Report – Governments could save $1 trillion globally through digitization

SUMMARY:

However, the McKinsey report highlights that there needs to be key enablers in place that have very little to do with technology.

man-wants-changeGovernments worldwide could save as much as $1 trillion through the effective digitization of public services – but the difficult task of getting the right mechanisms in place to enable proper change to take place shouldn’t be overlooked.

A new study released by McKinsey & Company looks broadly at the changing expectations of citizens and how governments are falling to meet demand, especially within the context of restricted public spending.

However, McKinsey argues that if governments looked at examples of excellence from around the world in terms of how public sector organisations have improved productivity, world government’s could save as much as $3.5 trillion a year by 2021 – equivalent to the entire global fiscal gap.

Alternatively, countries could choose to keep spending constant whilst boosting the quality of key services. McKinsey has developed a Government Productivity Scope methodology to compare the efficiency and effectiveness of government expenditure across countries and sectors, to help governments identify where they can improve and learn from examples of best practice.

The report states:

Despite the scale of public expenditure and its increase in recent years, governments are struggling to keep up with demand from citizens—and to meet their rising expectations. McKinsey research in the United States found that citizens’ satisfaction with key state services, such as public transportation, schools, and health-care facilities, was less than half that with most non-state providers, such as banks or utilities.

In areas including health care and education, the digitally enabled private sector is now competing directly with governments, offering citizens viable alternatives with radically different delivery models. Previous research conducted by McKinsey found that 75 percent of online customers expect help within five minutes of contact. Increasingly, citizens—as consumers of public-sector goods—are expecting governments to offer the same level of service.

And whilst the top level results are interesting, there is a key section of the report that focuses on digital and data as drivers of boosting productivity – alongside improving procurement, finance and HR functions.

It’s hard

McKinsey states that it doesn’t underestimate the challenge of digitizing government alongside the responsibility to protect individuals’ information. But as stated above, the potential rewards are huge. The report states:

End-to-end process digitization can significantly reduce costs and boost efficiency, while smart use of data—in areas ranging from student attainment to health diagnostics to infrastructure maintenance—can lead to much-improved outcomes and citizen satisfaction.

But regular readers of diginomica/government will be all too aware of the opportunities available. The Government Digital Service in the UK has been trying to get this right for over five years now, and in some areas has had great success. Savings have been made and the citizen experience has been improved in many respects, across a number of services.

However, challenges remain and the UK is far from being heralded as a digital success story. Some projects have failed, there are clashes between the old and new cultures, and leadership questions remain.

Which is why the McKinsey report is particularly interesting. It doesn’t simply focus on the technology opportunities available, but it also looks at the mechanisms that need to be in place to enable that change. The report states:

The first requirement is a clear focus on how to use technology to drive improvements: digitizing interfaces with citizens, automating manual processes, integrating advanced analytics, and sharing useful data. The second requirement is putting in place the necessary enablers that support governments in delivering these opportunities. These enablers include strategy; governance and organization; leadership, talent, and culture; and technology.

And its these latter points that are often underestimated and which we are going to outline below, given they provide a useful framework for consideration.

1) Alignment with overall strategy

The first thing that governments need to do in order to successfully implement a digital strategy is to align it with the top-level strategy of the administration in power at the time. For example, McKinsey cites Denmark’s ambitious digital strategy, which focused on cost cutting – a top priority in government at the time.

Another example is the United Arab Emirates, which drove change through a desire to become a more customer-centric government. It set has set an ambitious target that by 2018, 80 percent of people using government services should be accessing them via mobile.

However, laws and regulation may have to change in order to make this alignment possible, the report claims. This will often have to be driven by a central function. McKinsey states:

Finally, governments will often need to review and adjust laws and regulations that impede digitization and data usage. For example, different laws might contain inconsistent definitions of the same concept, such as the characteristics of a small vs. a large business, and regulations might require physical signatures for applications for ID cards or business registration, preventing the expansion of online services.

Again, the center of government has a key role to play in working with departments to remove regulatory and legal barriers (real or perceived) to digitization. A central entity can also conduct a systematic review of rules affecting priority digitization use cases across government—and actively lead the push to change those rules.

2) Governance and organisation designed for cooperation

Unsurprisingly, McKinsey’s second enabler for effective digital transformation is the ability for governments to overcome independent agency/department inertia and to get the public sector to act in a collaborative way.

We’ve seen in the UK, for example, huge tensions between the Government Digital Service and individual departments that resist being ‘told what to do’ by the centre. The report states:

Enacting these approaches, however, is difficult. Many government agencies have a deeply ingrained preference for operating independently. That means the center of government—whether at the federal, state, or local level—has a critical responsibility not just to set strategy but also to ensure effective delivery against that strategy.

McKinsey believes that this central role can be done in three ways: by being a strategy shaper and coordinator (top level advice); by being a centre of excellence (developing and acquiring expertise to share); and by being a development and solution centre (executing the digital and data strategy itself).

The UK’s Government Digital Service has attempted to adopted all three of these features – a model that McKinsey states has “achieved real success”.

However, getting this central role right is hard and it requires strong leadership. The report states:

Government leaders need to put in place the right governance mechanisms to support both overall strategy delivery and the day-to-day activities of the central unit discussed above. This task can be a challenge. In one Middle Eastern country, for example, significant funding was committed to a central unit to digitize parts of the government, yet ministries were able to maintain their existing IT budgets, so they had no incentive to adopt the centrally developed technology.

To overcome such barriers, the center of government needs to provide active leadership to ensure cross-government outcomes are achieved. It also needs to ensure that incentives within and across departments are aligned with the government’s strategic goals and regularly evaluate whether digital and data programs are providing their intended benefits.

3) Committed leadership, the right talent, and a culture that rewards risk taking

Leadership is always a critical component for a change programme. The UK, for example, benefitted in the early days from strong digital leadership from Mike Bracken (head of GDS) and Francis Maude (Minister for the Cabinet Office).

The McKinsey report states that the commitment of leaders is crucial, where they need to “take an active role in the planning of digital initiatives, reinforce priorities through frequency communications, and closely monitor the progress of implementation”.

The study also states that governments may need to build digital awareness and capabilities, starting at the top. It states:

New Zealand, for example, introduced its senior leaders to digital and innovation concepts with a full-day executive class that covered topics such as digitization best practices and hiring digital talent. It also included a live hackathon that let the participants redesign and digitize a series of citizen interactions, using agile methods.

However, it goes beyond this. We have seen in the UK that the civil service has had to undergo a huge recruitment drive and training programme to get the right skills in place. The report argues:

More broadly, governments need to mobilize the right talent—both specialized technical talent such as data scientists, cybersecurity experts, and machine-learning programmers, as well as professionals with skills in areas such as user-interface design, supply-chain management, and marketing.

And culture is also key. McKinsey rightly acknowledges that few governments have workplace cultures that reward risk taking, or create an environment that allows for experimentation, as well as failures.

4) Thoughtful technology rollout

Unsurprisingly, the topic of legacy IT was also addressed by McKinsey. As in the UK, most governments are burdened with ageing systems and/or are tied into outsourcing agreements that make innovation difficult. To overcome this, the report argues that a successful technology transformation requires not only investment but also excellence in project management on the part of government (something, in the UK at least, that has been a consistent failing).

McKinsey also calls on governments to collaborate and share insights to speed up transformation. The report reads:

There are also promising opportunities for governments to share knowledge and borrow one another’s technology systems so they do not have to build them from scratch. Finland is experimenting with Estonia’s system for exchanging data among government agencies, and Estonia and the United Kingdom have established a partnership called TechLink to exchange knowledge of cybersecurity, digital government, and smart-city development. Agencies within the same government are also consolidating their infrastructures in the cloud, which lets them deploy new services more easily and increase their purchasing power.

My take

An interesting report. We too often focus on the technology that will solve the problem, rather than the supporting network of enablers that will make any change possible. In the UK, for example, we have seen how leadership, culture, resources and project management failings have derailed projects and set-back agendas. This need to be invested in as heavily as the technology itself.

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