strategy that considers this kind of response by ordering parties is required for the order-receiving IT venders as well. In particular, large-scale IT vendors must change their conventional package-business structure that centers around host-computers into new, innovative development methodologies with open systems as a premise. It is essential to open the host-computer-reliant business model that has been used up until now, and to construct a new business model that conforms to international standards. To this end, a software development method and framework with production efficiency are called for.

Lastly, it is crucial to effect massive change in (1) the multi-tiered subcontracting structure with so-called “IT General Contractors”-that is to say, large-scale IT vendors on the order-receiver side-on the top, and (2) the essence of the business world of the major IT vendors that are moving to oligopolize the market for public services. With this done, it will become possible to construct a new, efficient relationship between ordering parties and receivers.