Digital Leaders Study 2023
Improving capital investment
Nations need to renew capital investment spending in digital, and to commit the money required to transform legacy systems
The last decade has seen many citizens enjoying better public services, with online platforms providing swifter and easier transactions. But while digital reforms have improved access points, data collection and processing times in many departmental services, examples of true digital transformation are much rarer.
Many digital reform programmes essentially digitalise existing services – but transformation involves rebuilding business processes from the bottom up, putting citizens rather than departments at the centre of delivery. Transformations typically result in fully interdepartmental services, and involve changes such as moving from dedicated servers into the Cloud; from bespoke tools to platform services; and from monolithic IT outsourcing contracts to delivery by public servants, aided by specialist providers. Reconfiguring civil service operations around today’s public needs and technological capabilities, they realise the full potential of digital technologies – generating far greater improvements in efficiency, convenience, flexibility and resilience than narrower digitalisation projects.
The NHS is one of the biggest data owners in the world, with most of its 1.25 million staff using IT equipment on a daily basis; its NHS number system provides every UK resident with a unique identifier, easing data exchange. Every team, function and organisation has an IT system, with many billions spent over the years. Yet data use has not been transformed; many interactions between teams, organisations and patients are still conducted by letter or telephone. Imagine the benefits for patient outcomes and satisfaction – let alone the savings in the NHS’s £180bn (US£215bn) budget – if we could realise the full potential of digital technologies to improve preventive work, diagnoses, referrals, treatment and communications.
In most countries, there is little sign of the investment required to unlock these benefits. With economic growth weak, national debts and inflation high and interest rates rising, finance departments are looking for cuts – with both capital investment and back office budgets their regular hunting grounds. This leaves departments’ digital spending vulnerable: “A lot of IT organisations live in what’s called departmental administration,” one digital leader explained. “You’re lumped in with finance and public affairs and legal, and there’s a pot of money – and what you get in IT is taken away from those other groups, whereas if you’re in a mission space there’s much more money available.”
So departmental structures can leave IT budgets exposed. But ultimately, in most countries it is the finance department’s stance that decides digital investment levels – both via the budgeting process, and in how potential investments are assessed under government-wide project appraisal frameworks. Reforming these frameworks can provide a fuller picture of transformation project outcomes, strengthening their chances in budget rounds (see Solution 3). Improving digital project management can avert waste and improve delivery, allaying finance departments’ concerns (see Solution 2). Explaining the dangers of not acting can help push digital projects up the priorities list (see Solution 1). A meaningful shift towards digital transformation, however, generally requires the explicit, committed support of national leaders and their finance department counterparts.
In many advanced economies, those senior leaders are – understandably enough – currently preoccupied with today’s immediate challenges, including fast-rising service delivery costs, faltering tax revenues and overstretched public services. Demographic changes are meanwhile presenting governments with an ever-bigger hill to climb. Yet if their response is to whittle away at capital investments in digital, they’ll rob themselves of the very tools required to address their problems.
Digital transformation could strip waste out of public services, while improving their capacity and effectiveness. Better digital infrastructure and improved service delivery – to businesses and the public alike – would give economic growth a boost. During the pandemic, digital technologies proved invaluable in shaping and delivering support for people and businesses; imagine how much greater those benefits would have been given a fully transformed digital infrastructure.
Now more than ever, governments must work to realise the full potential of digital technologies – and that requires both the courage to undertake big service reforms, and the money to make them happen. The current crisis may feel all-consuming, but so did the last; with climate change accelerating, public balance sheets weakening and demographic changes continuing, the next may be tougher still. And if we go into it ill-equipped, the money we’re saving by hollowing out digital capital budgets will be dwarfed by the vast costs of repairing damage that we could – with the right tools – have averted.
1/ Emphasise legacy systems’ vulnerability to cyber attacks and IT failures
Every transformation project involves risk, and the danger of disrupting service provision or wasting public money are powerful disincentives to change. However, the risks of not acting can be greater still – and if key decision-makers fully understand the threat landscape, they may make better decisions.
In the USA, said Federal Chief Information Officer Clare Martorana, digital leaders have demonstrated the cyber risks “in order to get to the legacy transformation that we need to make.” Politicians know that national IT systems are regularly attacked by hostile nations and online criminals, she explained, and understand that ageing IT systems are vulnerable. What’s more, “we have an extraordinary amount of data about the threat environment, where we might not have that fidelity on some of the other object classes that cause expense in IT budgets.”
It’s a similar story in the UK, said Deputy National Statistician Alison Pritchard. When she ran GDS, after my three years in the job, “the most telling moment came when a colleague said: ‘The risk on security is increasing month by month, but we’re acting as if it isn’t changing’.”
“It was undoubtedly the security risks that started the debate in the UK,” Pritchard added. “We then layered on operational resilience, commercial challenges.” Securing funds to rebuild business processes, government ultimately realised efficiencies and service improvements – but “it was the transformational opportunity that provided the return on investment.”
Issues around operational resilience also have traction with politicians and departmental heads, commented Megan Lee Devlin, Chief Executive of the UK’s Central Digital and Data Office. Older systems – typically running on complex IT stacks, much amended and extended over the years – are more likely to suffer outages during peaks in demand or essential maintenance, hitting service delivery. “Quite a significant proportion of our spending review [funding allocation] was attributed to addressing our legacy risk, both for security and operational resilience reasons,” said Lee Devlin. “We’re using a common framework to assess legacy risk across government in order to direct that funding towards the highest risk systems.”
So cyber threats and operational risk can provide powerful arguments for those championing digital transformation, attracting the funding necessary to realise wider benefits. “Cyber-security is the point of our spear, carrying behind it customer experience and IT modernisation,” concluded Clare Martorana.
2/ Help everyone onto your new platform – or risk wasting your investment
With the funds for transformation secured, digital leaders need to get results – and building a great new digital service is only half the battle: citizens must also be persuaded to use it.
Governments must generally maintain traditional telephone, postal and face-to-face services alongside their new digital channels, in order to avoid excluding those without the equipment or skills to get online. And these cohorts – who typically include many elderly, poorer and disabled people – are heavy users of public services: if service providers fail to move the vast majority of them over to the new service, digital investments may not generate the promised savings in traditional channels.
As one digital leader commented at the 2022 Government Digital Summit, “the problem for us is switching off our old systems.” When a significant proportion of service users remain wedded to the previous service, they said, there’s a risk that “we end up in this purgatory where we run dual systems – and that’s the biggest challenge we have right now.” Every transformation strategy should set out clear plans to promote ‘channel shift’ and ensure inclusivity.
In part, the solutions lie in service design. Given that far more people own mobile phones than personal computers, for example, a mobile first strategy can help promote adoption. But civil services should also provide direct assistance to those who may find digital services unfamiliar and intimidating, helping to on-board this long tail of service users.
In Singapore, for example, the government allocated resources “to make sure that those segments of society are equipped with the tools to cope,” Jason Bay, Senior Director for Government Digital Services at the country’s Government Technology Agency, told the 2021 Government Digital Summit. “We’ve enlisted the help of a lot of what we call ‘digital ambassadors’ to go out into the community and help people to adopt some of these technologies. Some of the results that we’ve seen, in terms of the adoption of e-payments, digital identities and things like that, have been impressive.”
Speaking at the same event, Seong Ju Park, Deputy Director for Digital Government Cooperation at South Korea’s Ministry of Interior and Safety, also stressed the need to reach out beyond the digitally-connected. “There are still vulnerable groups that do not know how to use the technology that’s available,” she said. “We are working with students and volunteers, and have them give lessons to the elderly or vulnerable groups on how to use smartphones and how to access digital government services.”
In Azerbaijan, meanwhile, citizens can receive support in the country’s 24 Asan-badged ‘public service malls’, or via mobile offices that tour the country by bus and train. Soltan Bayramov, Deputy Director of the country’s e-Gov Development Centre, explained that disabled people can access a network of dedicated centres, plus a mobile service with “operators who visit their homes, and get issues sorted there” – gathering biometric information to register users for online services, for example. “These are just some of the solutions that we implement. They cover a big majority of the target audience,” he said.
Such services add cost and complexity to digital change programmes; but they represent an essential safeguard for project managers, helping to ensure that investments in transformation succeed in driving down delivery costs and improving services for every user.
3/ Adjust financial and appraisal frameworks to suit digital technologies
Every investment decision rests on a calculation of projected costs and benefits; and in many countries, the frameworks deciding these calculations have not adapted to the nature and requirements of digital technologies. As a result, budgeting rules can mitigate against the use of digital techniques, while project forecasts and appraisals may fail to capture the full benefits of transformation projects.
Investment budgets, for example, typically favour capital over revenue spending. This works well when purchasing a server; but new digital services often involve a shift into the Cloud – requiring instead ongoing revenue spending to purchase capacity and services. Forward-looking funders are therefore altering the rules around investment spending. In 2019, the EU agreed to treat Cloud spending over a two-year period as a capital expense in its public service modernisation programmes. And in the UK, the Central Digital and Data Office (CDDO) is working closely with the Treasury “around where we can capitalise our Cloud spend more,” explained CDDO Chief Executive Officer Megan Lee Devlin. “We certainly have the right appetite within Treasury to move to more modern approaches.”
Changes are also required when assessing the outcomes of completed transformation projects, ensuring their full benefits are clear to future decision-makers. Digital transformations should cut costs in ongoing IT development and maintenance budgets – with pay-as-you-go Cloud proving cheaper than maintaining dedicated servers, for example. Most of their benefits, though, come through in three fields: improved user experience and satisfaction; reduced administrative and transaction costs, thanks to the streamlining and automation of business processes; and better public policy outcomes – with services becoming more accessible and personalised, while new data streams provide the intelligence to improve policymaking and shape service delivery.
These advantages don’t flow through into reduced IT spending, instead cutting transaction costs and saving money in fields such as counter services, call centres and complaints handling. “As with any business, the digital, data and technology teams don’t see the bottom line change; it’s our operational colleagues who see those benefits,” commented Lee Devlin.
To accurately measure the value of investments in digital services, project assessment and appraisal frameworks should seek to take into account these wider advantages for the public, the taxpayer and the service user. Alongside work to adjust budgeting rules around the needs of digital technologies, such reforms can play an important role in levelling the playing field as transformation projects compete for a slice of hard-pressed public investment budgets.