Open Source for the Back Office

Early adopters of Kuali's financial management software have become true believers.

July 27, 2011

Management software rarely gets the Hollywood treatment. But earlier this month, Cornell University held a premiere for its new financial management system, complete with a two-story projection screen.

“We did it! We have the best financial system ever,” Joanne DeStefano, Cornell’s chief financial officer, declared to an audience comprising a who’s who (…no, seriously) of system testers, subject matter experts, and administrators.

An account representative from the veterinary college, using an iPad hooked up to the big screen, filed the first document in the new system. Boom: red-and-white confetti rained from the rafters.

Pep rallies are not standard practice when Cornell switches back-office software systems, DeStefano later explained. But this was an exceptional case: Cornell was becoming one of the first institutions — and certainly the most high-profile — to fully adopt the Kuali Financial System, an open-source application that advocates say offers the sophistication of commercial financial management software at a fraction of the cost.

Like most open-source software, Kuali allows colleges to download its source code for in exchange for a relatively modest membership fee (not exceeding $25,000) and a commitment to participate in the community of campus-based developers working to improve the software and help other partners solve problems. Thus the costs associated with using Kuali are mostly manpower and upkeep, rather than the hefty licensing fees commercial vendors charge to develop and support their out-of-the-box products, which can run in the millions.

Cornell made its decision to switch from homegrown financial software to the Kuali system two years ago — before any institution had used Kuali long enough to confirm that it would be as inexpensive and stable as DeStefano and company were hoping. But according to those earliest adopters, Colorado State University and San Joaquin Delta College, Cornell has good cause to celebrate. And with five major state universities (Iowa State University, University of Arizona, University of Connecticut, University of Maryland, and University of Hawaii) slated to go live with the open-source financial system in the next two years, Kuali may be poised to shake up the obscure but extremely lucrative market for back-office technology in higher education.

The more visible example of open-source software shaking up a higher ed tech market is in learning management systems (LMS) — the online environments where students retrieve and submit assignments and, in many cases, discuss course material with their classmates and professors. The open-source platforms Moodle and (to a lesser extent) Sakai in recent years has made significant gains against Blackboard, the top commercial LMS vendor among nonprofit institutions. As of last fall, more than a fifth of nonprofit colleges used Moodle or Sakai, another open-source platform, as their primary LMS. (Another increasingly lucrative higher ed technology, lecture capture, saw its first open-source disruptor enter the fray last year.)

Compared to its open-source kin in the LMS world, Kuali still has a long way to go. Only 10 institutions are currently running the Kuali Financial System. Fewer are using Kuali’s other back-office applications for research and student records management (though some are planning to adopt them shortly). Commercial vendors such as SunGard Higher Education, Oracle/PeopleSoft, Datatel, and Jenzabar, each of which offer a raft of back-office applications as part of their ERP (enterprise resource planning) suites, still dominate.

But Patrick Burns, vice president for information technology at Colorado State, believes that will soon change. Colorado State went live with the Kuali Financial System two summers ago, and spent the last year auditing the system. Burns describes the switch as an unqualified success.

“The Kuali Financial System was better software, and anything else would have cost us millions more to implement,” Burns says. He said the university spent $1.2 million replacing its old system with Kuali, and estimates the annual upkeep costs to average $150,000. That amounts to “millions” in savings over what Colorado State would have spent switching to equivalent software from either of the commercial vendors it had considered, says Burns.

And while the support community for Kuali is small, it is already surprisingly strong, Burns says. “What pleasantly surprised us about it was all the support we got from the community during the implementation,” he says. “The community aspects of this have been wonderful for us.” Theoretically, that support structure will grow stronger as more institutions adopt Kuali. “Other institutions have been contacting us, and some of them have come visited us,” Burns says.

If Kuali’s other back-office applications end up matching the financial management system, Burns says he thinks the commercial ERP vendors don’t stand a chance — at least not at their current prices.

A common criticism of Kuali, and of open-source systems in general, is that it is only cost efficient for large universities that have enough personnel with enough talent to successfully oversee them. But while the majority of Kuali’s early adopters are large state universities, one is a California community college that turned to the open-source alternative in part due to the fact that it was strapped for resources.

It has taken three software developers at San Joaquin Delta two years of full-time work on Kuali to get the system up to speed, says Lee Belarmino, the vice president for information technology there. The process was not all sunshine and roses, he says. Nevertheless, “I think there’s no question it was the right thing to do,” says Belarmino.

Administrators at San Joaquin Delta, a community college with the equivalent of 16,000 full-time students, modeled the expected prices of different financial management software over 10 years, comparing Kuali to similar offerings from SunGard and Oracle/PeopleSoft. They predicted a total savings of $1.6 million over the decade.

Large universities and community colleges are not the only ones interested in Kuali, either. Earlier this month the Stevens Institute of Technology, a private institution with about 5,000 students, went live with the Kuali Financial System. Tom Chapman, the head of business development at rSmart, a company that provides consulting and support services for Kuali institutions, says he has been approached by “10 to 20” liberal arts colleges about the open-source system.

But one should not be too quick to take the happy customers at Colorado State and San Joaquin Delta as evidence of an incipient revolution, says Jeff Jones, vice president of SunGard Higher Education, whose Banner financial management product is used by about 1,000 colleges and universities. A handful of early adopters, with another handful on the way, hardly adds up to a snowball effect, Jones says.

“I’m not going to sit here and tell you that Kuali is wrong, or a threat to us,” he says. “It’s the right thing for some people, wrong for others.” Surely some institutions have considered Kuali and realized that based on their needs and personnel, a vendor-supplied product would be a wiser choice, Jones says.

It does not necessarily matter to any given software shopper how much Colorado State and San Joaquin Delta have saved, or how much Cornell expects to save. “Unless there’s an apples-to-apples comparison,” Jones says, “it’s probably not right to compare it like that.”

There are other barriers to a hasty uptake of Kuali in light of positive early reviews, says DeStafano, the Cornell CFO. Replacing back-end software systems often carries greater risks for their administrative champions than do other projects, she says. Often, an administrator’s job security can turn on the success or failure of an ERP overhaul.

“The people who would make the decision are CFOs, who are very conservative [by nature],” DeStefano says. “…And there aren’t enough implementations yet for the more conservative decision-making schools to move toward Kuali.”

“Trust is the coin of the realm,” says Kenneth C. Green, director of the Campus Computing Project, which tracks technology usage in higher education. In the absence of detailed case studies — expected savings by optimistic early adopters will not do — many administrators will not be willing to risk becoming a cautionary tale, says Green, who also designs surveys and blogs for Inside Higher Ed. “Many still feel this is untested and unproven,” he says. “And the testing is underway.”

Some of the most influential institutions might not be in a position to lead the charge as they normally might, DeStefano says. Most of her Ivy League colleagues recently bought into vendor-supplied ERP systems, she says. To pull out now would be to squander tens, possibly hundreds of millions in investment, she says. Other institutions are likely in similar positions — even those for whom Kuali might be a good fit. The life cycle of back-office software is typically longer than that of other technologies, so change can be slower in coming.

Still, Burns, the Colorado State CIO, says he believes there is an eventual “tipping point” toward open-source (he calls the Kuali version “community-source”) in the offing. “The quality community-source movement is growing significantly,” he says. “Kuali is a killer app.”

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