Of all the projects that could be described as too big to fail, replacing a nation\u2019s entire tax system would surely count as one of them. Greg James, a deputy director at Inland Revenue who runs that transformation project, describes it as a \u201ctotal makeover\u201d. More than a huge technology play, it\u2019s a complete business transformation\u2014reforming processes, legislation, and organisational design. \u201cAt the end of it, we haven\u2019t upgraded anything; we\u2019ve literally replaced everything,\u201d he says.\nAccording to its latest annual report, Inland Revenue collected revenue of $78.2 billion in 2019-2020, primarily from 3.9 million employees, 216,000 employers, and 377,000 companies. In addition to collecting tax, it administers, in partnership with other government agencies, social products such as child support, Working For Families Tax Credits, Kiwisaver, paid parental leave, and student loans.\n[ Keep up on the latest thought leadership, insights, how-to, and analysis on IT through CIO\u2019s newsletters. ]\nThe seven-year project to completely overhaul the tax system, known as the IR Transformation Programme, is entering its final year, and James is confident it will come in on time and below budget. \u201cWe will tie a bow around it, on or about 30 June 2022.\u201d That\u2019s in line with the approved proposal\u2014and despite the replanning required due to the COVID-19 pandemic.\nThe initial budget approved by Cabinet was $1.5 to $1.7 billion, but James says its likely the final cost will be between $1.4 billion and $1.5 billion. About half that cost was financed accumulated depreciation, and the other half was new money to transform and renew, he says.\nRelying on commercial tools for the long term\nThe project has involved moving every Inland Revenue product off the Cobol mainframe system called First, which was built in the late 1980s and early 1990s. It grew organically as the government\u2019s demand on Inland Revenue increased, until it reached a stage when, from a practical standpoint, the IT team couldn\u2019t turn any of the components off because of the complexity that had developed.\nAs Inland Revenue builds the new system, First has remained functioning, a job overseen by Accenture. While Accenture has piloted the old system, several vendors have been working on the new core tax system called Start, and the content management system called Stax. Fast Enterprises, a US-based company, has been the main supplier of the core tax system; the back-office technologies have been largely provided by Oracle; SAS is supplying the data and analytics capabilities; and Assurity Consulting has been used for testing.\nWhere possible, Inland Revenue has opted for commercial off-the-shelf products, in part to ensure that the system is future-proofed. James says this means Inland Revenue benefits from the research and development that commercial partners undertake, and it ensures that the new system is continually upgraded via the vendor\u2019s regular software updates. \u201cWe don\u2019t get back into a state whereby we are languishing many, many versions behind what is the current solution in the market place,\u201d he says.\n\u201cWith Fast Enterprises, we sit as part of their international customer base and we talk to them very regularly about the types of developments and innovation that we would like to see in the product. They are very good at listening and we then find that 12 to 18 months later, the conversations that we had where we said, \u2018We\u2019d like to do this in the digital channels\u2019, they\u2019ve already built it into their core next release for us.\u201d\nWhile Oracle is a much larger provider with less participation from each individual customer, James says that Inland Revenue benefits from the \u201cmillions of customers they have out there, and similarly their total focus on research and development and innovation of their product sets.\u201d\nManaging the balance between in-house staff and external contractors\nThroughout the project, the number of staff has fluctuated, with 1,000 full-time staff employed during its peak. James estimates about 70% to 75% have been in-house and 30% to 35% were external contractors. \u201cWe\u2019ve maintained that split all the way through. Which has been fantastic because we\u2019ve been able to build a huge amount of capability in the [Inland Revenue] teams that have been involved all the way through the journey,\u201d he says.\nJames says the advantage of external partners is that they can offer highly specialised skills that may be required at certain stages. \u201cMost organisations don\u2019t carry that level of bench strength, so you do need it.\u201d\nThe key is to successfully managing external partners is to develop a \u201ctrue partnering model\u201d. As a result of that model, James says the quality assurance teams brought in to assess the project at different stages have commented that they\u2019ve come back from meetings not being able to pick who is employed by Inland Revenue and who is employed by the vendor.\n\u201cWe run a scoring system with our partners where we score them on a number of different dimensions. It\u2019s a very open process. We share with them not only the scores but all the conversations and data points that we have about them, and then we talk to them about if they are off pace a little bit. We talk very transparently about we or they need to do to get back on the pace,\u201d he says.\nEvery quarter, the vendors get to score the Inland Revenue team, and following that there are some \u201cvery direct conversations. You don\u2019t go to bed at night and not sleep, festering about stuff that\u2019s been left unsaid. It gets out on the table; we work collaboratively to solve it and get the best outcomes.\u201d\nManaging a large set of stakeholders\nEvery citizen has a stake in the tax system, so James has had multiple stakeholders\u2014including the minister of finance, business groups, and employees. \u201cThe whole stakeholder management is huge,\u201d he says.\nThe team has developed its strength in managing stakeholders bit by bit. For example, \u201cour first release back in 2017 was GST [goods and services tax]. We used it to dip our toes in the water and get a bit of experience. Prove the product, but also prove processes and the implementation approach,\u201d he says.\n\u201cOne thing we learnt off the back of that was that the view that we had around how the accounting profession operated was not really in sync with practically the way they did and do operate.\u201d So, after feedback from professional groups, they hired accountants from commercial practice directly into the programme to help them better understand the profession\u2019s way of operation. James also invested in account managers who would \u201cbe the voice of the customer\u201d by looking after various sector groups and providing feedback on each major release in the project.\nHandling the COVID-19 curveball\nWhen COVID-19 hit and the Level 4 lockdown shut down huge swathes of the economy, Inland Revenue was charged with facilitating the Small Business Cashflow Scheme, which paid out $1.4 billion during the first national lockdown. James says it was fortunate timing in that COVID struck a year after they\u2019d had brought all of the tax products over to the new system during Release 3 of the project.\n\u201cOne of the original tenants of the business case was to put flexibility back into tax system for successive governments. I think the COVID relief stuff really has highlighted that in a nutshell. An example is the small business cashflow scheme\u2014that took us 39 days from idea to creation to be paying money into businesses bank accounts off the back of the application.\u201d In the old mainframe system, to do the equivalent would have taken nine to 12 months, James says.\nThe Inland Revenue team have since gone on to facilitate the resurgence payments that have been dispensed following the subsequent two lockdowns. It has also assisted the Ministry of Social Development with the wage subsidy scheme that paid out $12.7 billion in the first national lockdown.\nWhat\u2019s been added, what remains to be done\nAmong the new solutions is an annual autohelp process that automatically assesses the tax liabilities and refunds for about 2.5 million taxpayers. There is also the new data and analytics capability that helps identify \u201cpockets or sectors\u201d where people are not paying their fair share of tax, or where people may be struggling to understand tax compliance.\n\u201cIt\u2019s helping us to understand the areas where tax is still too complicated for people and therefore helping us drive simpler processes and using some of these vehicles as educational tools to ensure people get it right from the start,\u201d James says.\nThe final major release will take place during Labour Weekend in October 2021, where they will transfer across from the old mainframe system the last major tax product\u2014child support\u2014as well as release an upgrade of all Inland Revenue\u2019s digital services. After that, it\u2019s a matter of bedding in the new systems, closing down most of the old system, and finalising the organisational structure to manage the tax system into the future.\nWhen that happens, James says he will have seen through his commitment to Inland Revenue. \u201cWe\u2019ve got a fantastic young team that can then pick up the reins, and I\u2019ll consider my options in terms of what I want to do, whether I want to pick up the tools or get more into the governance and advisory type services.\u201d\nJames, who previously led Fonterra\u2019s change programme, says what motivates him is leading projects that are too big to fail. \u201cThe reason I\u2019m here is because I\u2019ve seen so many large-scale programmes fail, and that frustrates me because I don\u2019t believe that there is a need for programmes to fail. I don\u2019t believe that any of the commercial technologies out there are bad. I believe that they are all capable of delivering, but you need to have absolutely the best teams around you to make sure you get the best outcomes,\u201d he says.