What’s inside the black box of digital innovation?

By

George Atalla

EY Global Government & Public Sector Leader

Working with governments to address complex issues and build a better working world.

15 minute read 5 Nov 2018

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We explore six key insights for governments planning a digital transformation.

We are living in the Transformative Age. Fast-moving and unpredictable social, economic and geopolitical changes pose new challenges for government, and increase the urgency to solve complex, long-standing problems.

Current and emerging technology offers governments one way of meeting new demands and solving persistent problems. But while governments are making attempts to deploy digital technologies, many do not achieve the intended benefits from their investments. There are as many examples of costly implementation failures and cost overruns as there are tangible successes.

Analysis of the success or failure of government digital transformation projects tends to focus on the technology that has been introduced. Seldom discussed is the role played by organizational culture and by a government’s willingness to embrace new approaches and working practices. And yet factors such as an ability to transcend bureaucratic working styles and collaborate with external partners are just as vital to success as deploying the right IT.

This blind spot is a significant barrier for governments, preventing them from sharing best practice and learning from the experience of others who have been on the digital transformation journey. To shed new light on this area, EY and INSEAD have worked on a groundbreaking academic study, examining in depth five important digital implementations in Russia, the UAE, Spain, Italy and France.

The study, Inside the Black Box: Journey Mapping Digital Innovation in Government, used a range of qualitative research tools including rich pictures, journey maps and self-reporting questionnaires to tease out individual characteristics of team members, team sentiment, organizational governance and the role played by cultural factors. The approach was unique in that it captured the nuances of the process of digital innovation, rather than merely measuring inputs and outputs.

The aim of the study was to look inside the “black box” of digital transformation to find out what really goes on within the teams responsible for delivery. In every case, the implementation journey involved ups and downs, advances and setbacks, but there were always valuable lessons to learn. We have extracted the six key insights for governments, outlined below, to provide guidance for government and public sector leaders who are embarking on their own innovation journey.

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Chapter 1

Create new structures to drive innovation

Pushing through organizational boundaries can create the freedom to explore new ways of doing things.

Public sector organizations need to recognize that their existing organizational structures may not be equipped to drive a digital transformation. They may lack the space, freedom or flexibility to explore different ways of doing things. The key to overcoming these limitations is not to be constrained by existing structures but to be prepared to create new entities specifically designed for the task in hand. These may be entities that drive the entire digital transformation process, or that are tasked with delivering or facilitating particular elements.

This strategy worked well in Russia, where the Federal Tax Service (FTS) took a novel step when building an online delivery platform for taxpayers. It formed an outsourcing company that could provide it with IT and R&D services and specialists without having to go through slow and cumbersome internal recruitment processes or tender and negotiate services from external suppliers of variable quality. Unlike other contracts with private service providers, this arrangement gave it greater control over the work undertaken and also assigned full ownership of any new tools to the FTS.

  • The tax administration that came into existence with the establishment of the Russian Federation subsequently underwent several waves of modernization, most recently to incorporate digital technology. Russia’s Federal Tax Service (FTS) set out to introduce an online delivery platform as its primary interface with taxpayers as a means of achieving greater efficiency, transparency and impartiality, and to raise confidence and compliance among taxpayers.

    Following the introduction of a new e-document system to facilitate the flow and trackability of tax declarations and payments, the FTS released a series of digital tools including an online cash register for retail businesses, a system providing real-time access to retail sales data for businesses and online tools for tracking manufactured goods.

    The shift to digital systems and client-focused service delivery at the FTS has been embraced by end-users, with direct benefits to government coffers. The rate of filing tax declarations via digital submission in Russia reached 97% in 2016, at which time its national inflation-adjusted tax revenue climbed to RUB 105bn, a 22% increase over 2011. Meanwhile, a Union of Industrialists survey showed that between 2008 and 2016, the number of Russian companies believing tax administration impeded them from doing business fell from 43% to 7.6%.

Meanwhile in Spain, a 2007 law change giving citizens the right to access public services online presented a major challenge for small municipalities with modest budgets and little or no expertise in digital technologies. To address the issue, the Biscay provincial government established BiscayTIK as an independent foundation to administer a new digital platform that municipalities could adapt to meet their own needs. The platform now acts as a “digital public office” through which 108 Biscay municipalities deliver services online to 1.2m local citizens.

  • A law change in Spain in 2007 that gave citizens the right to access public services via the internet created a problem for smaller municipalities. One such was Biscay in Spain’s Basque country, which lacked the finances or technical expertise to comply.

    Biscay’s provincial government proposed the creation of the BiscayTIK portal as a shared online platform for these municipalities to deliver their services online. Local municipalities were, however, more used to functioning independently and a comprehensive stakeholder engagement process was required to persuade them to participate, together with the training of more than 1,100 public servants to deliver 7,700 different municipal services online.

    The resulting BiscayTIK platform now serves as a ‘digital public office’ through which 108 Biscay municipalities deliver services online to more than 1.2m locals.

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Chapter 2

Build agile and autonomous teams

Flexible, non-hierarchical teams can attract talent and welcome ideas.

The characteristics of teams that work best to manage digital transformation projects are not typical of a public sector body. They tend to be small, with access to specialists so they can flex as required; they are non-hierarchical and welcome “bottom-up” ideas; and they are agile, with the autonomy to make decisions swiftly. Often they cut across departmental or functional siloes, and are empowered to take bold steps through the backing of a project champion who is likely to be a senior leader in the organization.

In Italy, the executive team at the Agency for Digital Italy (AgID) responsible for delivering a new digital payment platform for citizens was required to report to stakeholder groups only on their specific areas of interest. It was otherwise left alone to direct day-to-day implementation work, allowing it to make rapid progress; from inception to pilot, the PagoPA project took just 12 months.

  • PagoPA is an online platform that allows Italians to make payments to any public entity in their country. Previously, each entity was responsible for administering its own payment system, leading to costly duplication and inconvenience for end-users.

    Today any local who connects online to a public entity in order to pay a debt is redirected to PagoPA, which asks them to use their preferred payment method from a wide list. PagoPA then reconciles this information with the public entity and issues a receipt.

    The successful implementation of PagoPA saw a dramatic increase in digital payment transactions, from 700,000 in 2014 to 6m in 2018. In the first quarter of 2018 alone, this corresponded to €278m in digital payments, equating to around half of all government payments being made in this much more cost-efficient way. The continuing growth in end-user participation shows that PagoPA is well on its way to delivering on the Italian government’s innovation and efficiency objectives.

In Spain, BiscayTIK was set up with a relatively flat governance structure that helped information flow to decision makers in a timely manner; the team was able to identify and respond to emerging issues through weekly meetings, and take steps before problems grew big enough to threaten the overall effort.

In Russia, the team creating a digital platform for taxpayers operated with the full authority of the Commissioner, who located them in a central position with close proximity to the FTS’s hierarchical governance structure. During weekly meetings in the presence of the Commissioner and his deputies, the team could seek decisions and approvals directly, expediting implementation.

And in France, recognizing that Pôle Emploi’s staff had first-hand experience of its systems and clients, the CEO made it known that he wanted to use their insights. An internal website – Innov’Action – was set up to seek input and ideas from employees about what the organization could change or develop to improve its services for jobseekers. Taking this inclusive bottom-up approach, the website yielded more than 4,000 ideas. Its success then led the team to extend the crowdsourcing concept, in order to tap into ideas from outside the organization.

  • Pôle emploi is a French public entity that administers unemployment benefits and delivers training and other assistance to registered job-seekers. Following a new directive from government, its CEO set the organization on a new course in 2013 to become more publicly transparent and results driven, and to improve its services to job-seekers through digital innovation.

    Beyond an initial requirement to put its existing services online, the initiative was not conceived to create a specific digital product. Rather, it was an endeavor to seek out opportunities to use digital technology to improve services and enhance performance. As such, the team never arrived at a point where implementation was declared complete. Instead, this has been a continual process of seizing upon emerging opportunities, optimizing existing initiatives or spinning off new ones from them.

    Thanks to a collaborative initiative in which more than 80 external job-boards agreed to work with the agency, over 5m vacancies can now be searched on Pôle emploi’s new site, representing a five-fold increase over what was available in 2012. Traffic to its new Emploi store offering more than 300 services with the aid of 200 partners, has passed 10m visitors and its new app has been downloaded more than 2m times.

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Chapter 3

Engage and collaborate with external bodies and stakeholders

Consulting far and wide can enable teams to gain a better understanding of the challenges.

Successful project teams acknowledge that they don’t have all the answers. They carry out genuine consultations to get the buy-in of external stakeholders that may be vital to the viability of the project. And they are keen to look outside the organization’s own walls and collaborate with third parties that may have fresh perspectives on the challenges in hand. This outward focus helps to overcome the tendency towards “uniqueness bias”, where an organization sees its own digital transformation project as a one-off with nothing to learn from others.

The ability to collaborate was exemplified in France, where a drive by the public entity Pôle emploi to provide digital services for job-seekers relied for success on the involvement of existing “job boards” (private employment market operators). Some of these job boards were worried that if job-seekers no longer had to come to their site to find vacancies, site traffic and revenues would fall. The project team took the time to allay these concerns and negotiate collaboration agreements; eventually 83 partners signed up, and by 2015 more than 5m job offers were being posted.

A project to introduce an online e-claims platform by the Health Authority in Abu Dhabi (HAAD) also excelled at collaborating with external partners. HAAD invited into its fold external stakeholders such as public hospitals and insurers that shared its interest in fixing the country’s health insurance system, so they could contribute to the design of the platform. This collective approach facilitated the rapid identification of the systemic issues that had led to a two-year backlog in the processing of paper-based claims and enabled the situation to be resolved.

  • The Shafafiya online e-claims platform was introduced by the Health Authority in Abu Dhabi (HAAD) to overcome a two-year backlog in the processing of paper-based claims after the introduction of a new compulsory health insurance system.

    The new platform, developed in collaboration with healthcare sector stakeholders, quickly cleared the backlog and now handles more than 25m claims annually. It proved so effective at supporting HAAD’s governance efforts and management of healthcare data that its remit was expanded to support wider objectives.

    It is now an integral component in the Abu Dhabi Healthcare Strategic Plan launched in 2014 as a core data source supporting evidence-based policy-making. The portal’s data has also been used to develop a new provider mapping tool which helps end-users or authorities find healthcare facilities in any locality that are equipped to treat specific conditions.

In Italy, AgID held a consultation with public and private bodies at the start of the project which unearthed technical problems that could then be dealt with by the specialist IT providers. The open dialogue had other benefits too. Payment providers that had originally been concerned about losing their earnings from hidden commissions or market-share in payment services came on board when the team showed them that they would have access to the large portion of payments that were previously conducted through dispersed small post offices.

Russia took collaboration a step further when it assumed responsibility for organizing the OECD’s Forum on Tax Administration, held in Moscow in 2013. As a key player in this event, the FTS used it as an opportunity both to learn about international best practices and to present its modernization agenda on a global stage for discussion and feedback.

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Chapter 4

Put the customer front and center

Think first about those who will use the service rather than those who will provide it.

Public sector organizations tend to build services around their own internal structures and procedures, rather than focusing on the needs and convenience of end users. Successful digital transformation projects turn this attitude on its head and adopt the private sector’s customer-centric approach, using design thinking to develop a seamless customer journey. Forward-thinking organizations also recognize the need to educate key stakeholders and employees to put citizens’ needs front and center, and provide the necessary training and support to accomplish this.

In Russia, the FTS team brought in specialists in external user experience to help its R&D department revise and improve the usability of the end-user interface, and simplify the online forms being developed for taxpayers. This focus led to the formation of a public stakeholder council with representatives from the private sector, academia and NGOs, tasked with helping the FTS further develop its customer-service orientation. The organization was rigorous in tracking end-user satisfaction to ensure its services were moving in the right direction, and reinforced this commitment with new client engagement protocols, handbooks and training programs to build good practice across the agency.

There was a similar customer-centric attitude in Spain, where BiscayTIK took steps to tailor applications to reflect the unique identities and services of the different municipalities, thereby ensuring they appealed to end users. BiscayTIK then iteratively redesigned and refined services to become more user friendly, primarily through feedback to its customer support team. It also provided support to educate end users about the new way of interacting with public administration.

Individual customer needs were also top of mind at AgID in Italy, where PagoPA was developed as a hybrid model that allowed citizens, businesses and non-profit associations to choose from among a variety of payment options and to opt in at their own pace. The organization also developed a comprehensive suite of education and training programs for key stakeholders.

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Chapter 5

Learn from the disruptors

Borrowing from start-ups may cause pain but will bring gains.

Public sector organizations are often slow moving and bureaucratic, with procedures that are “just the way we do things here.” By contrast, successful digital transformation teams tend to borrow practices from disruptors and start-ups, which may be unfamiliar and uncomfortable for government at first. They often deploy practices such as prototyping, piloting and carrying out phased introductions of new services. They are willing to embrace trial and error, flexible enough to change direction when things go awry, and prepared to tolerate uncertainty rather than nailing down every aspect of the project in advance.

In the UAE, the team was more entrepreneurial than was the norm at HAAD. When it became clear that the first provider for its health e-claims portal was unsatisfactory, HAAD was ready to take the risk of replacing it with a start-up company. This young enterprise had no track record, but ended up performing much better, thanks to its eagerness to win market share and determination to overcome the various implementation issues that had stymied the previous supplier.

In France, Pôle emploi took a pragmatic approach to improving services for job-seekers. Its remit was not to create a specific digital product, but to find new ways that digital technology could enhance performance. Implementation was never declared complete; instead it was an ongoing process that sparked new and unexpected initiatives along the way.

Meanwhile in Spain, the BiscayTIK project used piloting to good effect. Its platform was initially trialed with five municipal councils in 2010, with lessons learned from these sites used to optimize platform specifications and the process for a subsequent large-scale deployment in 28 municipalities in 2011. The phased approach also allowed time to familiarize and educate end-users.

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Chapter 6

Prepare for the next stage of the journey

Digital transformation is a journey, not a destination.

Those governments that are most successful at digital transformation don’t assume there is an end point on the horizon. Instead, they view innovation as a continual process during which new ideas and possibilities evolve. Governments should consider identifying and spinning off initiatives that can take them into the next phase, using technologies such as AI, robotics and data analytics. This may require working with new partners such as software developers and data scientists.

The example of Pôle emploi in France is an inspiring one. To continue the innovation process, it created the Emploi Store Idées site where anyone can submit and exchange ideas to help Pôle in its mission. One suggestion led to the opening of a Job Store Dev site where Pôle emploi’s data is made available in de-identified form for creative developers and start-ups wanting to create new applications that support job-seekers. Another original idea to emerge from staff was “La Bonne Boîte”. This service uses algorithms to predict which businesses are likely to recruit even when they have not posted a vacancy. It shows keen job-seekers which companies respond to unsolicited applications, thereby enhancing their opportunities within the “hidden” job market.  

Meanwhile, in the UAE, the new e-claims portal proved so effective at supporting HAAD’s governance efforts and in managing healthcare data generally, that its remit was expanded to support wider objectives. It is now an integral component in the Abu Dhabi Healthcare Strategic Plan, launched in 2014, as a core data source supporting evidence-based policy making. Data collected through the portal has been used to develop a new provider mapping tool, which helps end users or authorities to find healthcare facilities in any locality that are equipped to treat specific conditions. The tool catalogues the services available at various facilities, together with contact details, and also provides an online appointment-booking service.

Summary

When governments embark on digital transformation projects, they significantly increase their chances of success if they create new working practices and structures alongside their investment in IT. Adopting this strategy brings a number of important benefits:

  • Citizens are better served as delivery continuously improves.
  • Employees’ satisfaction increases as they experience a more empowering workplace.
  • The organization raises its profile as a pioneer in digital innovation on the national or even global stage.
  • Government is seen increasingly as a forward-looking place to work, thereby boosting its attractiveness to digital talent.

About this article

By

George Atalla

EY Global Government & Public Sector Leader

Working with governments to address complex issues and build a better working world.