How To Transform The Public Sector Of Australia

Transcription

1 Public Administration November 2013 White Paper Towards 2025: Delivering public sector digital transformation in Australia Improving services and increasing efficiencies in a new era of public administration

2 2 Towards 2025: Delivering public sector digital transformation in Australia Contents 2 Executive summary 2 Introduction 3 Why change is vital 4 What needs to change 8 How to tackle change 11 Conclusion Executive summary Like others in developed markets around the world, Australian governments face significant revenue and expenditure pressures which are set to get worse as the country s population ages and the proportion of working-age people decreases. At the same time, expectations of government continue to rise in terms of efficiency, speed and convenience of service. The result is that the public sector may be under sustained pressure to cut the relative cost of public administration while improving service availability and quality. As government organisations are discovering, digital technologies can hold the key to achieving these potentially contradictory goals. Public sector organisations are encouraging citizens to embrace self-service by deploying more advanced websites and mobile applications. They are also using big data and analytics tools to more precisely target services and improve decision-making. However, new technologies can only achieve so much. Digital transformation requires significant cultural and operational changes to enable technology to be applied effectively. It must be accompanied by fundamental reforms across the public sector. For example, in our view, government organisations will need to embrace new ways of working and interacting with citizens, move to flatter organisational structures to become more responsive and flexible, and adopt more collaborative ways of shaping and delivering services. Some of these steps are already being taken. However, the pace of change may not be not fast enough to keep up with the demographic changes that are rapidly moving through the system. If the process of digital and structural transformation can be accelerated across the public sector, we forecast that the cost of public administration could fall from 4.8% of nominal GDP in 2012 to 3.9% in If it isn t and we stick with business as usual, this cost would be 5.1% of GDP or some $39 billion a year higher by the year Introduction To assess the future impact of digital change on Australian industries, IBM commissioned the National Institute of Economic and Industry Research (NIEIR) to produce an in-depth report, which was released in August The report quantifies the impact that digital technologies will have on key segments of the economy and individual enterprises from now to It also reveals the challenges businesses and government organisations will face due to digital transformation. As Andrew Stevens, Managing Director of IBM Australia and New Zealand, says in the report foreword: This report reveals that over the next decade we will see significant gaps open up between enterprises that proactively transform their operations for the digital age and those that continue with business as usual. These gaps were quantified by NIEIR using economic and financial modelling. Many of the differences between leader and follower enterprises were astounding, highlighting the need for both private and public sector organisations to act quickly to ensure they continue to thrive in the digital economy. This paper takes the themes from the IBM and NIEIR report and further explores its implications for government organisations. We also discuss what we think government agencies should do to make their digital transformation programs a reality. In addition, this paper references IBM s recent Global C-suite Study, which draws from over 4,000 face-to-face discussions with C-suite executives in 70 countries. 2 More than 500 of these executives were from public sector organisations.

3 Public Administration 3 Existing initiatives Government organisations have already shown a strong commitment to digital technologies. For example, the recent Advancing Australia as a digital economy strategy update quoted a finding by the Australian Government Information Management Office (AGIMO) that more than 1,000 government services are now available online, with a further 320 planned for introduction in Included in this strategy update is a Digital First initiative that commits government agencies to using digital channels as their main form of service delivery and to specific milestones. The initiative also aims to implement end-to-end online processing for government services, with single authentication by the end of The new Coalition Government plans to build on this strategy. For example, the government will trial an opt-in digital pigeonhole a free, secure digital inbox for communication from all levels of government. The new government also wants to work more closely with state organisations responsible for the bulk delivery of services to update all their digital strategies and ensure world best practice. High-transaction agencies such as the Department of Human Services are already well down this path. For example, as of December 2012, some 88% of Medicare claims were submitted electronically and 1.2 million Australians accessed services using the Australia.gov.au website. 4 Why change is vital Nevertheless, in our view, the rate of change needs to accelerate. In 2012, Australia s public administration sector (comprising state and federal administration agencies and the areas of justice, education and health administration) employed approximately 730,000 people and cost $71 billion to run. Based on current trends, NIEIR s modelling shows this amount is expected to more than double by 2025 to $175 billion or 5.1% of GDP. As revenue and expenditure pressures increase for federal and state governments, this trend cannot continue. Exacerbating this challenge are the changes in population demographics that will affect the demand for government services and the proportion of Australians in productive work. Australia s population growth is slowing: by 2025 it will have fallen another percentage point to 1.4% per year. 5 Fewer and fewer people will be generating the wealth needed to support the 25% of the population that will then be over 65. Due to these hard facts, we think government productivity must improve or we may not be able to sustain our current living standards. Key outcomes of digital change Digital transformation can offer a number of highly desirable outcomes over the next decade and beyond providing another strong incentive for accelerated change. These could include: Digital first Citizens could do the vast bulk of their business with government online compared to today. Public sector staff could also increasingly collaborate with other staff, third-party partners and even citizens online. Access anywhere Citizens could have full access to government services from mobile devices from anywhere, anytime. In fact, this could become the norm. Line-of-sight service delivery New analytics capabilities will help give policymakers nearreal-time access to program delivery metrics to help enable rapid, evidence-based policy adjustment. This presents the opportunity to minimise the feedback time for policy effectiveness. A segment of one Instead of relying on traditional market segmentation, services could be precisely targeted at areas of need, such as a specific healthcare service for an individual. This will help improve policy outcomes and help save money by reducing waste. Omni-channel All channels of interaction, including bricks-and-mortar branches where it is needed, could be integrated to enable public servants to help deliver high-quality, accurate and targeted services.

4 4 Towards 2025: Delivering public sector digital transformation in Australia Talent accelerators Public servants could be increasingly mobile and equipped with sophisticated tools that allow rapid and accurate decision making. Collaborative partnerships Networks of government departments, partner agencies and non-government organisations could be built on sophisticated, analytics-based case management techniques. What needs to change Digital technologies are at the heart of the changes facing government organisations. According to IBM s recent Global C-suite Study, CEOs from around the world are united in believing that an entirely new set of market dynamics is emerging and that technology is the single most important external force reshaping their organisations. Productivity dividend Improved governance and information exchange standards will help allow close to real-time performance measurement of the unit cost of service delivery Technology factors Market factors Macro-economic factors People skills The overall benefit to governments could be significant and ongoing. NIEIR modelled a scenario with accelerated digital transformation which forecast the cost of public administration falling from 4.8% of nominal GDP in 2012 to 3.9% in Compared with the current trend in government spending, this represents a potential efficiency dividend of $39 billion in lower annual expenditure in However, we believe two key questions will help drive a more comprehensive digital transformation across government organisations over the coming decade: How will significant productivity gains be realised for the benefit of government and society overall? And how will individual government organisations undertake digital transformation to deliver sustainable outcomes? This paper focuses on ways to achieve the above outcomes and deliver real benefits to citizens and governments. Regulatory concerns Socio-economic factors Globalisation Environmental issues Geopolitical factors Figure 1: IBM s research shows how the significance of technology as an external force is increasing. However, the benefits of new technology derive less from automating what already exists than from transforming business and operational models. Transformation does not depend on the technology itself, but on the way it is used and applied. IBM s Global C-suite Study identifies some key areas of digital transformation over the medium term. Small partner base Bigger partner 11% 73% network Face-to-face interaction 20% 68% Partnering to increase efficiency 25% 61% Focus on customers as segments 33% 54% Organisational control 28% 52% Social/digital interaction Partnering to increase value Focus on customers as individuals Organisational openness Neutral Figure 2: The majority of C-suite executives see the business landscape changing over the next three to five years.

5 Public Administration 5 These sentiments have major implications across the private and public sectors. For government organisations, digital transformation could mean fundamental changes across three broad areas: 1. Business models in the public sector may need to radically change because citizens expect greater flexibility, immediacy and transparency. 2. The public sector s capabilities could be seriously challenged, because digital technologies require very different ways of thinking, working and interaction. 3. Embracing a more comprehensive approach to data could be needed due to new technologies such as social media, unstructured data, big data and analytics. 1. Reshape the business model Government organisations were originally shaped around process-driven, paper-based contact with citizens. There was little interaction with other government agencies. Digital technologies are changing all that. Maximise networked government bandwidth We still have individual agencies, but they operate as part of a connected network because government knows it cannot do it all itself. Public servants are connected to each other and to citizens, while at the same time citizens are highly connected with each other. In other words, government organisations operate as nodes in a widely connected socioeconomic network. This concept, called networked government 6, is not new. What is new is the digital capacity to make it happen. The network is now connecting people in ways that could not have been imagined even 20 years ago. Government policy and service delivery can be improved through the judicious adjustment of network relationships and capacity. However, the principal capacity limitation of a network lies not in the capacity of its nodes, but in the bandwidth of the connections between nodes. Improving these connections can help improve the performance of the network. It can also allow partner organisations to help reduce the cost of government and public sector organisations to focus on the business of government. Technology is helping. However, while the network is in one way easier to manage because all the required information is readily available, it s also harder to manage because it is so dynamic. We call this the network paradox and believe government must tackle it, free up the required information and manage the network to achieve the desired benefits. One of those benefits is that it can provide the clear line of sight between policy development and implementation. Another benefit is that the network can become much more dynamic. If circumstances change in one or more parts of the network, the whole system could be able to adjust because there s so much more information readily available and because digital technologies enable greater visibility throughout the network. Logistics, freight and military organisations depend upon core competencies in these areas. Beyond improving the efficiencies of government networks, we believe public sector organisations need to make a number of fundamental changes to their business models. Case study: Integration ramps up Singapore s public transport system System integration can bring huge benefits to both citizens and government organisations and Singapore s unified fare processing system is a good example of this. The IBMdeveloped system allows citizens to use a single card to pay for all modes of travel bus, rail and taxis as well as vehicle congestion charging and car parking. For Singapore s Land Transport Authority (LTA), the solution s more strategic benefit derives from its ability to provide insights from the 20 million trip-related transactions generated each day. Information on where, when and how people are travelling allows the LTA to optimise routes, schedules and fares. This in turn leads to an even more convenient, affordable travel experience for Singapore s citizens.

6 6 Towards 2025: Delivering public sector digital transformation in Australia Move from citizen management to citizen responsiveness Historically, citizen management was focused on the relationship between the organisation and the citizen. Today it has broadened dramatically largely thanks to the recent popularity of social media. According to FRANk Media, Facebook has 12 million monthly users in Australia 7, meaning that around half of the nation s population is engaged with friends, associates and organisations through a medium that is highly transparent and immediate. As a result, the citizen-to-citizen influence has now escalated, a development that is now top of mind for many government decision makers. Consumer-facing organisations such as telecommunications companies and retailers are using technologies such as social media to improve both service and efficiency. Similarly, government organisations and not just those with significant citizen contact have a big opportunity to improve stakeholder and citizen engagement, collaboration and service development. At the same time, customers and citizens expect to be treated as individuals. This means gaining a much greater understanding of citizens, which in turn requires much closer collaboration between organisations and the people they serve. Case study: SBR transforms business interaction with government One the most effective recent initiatives to reform the way businesses interact with government organisations has been the rollout in Australia of standard business reporting (SBR). IBM designed and built an SBR solution for the Australian Treasury which is based on the Extensible Business Reporting Language (XBRL). Standards like XBRL enable consistent information exchange between organisations, reducing red tape and improving service delivery standards. The Australian Taxation Office is basing the development of its new e-commerce initiative, again with the assistance of IBM, on SBR to improve service delivery to individuals and business, as well as improving regulation of the superannuation industry. The success of the ATO s initiative depends upon the engagement with and participation of a significant network of players, including independent software developers, accountants and tax practitioners. In addition to reducing the regulatory reporting burden, SBR is expected to save the Australian economy about $800 million per annum. Shift from hierarchical to horizontal organisation The hierarchical organisation has been a stalwart of government for many decades. Its success was dependent on formal reporting structures and segregation between the organisation and its stakeholders. Technology is now dismantling such constraints as a result of the quantity and transparency of information that is readily available for both citizens and employees. This will demand a flatter organisational structure to allow greater responsiveness and flexibility. Realign from internal service development to collaboration Where an organisation could once go it alone and be successful, it must now collaborate. IBM s Global C-suite Study stresses the importance of becoming a customer-activated organisation. A number of industries have transformed the way they shape and deliver their products and services, relying much more on customers. Many retailers, for example, now use various collaboration tools such as social media to enable change.

7 Public Administration 7 However, most C-suite executives surveyed recognise that what applies to customers and citizens also applies to employees and partners. They expect organisational boundaries to become far more porous, enabling greater collaboration with employees and partners, which in turn accelerates innovation. They also anticipate sourcing more of that innovation from outside. 2. Change public sector s capabilities Because digital technologies require new ways of working and interaction, government organisations will need to reshape their capabilities and do things differently. Today s capabilities Enterprise management React and process Change is a challenge Rigid process Hierarchy is king Culture is shaped by position Budgets drive productivity Process focus 2025 capabilities Network management Anticipate and act Change is sought Flexible process Delivery of service is king Culture is shaped by performance Business model drives productivity Outcome focus Given the traditional role and nature of government organisations, changing these capabilities could be one of their biggest challenges. 3. Harness the power of analytics New technologies have resulted in the creation of data in quantities never thought possible just a few years ago. Recent advances in analytics means that deep insights and quick decisions can now be made from such large volumes of data. Leaders in private and public sector organisations that we surveyed are acutely aware of the effects of digital change and the way that information needs to be used differently. For instance, IBM s Global CEO Study 2012 highlighted that top performers differentiate their organisations in three key areas: access to data drawing insights from the data translating insights into action. The last of these three points is especially significant, and will be the key to future success. Analytics could also help allow government organisations to advance from the old methods of service delivery to more efficient and effective solutions that target the individual. Leading retailers are already well down this road. They re moving beyond traditional market segmentation to segment of one targeting that allows them to provide highly personalised service to customers. In addition, analytics allows governments to let go of activities that may be better done by partners. In our view, how each government entity leverages data depends on the degree to which they are focused on citizens or on policy and intelligence. Government organisations with a focus on citizen transactions require capabilities similar to retailers. Those focused on policy and intelligence are more akin to information-based enterprises. Of course, many public sector organisations will demonstrate a blend of these activities.

8 8 Towards 2025: Delivering public sector digital transformation in Australia Case study: Big data helps to protect Australia s borders Data interoperability is vital to assist collaboration not just between Australian government agencies but also globally. For example, an international effort to standardise passenger data has seen Australian Customs and Border Protection Services (ACBPS) adopt a big data analytical platform that handles more than 30 million passenger records per year. The IBM-developed passenger data analysis system gives ACBPS unprecedented real-time visibility into the movements of the nearly 100,000 passengers entering and leaving Australia every day. The system is based on the recently ratified PNRGOV standard for data interchange, which was developed by the International Air Transport Association to provide a consistent format for the passenger data that accompanies travellers on their international journey. 1. Determine your place in your ecosystem The first step for most government organisations is to establish whether they are on the accelerated path to digital change, as identified by the IBM and NIEIR report, or following the current evolutionary path. This should involve reviewing standard operating metrics such as efficiency and productivity. However, it should also include measures that focus specifically on how the organisation is positioned to be effective in the digital era, such as the percentage of services delivered or citizens served through online channels. It is also important to understand your network, the players in it and the connections between them and to assess whether the balance of capacity and capability across the network is right. Analysis of the network will help enable you to see where service delivery functions can be done most effectively and efficiently. How to tackle change In the past, an organisation s strategy could be developed from the inside out. Today it needs to be developed from the outside in. According to the Global C-suite Study, CEOs surveyed believe customers come second only to their C-suite colleagues in terms of the strategic influence they wield. Analyse the ecosystem (network) Building a transformation agenda still relies on careful planning and a structured approach, but the days of the threeto five-year strategic plan are probably gone. Enterprise planning today needs to be driven by information and analytics and be responsive to change. Develop a social/digital strategy Leverage partners to deliver value Define the segment of one Open up the organisation through collaboration Figure 4: Inputs that will determine the outcomes. Determine your place in your ecosystem Determine influence, priorities and timing Assess your levers for effecting change Develop your transformation narrative The digital transformation journey (initiatives/projects) Figure 3: The digital transformation journey may never be complete and may not be sequential.

9 Public Administration 9 Some fundamental questions to be addressed: To what extent are you already using or preparing to use smarter analytics to measure and monitor your ecosystem and your own department s activity? Are you ready to let go and enable citizens to serve themselves? Are there risks in doing that? How good are you at integrating partners into your operations? Are you internally integrated (in terms of organisation, people and processes)? How can you improve the line of sight between policy making and delivery? Can your organisation target individuals, rather than just groups, when providing services? Is your leadership digital-ready? What is the internal pressure to change? 2. Determine influence, priorities and timing Government organisations should consider how important it is to have a leadership position within their sector. If similar organisations have a greater capacity or desire to invest in digital transformation, what initiatives might they undertake and how much further ahead could they move? Is it likely that the stronger organisation can develop a more powerful value proposition for citizens and stakeholders? Would it be possible through the judicious application of incentives to change the relative capability of players and of network capacity? To set a strategy, it s important to first understand how quickly digital transformation might impact your sector. A 2012 report commissioned by IBM to assess the future economic impact of digital technologies, A Snapshot of Australia s Digital Future to , estimated that most of our major sectors would experience significant disruption from digital technologies by The report found that almost all sectors would have been substantially reinvented by 2018 or shortly afterwards. Establishing line-of-sight service delivery For government, establishing a clear line of sight between policy development and delivery is the Holy Grail. In our view, it has two important implications. One is that managing outcomes rather than the process or inputs becomes not just a possibility, it becomes an imperative. The other implication is that funding models will need to be much more flexible. For example, if demand for a service is greater or less than expected, agencies should be able to adjust delivery operations immediately and transparently. Line-of-sight delivery already occurs in parts of the private sector, where digital technology is used to dynamically manage businesses and help them respond to changing priorities. For example, if sales are particularly strong or weak during a promotional campaign, a retailer can quickly adjust its level of advertising. Digital technology such as analytics can help, but achieving line-of-sight delivery will depend upon two factors. The first is the ability of public sector decision makers to assess their position in their ecosystem. The second factor is the funding model not the amount of money but the way it is distributed. We believe there is a critical need to review the way that government services are funded. This is not about providing new money (which is not available anyway). Rather, it is about spending existing money more wisely. New funding models must take into account the structure of government and, more importantly, be committed to improving the delivery of services to those who need them. This cannot be achieved in a single step; rather we expect to see gradual changes to the public sector network and funding as digital capabilities evolve. Internally, government organisations should consider how quickly they could change. How many months or years would the enterprise need to complete a major transformation program aimed at ensuring effectiveness in the digital age? Given that most enterprise change programs are measured in years and most sectors are expected to feel the full force of digital by 2015, we believe it is clear that government organisations must commence digital transformation programs as soon as possible.

10 10 Towards 2025: Delivering public sector digital transformation in Australia 3. Assess your levers for effecting change The next step in building a transformation agenda is to review which levers are available to the government organisation to drive change. These could include the following. Citizens Transition to self-service: In industries such as retail, the dynamics are changing from businesses pushing products out to customers to a model that responds to the pull of consumer demand. Similarly, government organisations must understand the relationship they have with their citizens and consider the impact of digital transformation. In particular, they should look for opportunities to provide self-service channels to empower citizens and gain efficiencies. Stakeholder engagement Engage new and traditional stakeholders: Government organisations will need to ensure they maintain the support of key stakeholders as they reinvent their processes, business models and portfolios for the digital era. Beyond citizens and staff, these stakeholders include regulators, not-for-profit groups and the media. At the same time, government agencies must recognise that digital technologies can greatly expand the range of individuals and organisations that could be described as stakeholders. Social media and other new communications platforms make it vastly easier for individuals and organisations to track and publicise the activities of any organisation. The dependency on partners for the cost-effective design and delivery of services could mean that public servants will need to learn new ways of sharing accountability. Costs Balance costs and services: Like previous periods of technology and business process change, the shift to digital opens up many avenues for reducing costs. However, government organisations need to carefully weigh potential cost improvements against meeting the needs of increasingly well-informed and connected citizens. Capital and asset productivity Capitalise on resources: In our view, how effectively government organisations use their resources will determine their capacity to reinvest in digital transformation, which will help deliver value back to citizens. Product and service innovation Innovate to deliver value: To remain effective in the digital economy, government agencies should aim to continually innovate to deliver value to citizens. If a product or service can be commoditised and delivered at scale, it is likely that it will be. Technology and assets Find the right asset balance: One of the biggest drivers of future productivity will be investing in the right assets. A key challenge will be finding the right balance between talent, technology and intellectual property assets, and fixed physical assets such as real estate. Even within the technology domain, in our view, government organisations will need to consider how much they need to own their systems and balance that against the scale offered by cloud providers. Leadership, talent and culture Develop digital leaders: As they plan transformation, government organisations must consider their own culture and the willingness of people to change. How can the organisation reinvent its work practices and incentives systems, empower individuals and change its culture as it expands its use of digital technologies? Are there opportunities to make workforces more inclusive and mobile or to expand teams outside the walls of the traditional office? 4. Develop your transformation narrative While each of the above levers is likely to be important, public sector organisations will need to decide where to focus their transformation efforts and in what timeframes. Once these priorities have been established, government agencies will need to identify the specific metrics that will enable them to track their progress against their digital transformation objectives. Government organisations going through change also need a transformation narrative a story that clearly expresses their current position, the need for change and their plans for the future. This narrative should be compelling at a high level as well as the detailed level of business levers. It should also convey the timeline developed above, explain how change will be managed and set targets that can later be used to define success.