Having unraveled the intricacies of customer-centric transformation and its paramount role in delivering an exceptional customer experience in the federal tax administration system in the first two parts of this three-part series, this final installment takes a strategic turn. In this final blog, I want to explore funding strategies that are crucial for securing the financial resources needed to propel and execute transformational initiatives, ensuring the tax administration system meets the demands of a dynamic and ever-evolving fiscal landscape.
Every organization, be it in the public or private sector, grapples with the dual challenges of financing its endeavors and seizing new opportunities. A challenge can often masquerade as an opportunity, and vice versa. With a career spent navigating the realms of digital transformation, I've found myself on both sides of the negotiating table, seeking funding for strategic initiatives that promise tangible benefits.
Navigating Funding Strategies
Organizations have several options for structuring financial arrangements with industry partners. Here are brief descriptions of some that are common and versatile:
- Time and Materials (T&M): A straightforward approach where organizations hire talent on an hourly or project basis. While it lacks direct accountability for benefits, it offers flexibility for evolving projects.
- Bank of Hours: A variant of T&M, this involves purchasing a predetermined block of hours from independent consultants at a discounted rate, putting the onus on the client to deliver the desired outcome within the allotted time.
- Fixed Fee (Team): Combining the elements of T&M and bank of hours, this approach involves preconfiguring a team's size and skill set, assigning a fixed fee while retaining control over the team's focus.
- Cost Plus: Consultants calculate costs and the parties agree on a percentage mark-up for profit. While transparent about costs, this model relies on mutual trust for a fair profit margin.
- Fixed Fee (Program): A high-risk model where a fixed price is agreed upon based on specified requirements. Challenges arise if specifications change with no flexibility to adjust pricing, often leading to work stoppages and tough conversations.
- Transaction/Outcome Based: Consultants are paid per transaction executed, tying their compensation to measurable outcomes. While it aligns incentives, there's a risk of incentivizing the creation of unnecessary volume.
- Gain Sharing: Consultants receive payment through a share in the benefits generated. Overcoming challenges involves agreeing on shared benefits, determining the sharing horizon and attributing gains accurately.
- Innovation Funding: A forward-thinking approach where a portion of revenue is set aside as an innovation fund, dedicated to mutually agreed-upon future projects fostering innovation.
- Service Credits: Consultants are paid for an initial effort, and if selected for subsequent work, the cost of the initial phase is credited toward downstream projects.
- Joint Venture: Organizations form a legal entity, a joint venture, combining skills and assets. Gains generated are shared back to the parent organizations.
- The Barter: A creative solution where organizations engage in a mutual exchange of services. Real-world examples in federal tax administration include partnerships to enable credit card payments (the industry built and operates the infrastructure and the IRS promotes it) and promoting free filing (the tax industry offers it to certain taxpayer segments and the IRS promotes it).
The Bottom Line: Benefits Drive Funding
The key takeaway is that when the benefits of a program are compelling, there's always a funding strategy waiting to be explored. By carefully selecting the right model and aligning incentives, organizations can unlock the financial resources needed to embark on transformational initiatives, turning challenges into opportunities and filling the glass to the brim.
Get more of Bob Barr’s insights in his previous blog series on the challenging demographics of tax administration.
You can also learn from his experiences through his appearances in the CGI Voices podcast:
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