Cutting costs and improving performance with digitisation

Sevag Papazian and Rawia Abdel Samad of Strategy& discuss the key requirements of for government entities considering digitisation

Tags: Digital transformationDigitisationStrategy& (www.strategyand.pwc.com/)
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Cutting costs and improving performance with digitisation Papazian: Digitisation can deliver cost reductions across a number of areas.
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By  Sevag Papazian and Rawia Abdel Samad Published  September 27, 2016

In response to the fiscal crunch caused by low oil prices, GCC governments have initiated budget cuts either across the board or more narrowly within areas that offer the largest and most immediate savings. While necessary, reduced spending can hold back economic and social development if it is approached without financial planning and sound management.

GCC governments currently have the world’s highest public spending rates on essential services such as education, healthcare, and defence, and the costs of these services are projected to increase incrementally. Even if GCC member states can grow non-oil revenues by 10% annually over the rest of this decade and the average price per barrel of oil returns to $50, their budgets will still need to be reduced by approximately $100 billion (7% of GCC GDP) annually to achieve fiscal balance.

Digitization presents GCC governments with the opportunity to fundamentally rethink how their institutions operate and spend. They can do this by implementing leaner, more cost-effective processes that could generate sizeable savings and improve access to government services and their quality.

Achieving efficiencies through digital

Efficiency starts within each government entity by automating processes. While this sounds simple, the digital transformation has to be accompanied by regulatory and cultural changes. For example, moving towards digital signatures and approvals requires clear e-transaction and e-signature laws. The culture, values, people, and behaviours within each entity should also be aligned to support implementation.

Although improving efficiency in-house is necessary, it is not sufficient, because government entities and departments work with each other. This means developing policies and regulatory frameworks to drive greater integration across them, as well as digital platforms for sharing information. This will facilitate the delivery of automated processes from start to finish so end-users can get things done smoothly via a single digital interface. The data that such digitization creates is also an economic asset. For example, the US government has made suitably sanitised federal health data open and encouraged entrepreneurs to use it in developing new health applications and services. The UK has released over 35,000 data sets for similar purposes.

Digitization involves more than just implementing technology. It should maximize usage of services among citizens nationwide, especially in large countries which have a centralized public administration. In addition to improving coverage, this reduces the need to invest in offices and transportation costs.

Estonia is an example of a country that has already managed such digital change. Using a single digital ID, Estonians can easily vote, sign contracts, set up businesses, and pay taxes via digital interfaces. Estonia’s e-government model also means significant savings in time and money: Digital signatures alone deliver an estimated 2% GDP saving compared to paper-based systems.

Government entities should also transform their IT cost structures and could reduce infrastructure and operations costs by up to 25%. They can achieve this by standardizing and rationalizing IT assets. They can consolidate data and applications in the cloud, and ‘virtualize’ — i.e., use software to simulate costlier hardware. They can also improve sourcing practices and better manage the life cycle of IT assets. These initiatives have great potential when implemented government-wide, such as by standardising IT assets across all government entities, which can result in economies of scale.

Organising for digital

In addition to saving by digitizing processes and transforming cost structures, governments need an institutional setup that will promote their digital agenda. This must occur at two levels: the government at large needs a central entity that integrates, standardizes, and empowers all digital initiatives; each government entity needs to determine how to organise for digital.

The central entity acts as government chief information officer (CIO), operating government-wide platforms and rationalising digital spending. Although most countries have already established an e-government authority for such a purpose, they are not necessarily empowered to push the cross-government digital agenda. This central organisation needs a strong mandate and clear governance model to break down government silos and bureaucracy. In Australia, the Digital Transformation Office serves this overarching purpose. It is charged with improving digital service delivery across government and tapping local and international talent — especially from top-tier user experience professionals. Earlier this year, Singapore announced a restructuring in its national digitization efforts and created the Government Transformation Office. The agency will lead digital transformation efforts in the public sector and play a key role in delivering Singapore’s Smart Nation platform and applications.

The organisational setup within each government entity or department should minimize the size of the IT department through shared services or outsourcing. At the same time, it should dedicate a team to drive innovation and focus on core services.

The way forward for government entities

To proceed with digital transformation, individual government entities and departments need to follow a four-step process to effectively cut costs through digitization and improve their performance. First, they should start by articulating their digital strategy and making sure their priorities are consistent with government-wide digitization and the national digital agenda. Second, government entities should develop a clear cross-organisational cost-reduction program. They should make deliberate choices from front line to back office in terms of cutting operational costs with digital tools and platforms, and achieving cost savings in IT itself. Third, they should reinvest the savings from these cost-cutting initiatives in building the critical digital capabilities they need, based on their strategies. Finally, they need to reorganise effectively for digital. This process should be enabled by building employees’ skills and talents, and creating a conducive culture that embraces change.

Digitizing processes across government entities, transforming their cost structures, and facilitating the sharing of data between them carry long-term economic benefits for GCC countries. They can help them achieve considerable savings, while simultaneously delivering services more efficiently. These savings can help them offset current difficulties linked to low oil prices, and help mitigate future fiscal challenges. This would allow them to continue investing in essential public services that are necessary for the national development, providing a positive impact on people and businesses.

Sevag Papazian, is principal with Strategy& (formerly Booz & Company), part of the PwC network; Rawia Abdel Samad is Director of the Ideation Center, Strategy&’s Middle East think tank.

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