State often doesn’t know what it wants

Anneli Heinsoo.

PHOTO: Eero Vabamägi / Postimees

CEO of Tieto, developer of Estonia’s largest IT procurement SKAIS2, Anneli Heinsoo says that the company should have dropped the project much sooner because the state didn’t know what kind of a system it wanted.

SKAIS2 – an upgrade of the social insurance board’s information system based on which benefits and pensions of 700,000 people are paid – finally ran out of steam two months ago, when the government decided to throw developer Tieto overboard after four years spent on the project.

More than €5 million had been spent on the information system by that time, while only a quarter of the work had been completed.

Some politicians and officials looked for scapegoats, while others simply shrugged. No one seemed eager to take responsibility. The state has decided to take the project forward and inject another €10 million into the massive development over the next five years.

Tieto and the Ministry of Social Affairs agreed on a compromise this week that will see Tieto pay the state another €270,000 in damages, as well as carry out additional work on the system next year.

CEO of Tieto Estonia Anneli Heinsoo was glad a compromise was finally reached – loose ends have been tied, and the company can finally move on. Heinsoo says that development of SKAIS2 was a thorny path for Tieto the likes of which the firm would never want to walk again.

Politicians, officials, and other “experts” have told their version of why SKAIS2 failed. What do you think went wrong?

Society has come to believe that SKAIS2 is utterly broken, and that someone will miss out on their benefit or pension because of it. That is not the case. A lot of work has been done: we developed the base architecture, pension and benefit payments are working.

However, the development is unfinished. What went wrong? To go back to the very beginning, the state spent two years preparing the procurement of the new system. The tender itself was well put together. The problem was that everything was laid down based on know-how and legislation we had back then (2011 – ed.).

We can say in hindsight that the procurement’s timeframe (four years – ed.) was insensibly short. While €5 million was not enough for such a massive development.

We had to do everything as quickly and cheaply as possible. The state ordered a turnkey product from us in a situation where they didn’t know whether they could afford it and what the building should even look like.

Today we can say that all possible risks materialized: legislation was amended, projects were constantly being changed, key employees left, financing was slow, and political pressure was constant.

What do you mean when you say the state didn’t know what kind of system it wanted?

The future owner of the information system, the Social Insurance Board (SKA) did not know what they wanted. We were expecting them to contribute and brainstorm with us, but it didn’t happen. They were also short on specialists.

In some ways, it might even be understandable as it was SKAIS2’s purpose to cut labor needs, automate processes. We were supposed to receive help from officials who would later be made redundant. Their motivation wasn’t exactly high.

Therefore, we had a client that didn’t know what it needed. They were utterly unprepared to launch such a massive system so quickly. That was the first sign things weren’t as peachy as they seemed.

Things seemed to be going fine for the first few years, but then the situation suddenly took a turn for the sour. What happened?

2015 was the hardest. That is when state financing ran out, while we continued the development in good faith. The Social Welfare Act was also amended, which meant we had to rework systems we had already finished.

In hindsight, we should have jumped ship in 2015. However, we had our developer’s pride, we didn’t want to give up on the project. We lost several good employees around that time. Their motivation disappeared; software developers want new and interesting work.

Who is to blame? Who should take responsibility?

I would refrain from looking for guilty parties. The system itself was at fault. SKAIS2 was forced into a rigid framework from the first, while the digital world is always changing. It was also the fault of political will that wanted it done quickly. We were constantly on shifting sands – legislation was amended and in the end, no one knew where they stood. Things got too complicated.

We did not meet with ministers. Our cooperation with officials, especially Secretary General of the Ministry of Social Affairs Marika Priske and Deputy Secretary General Ain Aaviksoo, was very good. They made efforts to compromise and find solutions. They also worked toward having more IT specialists on the client’s side.

What did you do wrong?

Our own biggest mistake was that we were too soft and maintained good faith. Often, we had no certainty the client would even pay. We did a lot of work that we had to change later for which we didn’t charge. We should have been more assertive and demand greater participation from SKA. At the same time, we wanted to successfully complete the project, which is why we took major risks.

How should these kinds of colossal projects be done differently in the future? What have you learned?

The lesson here is that chutzpah is not half the victory. We also learned that it is insensible to develop such major systems in one piece. We should build more microsystems, develop smaller pieces, proceed with specific services in mind. That said, the latter approach is a lot more expensive.

Also, systems should be developed from the point of view of users, not just officials.

Thirdly, I believe our team should have been more efficient. We had 70 people working on the project at one time. It would have been more effective to have 10-15 people. We would have been better able to control processes.

Your team worked on the project for four years. How did failures affect the firm’s inner climate and financial results?

Some people think we went after a huge payday with SKAIS2. That was not the case at all. We took responsibility during a difficult time and sustained major losses. We were half a million in the red. We closed last year with a loss for the first time in a long while. I would not disclose our final damage. Our reputation, while difficult to measure in money, has also suffered.

Luckily our Finnish parent is very understanding and has been behind us all this time. There were no mock executions. Another thing that bothers me and that I would like to point out is when our parent company asked why such problems even occur in Estonia that is supposed to be an e-state.

Your parent wanted to close the Estonian unit’s offices?

It would have been a realistic possibility had we ended up in court and losing even more money. The Finnish owner asked why was the state mucking things up in a situation where they had invested and created jobs. They asked us what is going on.

What will Tieto Estonia do next?

Things are clearly difficult for us now, but we have a professional team and projects that are coming along and where the clients are pleased. We are glad we managed to put SKAIS2 behind us and reach a good compromise.

We are not ruling out participating in the development of SKAIS2 again in the future. We know how to do it better now. We have people with intimate knowledge of the system. We are also prepared to support the state in preparing the new procurement.