Interview: Scott Loose CEO of QK talks CCS transition
Not only was the Australian Government’s Child Care Subsidy package an overhaul of the nation’s childcare subsidy regime, it also required a complete re-work of the software and IT systems used to support it. The Sector Founder Jason Roberts caught up with third-party software provider QK Technologies CEO Scott Loose to talk about the changes that were required, and how QK worked with their clients to provide the smoothest transition possible.
QK Technologies supports over 7,000 childcare centres across Australia with QikKids childcare management software (CCMS), with clients ranging from large multi-site providers, to smaller operators with under four centres. The company prides itself on the support and service delivery that it provides its clients. Below, QK CEO Scott Loose details how the company worked with the government to deal with the CCS transition, and the challenges that were involved for QK and for providers.
Interviewee: Scott Loose – CEO
Organisation: QK Technologies
Date: 13 Aug 2018
Topic: CCS Transition
Jason: Hi Scott. Thanks so much for joining me this morning for a discussion about the Child Care Subsidy (CCS) transition. So, if we kick off, at what time did you start actively planning for the transition?
Scott: In essence we’ve known for some time that there were going to be changes in the sector. The legislation was all caught up in the senate, so we never knew the date but we knew it was coming. Then the government managed to get their agenda through. At that point we realised that the government – and by government I mean the Department of Education and the Department of Human Services – had been working on the project for quite a considerable amount of time, but they didn’t really want to engage the software providers because the view was, if we don’t have the legislation, we don’t have the budget so what’s the point of engaging. They started to engage in earnest about 12 months before the change – around June/July of last year. That was the first time that they started a sector-wide engagement with software provider forums.
Jason: I see. What did those forums look like?
Scott: It was an open forum, basically all software providers would attend. The government would then start to expose their agenda in respect to how they were planning to implement the CCS. Remember, there’s a couple of things happening here. This is not just about a change for the childcare sector – the government effectively threw out their entire CCMS system. They rebuilt their back-end and have now integrated with all of the other government agencies to get real-time data matching between a number of other agencies. So this is a much more complex project than just childcare from the government’s perspective, it’s a major reform of the entire childcare system in the context of all other government systems.
Jason: Right. So CCS was just part of a much bigger picture?
Scott: Yes, and a large driver for the government in this is, of course, to improve their ability in real-time, to reduce fraud and to ensure that misuse of taxpayers monies does not occur.
Jason: Interesting. What did that mean for you at QK then? If the government were resetting their back-end, did that mean you had to reset your back-end too?
Scott: In the early stages the answer to that was yes. We thought we would need to do a total rewrite. Now, I guess through the engagement process with the sector there was a lot of modification to that. So, we ended up moving towards only changing interfaces. There were a lot of technical issues that came up through that and then subsequently got resolved. But I think more importantly – from our perspective – when we went into it, we really took a position of leadership among software providers largely because of the knowledge we have of the sector and how things work. We started to become more interested in challenging what we felt was not going to work for the sector as opposed to necessarily what was not going to work for QK. We took that mindset into the discussion which was important because there were all kinds of things that the government were doing early in the piece that would never work for the sector.
Scott: This was really in terms of the way the software systems work – the way payments worked, the way billing worked – and all that kind of stuff. The government didn’t have a lot of detailed knowledge about that at all. So, in that early phase there was quite a bit of reshaping of the agenda. For example, in the early phase, the government was considering aligning the sign-on/sign-off process through an app as part of the software product change.
Jason: Ok. That’s very aspirational.
Scott: Yes. It would have involved parents and centres adapting to a process similar to someone using a Medicare Card and swiping it through a reader, but obviously there are a lot of practical issues from that point of view – from a central point of view – that wouldn’t work. So, we worked through a lot of that stuff. And that detailed work, with all of the providers together, probably continued for six to seven months through to January 2018. And by that point in time, we were very much on the development path. But part of the challenge was the scope kept changing.
Jason: I see.
Scott: In effect, while we’re developing one part of the system, other elements had not been properly scoped. This meant that when we commenced something and then it changed, we had to then change with it. That was hard but we took a view that we don’t want to get in the way, we just wanted to shape the process the best way that we can for our customers, and we want to make sure that we deliver the best outcome for our customers at the end of the day. In essence, we basically said, “it doesn’t matter what the government’s doing, we’re going to treat the government as a partner because we are a critical part of this and if we don’t get there the sector will close down”. The attitude was that we need to do this, whatever we need to do, whatever the roadblocks are, whatever the cost implications are, we need to make this work. And that was basically the philosophy.
Jason: Ok understood. I suspect you would have had to mobilise a project team which would have to be quite dynamic in nature because the goal posts were always moving?
Scott: Well, yes, that’s right. Looking at our team, we have over 300 years of childcare experience in this business. The real expertise to work with government on this solution was actually all here. We was prioritised all those key knowledge-base people to the government project (as opposed to our non-government projects). Where we used external resources, this was to keep other development activity going which wasn’t related to the CCS. I have to say probably 70 per cent of the business-as-usual resources for development and the business for the last six to seven months has been on CCS.
“Looking at our team, we have over 300 years of childcare experience in this business. The real expertise to work with government on this solution was actually all here. We prioritised all those key knowledge- base people to the government project…I have to say probably 70 per cent of the business-as-usual resources for development and the business for the last six to seven months has been on CCS.”
Jason: I see.
Scott: And will cost us in excess of a million dollars in the end.
Jason: Understood. I suspect there are some unsung heroes buried in your office, on the development side, who were coding like crazy, trying to get to deadlines, making stuff happen.
Scott: Particularly towards the end and mostly weekends and at night time. Yes, they were very busy. We were also engaging with the sector through subcommittees that we were using to feed information to them. And we were working quite closely with these subcommittees.
Jason: Let’s explore how you engaged with your customers. On one level you have the large providers like Goodstart,Affinity or Guardian who would have their own project teams driving their programs, and then there would be the long tail of the smaller operators with one, two, three or four centres. How did you engaged with the two sets of stakeholders – were they different? And if so, how?
Scott: I think the smaller operators are reasonably ‘cookie cut’ in terms of what their needs are. In essence, you can have communication with one or two or three leaders amongst that group and it can have a fair bit of consistency. But with the larger operators we had a bit of variation of systems capabilities, approaches and insights. G8 Education versus Goodstart versus Guardian, for example. So, there’s a fair bit of difference amongst these providers that we had to cater for.
Scott: The other issue is that, we have a deployment strategy with our product. Some customers receive a web-based product. Some customers have a product that is hosted. And for the hosted products, we do not do their updates. So, at the back-end we are not going to be doing everything for them. That means they have different needs. Also, we had some customers right at the end that had quite a sizable acquisition going on, right in the middle of changes. There wasa whole heap of bespoke requirements around the transition that emerged out of that, that that we had to cater for. So, they’rethe kind of challenges we had, and it was important to make sure that we’re juggling all of the balls, getting all of the large providers across the line. In this way, it was a little bit easier to manage the tail at the time. Also I have to say, we had concerns in the early stage of the process with some of the government’s ideas about how they were going to deploy and implement the CCS and the consequent impact on the smaller providers because the whole purpose of the CCS package is actually to increase capacity and availability of childcare – and we could see some of the things that they were doing were actually going to detract from this with the smaller operators.
Jason: I see.
Scott: The government really has three driving aspects to this from the government’s perspective. One is a total update of their internal systems and those systems interfacing with other government agencies. The second part of it was the actual childcare sector needs, which is the package, which is where the government has recognis the importance of the economics of available childcare to labour and wanting to create capacity in the system. And then the middle piece was a whole heap of elements about security and appropriate use of government money. There being some substantial fraud challenges in some sections of the ECEC sector not so much long day care – but certainly in other areas There have been some real challenges here, and some of those have even seen funds flowing offshore to undesirable places. So, there was a very strong security element to this, which wasn’t necessarily about enabling the legislation. When people think about the childcare reform, they often think about it just in the context of subsidies – who’s going to get support and who’s not going to get support – and that’s one third of the complexity of the total.
Jason: Interesting. If we follow on that, this notion of red tape, do you think the system that we’ve got in play now is more or less of an administrative burden?
Scott: Certainly, we’re exchanging a lot more information with the government than we were previously. The government demands on the system have dramatically increased and because the demands on the system have increased, the number of queries we manage with the government have increased. But the other thing that’s happened is there’s been some level of separation. And again, I think this is more related to fraud and real-time data matching and not creating situations where families are overpaying and potentially needing to pay money back. But I also think there’s been some separation of the parent from the childcare centre, in that parents now are actors in this process, being requiredto go through MyGov to get the CCS.
Jason: For example, to confirm your enrollment.
Scott: Yes. Previously families didn’t need to do that, you know, and that’s going to be an ongoing requirement. As things change, they’re going to need to use MyGov more often. There are different layers of requirement and some of those things in MyGov actually require the parent to provide information to the childcare centre, which then comes into the QK product. This is a pretty dramatic difference when considering the level of complexity in the back end.
Jason: But what about the actual payment system?
Scott: From the point of view of the payment system, that’s been simplified. But I don’t necessarily think that everybody sees that when you look at all of the other actions that have to happen.
Jason: I see. But with respect to the administrative burden isn’t much of it really rooted in accountability for taxpayers’ funds received?
Scott: There aren’t too many countries in the world that invest in their childcare system in the way that the Australian government is investing in Australia’s. I mean I’ve been a parent with children who were part of childcare, that’s a past part of my life. Now as a high net taxpayer, I expect efficiency and accountability of government services for younger people like you that do have children in the system. So, you know, in essence, I can’t say – thinking independently as just as a taxpayer – that I’m unhappy with the level of accountability that’s been brought in from what is a very substantial amount of money.
Jason: Let’s step back a bit. You mentioned previously that QK has been doing a lot of webinars and a lot of training, and I’m assuming those webinars were focused on your customers, irrespective of whether they were at the big end of town or at the tail, is that right? And what was the content of those webinars?
Scott: We provided customised webinars for some of our larger customers and webinars relevant for everybody. The main reason for that was to ensure that we educated the client base on the change and what the implications for the change meant. So, I mean, we delivered hundreds of hours of webinars to tens of thousands of our customers. And predominantly, it was more about preparing them for what’s coming because and to some degree making up for some of the more generic information being received from government. And the reason we wanted to do this is because at the end of the day, we wanted providers to be prepared when we got to the transition point and because there were multiple actors involved at the transition point. Even post transition we are still dealing with call levels into our support centre which are way above what would be normal with people adjusting, but if we had not educated the market that would have been a much more significant problem. And the other reason that we needed to educate providers is because this process wasn’t as simple as providers coming up to the 2 July 2018 and expecting that their software provider had handled everything for a smooth transition to a new system on the 3 July 2018 – because as we recognise now it requires actions by multiple actors. Parents had to do things in MyGov, centres had to do things, and if none of those things were done, it didn’t matter what I’d done as a software provider – on day two of the new system they wouldn’t be able to make transition. And I think probably, if you dug into the statistics, a lot of the problems that were exprerienced in the first week I think probably revolve around the fact that there were multiple actors that had to do multiple things in order to make this transition. It was important for us to try and get everybody to fully understand what they’re required to do, when they’re required to do it, for us to be able to do our job when the transition came.
Jason: Interesting. So overall you feel that you navigated it quite well.
Scott: Yes, we have no systemic problems at all. We have lots of isolated cases, but part of that also goes hand-in-hand with 55-60 per cent market share. If there’s something that’s systemically related to a family or something that’s a little bit left field you’re more likely to find it in our client base than you are than a smaller provider.
Scott: There’s always odd cases where something hasn’t panned out right but systemically we haven’t had any issues. By the end of that first week when people will have started billing, anything that we would have seen from a system perspective had been well and truly resolved.
Jason: That’s terrific.
Scott: But that’s also accepting that some of the government’s agenda got pushed out. So, we haven’t got there yet.
Jason: Such as what?
Scott: Predominantly things that weren’t critical to their legislative agenda. So, they’ve delayed, for example, the requirement for childcare centres to mandatorily submit time-in and time-out data until January 2019. From the perspective of our client base, any provider who has a kiosk wouldn’t have a problem because it’s tightly systemised. We could have implemented that from day one of the CCS.
Jason: I see.
Scott: But if you don’t have a kiosk or you don’t have an interface then that’s manual data entry that would have been a mandatory requirement. I think that would have been challenging on top of everything else. I think more than 70 per cent of our customer base is on Kiosk now, so it’s not going to affect too many of them but there are a number of compromises the government made. I think there are some things like sessional care and so forth that still have got more time to play out. So, I think over the next six to 12 months, there will still be a fairly consistent level of CCMS or CCS development going on as a thread for the software providers before the government fully implements their agenda.
Jason: I see. It is a very material project isn’t it?
Scott: Yes. We have had two fairly significant changes in the last six years but this one is by far is watershed in terms of what it’s done. We’ve had some years where there’s been next to no requirement with a bit of change in reporting and so forth. So, I guess in a sense that can present a problem because if you’re a small CCMS provider in the sector, how do you scale up when something like this arrives? I mean, we’re fortunate that we’ve had scale.
Jason: Yes, that would be right. In terms of the government was there a particular government department that you’ve been engaging with?
Scott: Well, I guess the scale of this project was fairly massive and because of that the government bought in a lot of external resources – particularly to help with the big IT project happening in the background. So, I think a lot of the policy and so forth was driven by the Education portfolio, and then the Human Services portfolio covered the system development, the architecture, the way that it’s working, the way that it interfaces behind the scenes. So, we’re dealing with both I guess. Through that change though, particularly with a lot of external resources coming in, I think one of the challenges was the loss of core technicians that had long-term capabilities in CCMS within the government. There was a fair bit of re-education but a lot of that was also playing out through that early period of engagement. I mean, in hindsight, it would have been better if they had started to talk to us even earlier because we might have been able to shape some of those ideas earlier in the process.
Scott: Yeah. If the process had started earlier there might not have been as much re-working because we might have sorted those conceptually things out in good time.
Jason: That being said, my sense is that the government were quite grounded with respect to how they engaged with you at the government level. Quite pragmatic.
Scott: Sure. And again, our approach to this was whether we like it or not our customers need this. Whatever happens here, the government’s our partner, they’re not our enemy. How do we get this reform through was our guiding principle. That wasn’t a guiding principle of a lot of other software providers in the sector but I kind of distanced myself from that and said, “look we are just going to run our agenda with the government”. Whether we like it or not in the interest of our customers the government is our partner and we need to maintain that relationship. We need to be able to have fierce conversations when we need to, but we need to do it in an environment of trust that we’re all trying to work towards the right outcome here. Some other CCMS providers didn’t see it like that, I think mainly because of their scale, the timing, all kinds of stufft. I mean there was an early view that the government was looking to replace CCMS providers.
Jason: Yes, that idea that the new CCS is or was an existential threat to CCMS providers would have been challenging to manage.
Scott: So, there was a lot of fear. There was also a lot of fear about the scale of the project, the size of the project, the timeframe of the project. So, there were some providers that were saying we all need to band together and we need to be saying we have to stop this. We were just not interested. That really wasn’t in the best interest of our customers and wasn’t in the best interest of achieving the outcome. So, it’s not to say that we haven’t had fierce conversations through the process with the government, but we’ve taken a view – as they have – to say we see this as a partnership in delivering an outcome, as opposed to an adversarial process where we’re just representing our own interest. At the end of the day, I think that’s worked fairly well and I think we’ve built a fairly good relationship of trust with the government and, given who our customers are, that was important.
Jason: Yes, I see. So, looking forward how do you see things unfolding sector-wide in response to the introduction of the CCS? Do you think it’s going to change people’s behaviour whether it be operator, CCMS provider, families, centre manager?
Scott: Well, I think that rather than necessarily being the catalyst – although it has been a bit of a catalyst – and you would know this from you recent G8 experience, there are some substantial changes occurring in the competitive environment at the moment. We’ve been moving progressively away from a period where there was a fair bit of unmet demand in a lot of areas now to a point where we’ve now got oversupply in a lot of areas. That’s bringing with it competitive pressures. There’s a much stronger developer interest in the sector. A lot more centres being built. I think there’s a lot less buying of centres between providers. And to a degree, some of the childcare changes I think have occurred at the same time as this sector dynamic is happening where people are looking at the changes and kind of saying well, how does this give me an opportunity to differentiate?
Jason: I see. Please go on.
Scott: They’re picking up certain things. One of the things everybody is picking up is that they probably see the notion of sessional care over time being more of a theme. Currently, your child’s in care for an hour, you get paid by the government for a day. That clearly, if I put my taxpayer hat back on, doesn’t sound right. So, I think I would sense amongst my customers a general feeling of ‘how can I use these two things, the supply dynamic and the CCS change, to my advantage in becoming more competitive?’ So, I think we’ll see pricing positions change. I think we’ll see the way providers want to charge for their services being more innovative. I think people are recognising that they’re going to need to fight a little bit harder for occupancy. And at the small end of the market, we’ve got a lot of innovators, small innovative providers entering the market now. They’re taking a very parent-centric focus, in terms of the service delivery. They’re offering coffee and other value added service for parents and they’re actually recognising part of their service model is servicing the child and the busy family as well. So, they’re moving into areas where there might be actually no unmet demand but they’re coming in with a better honed product.
“I think we’ll see pricing positions change. I think we’ll see the way providers want to charge for their services being more innovative. I think people are recognising that they’re going to need to fight a little bit harder for occupancy. And at the small end of the market, we’ve got a lot of innovators, small innovative providers entering the market now. They’re taking a very parent-centric focus, in terms of the service delivery.”
Jason: Yes, understood.
Scott: Some providers in the space where there hasn’t been an oversupply haven’t probably been investing as much as they have to. And now that centre has become a bit tired and the playground equipment has become a bit tired and the innovators are just moving in and they’re saying well, we’re taking a different service model. Everything is new, but we charge 10 per cent more and people are saying, “well, I’m happy to pay 10 per cent more”. So, I think the dynamics of the CCS change aren’t necessarily the catalyst for all of the stuff that’s happening at the moment, but coupled with the sector-driven changes and also the need for providers to be more focused on operational efficiency, it is a bit of a watershed from a client perspective as opposed to just from a government childcare perspective.
Jason: Yes. Thank you for that insight. It will be interesting to see how the sessional care piece unfolds. I guess we will have to wait and see the government enforce the mandatory reporting of sign-in and sign-out, but once that is in place I suspect there will be a lot more discussion around optimising your package to shorter blocks.
Scott: The biggest challenge I see in that from a sector perspective is labour relations because if we move in that direction, the big challenge that the sector has is – not from a union perspective necessarily – a sector of educated people undertaking critical tasks in which you’d have to say relative to some other sectors are underpaid, and that’s well documented. And I don’t think a lot of parents and others would deny that. Then, of course, the elephant in the room is always the issue of the cost of care increasing and the government is needing to continue to put money into it to keep it affordable. But if we did go down an hourly subsidisation the sector needs to look more like the hospitality industry or the retail industry because the dynamic of managing labour is going to change. And I think within the sector, a lot of our customers are putting a lot of thought into that.
Jason: I see.
Scott: And asking “how am I going to position myself when that eventually happens?” I think the big risk for the government in that is that in order for that agenda to happen, they’ll have to consider the labour side of it because clearly, the childcare sector is not going to move to look like the etail industry without some change in remuneration. The real risk in that is all of the additional funds that have just been funnelled into childcare gets sucked up into their salaries and wages, and that doesn’t help the economic agenda of ensuring families have sustainable childcare to support women in the workforce and all those other issues so…
Jason: Well, that’s right. The consequences of increased sessional and the inevitable casualisation that creates is an area to watch. What adds additional energy to that debate is the cost of staffing those centres under that model which is already given increased scrutiny through the lens of the pay equalisation drive.
Scott: Especially with this innovative sector that’s now come in with a differentiated product because at the same time that there is change required in order to be competitive, those that haven’t been investing in their centres from a capital perspective are going to have to start investing. And it seems like every property developer – whether it’s an individual, whether it’s an entrepreneur or whether it’s a large development group – wants childcare as part of their property portfolio. So, I don’t think this issue of people trying to find creative ways to put more childcare capacity into the market is going to go away soon. And that’s a fair change from when you look at where we were three to four years ago when hardly anyone was building centres – G8 Education, Guardian, Affinity were all acquirers not builders.
Jason: And only when the ability to buy dried up did those providers start to engage in a greenfield strategy. So, rather than buying growth, the larger providers were forced to build growth and the challenge is everybody did it at the same time and actually, it hasn’t stopped.
Scott: Well, I think the other problem is that a lot of people who were building were actually building reasonably high-quality services, and amongst the buying there was also a fair bit of low quality.
Jason: Before we wrap up, is there anything that I might have missed? Anything that you want to share for the record?
Scott: No, not really. Look, given everything that could have gone wrong, in all of the contingencies that we thought through that could have gone wrong both from the government perspective and from a QK perspective, despite the pain – and I don’t deemphasise the pain that childcare centres and parents had to go through – I actually think the transition was pretty clean at the end of the day in terms of the changeover. So, it’s easy to get hung up on the negatives but the dimensions of this project as we discussed earlier were way bigger than just the market perception of changing subsidies to childcare. There were substantial elements of this lying underneath the legislation of rules that was being managed through this process. So, I think the fact that is we did it, and the government by week two had statistics to show how much money was flowing to the right people at the right time. Even though there were some who have had challenges, I think the outcome relative to all that was a pretty good outcome.
Jason: Terrific. Thank you, Scott, for sharing your time, insights and experience with us this afternoon.
Scott: My pleasure Jason