Joost de Kock
Partner & Managing Director
Related Expertise Technology & Digital
When it comes to technology in the public sector, the buzz is all about the power of digital technologies to transform the ways governments operate and deliver services to citizens. Certainly, that shift is real and transformational. What is often left out of that discussion, however, is the need for a modern IT backbone to make the digital revolution possible and to support the ever-increasing need for agility, real-time information, and customization of services. This backbone—or core system—must be able to process large amounts of information reliably, accurately, and securely, as well as maintain the integrity of critical data such as citizen records. Unfortunately, around the world, many core systems are aging and no longer able to meet government needs. And most attempts to modernize these systems fail or yield disappointing results.
The time has come to raise the bar on such efforts. The Boston Consulting Group estimates that “great” modernizations can create value that is two to five times higher than those modernizations that simply come in on time and within budget. That value comes in the form of improved efficiency and effectiveness of the department and more convenient and tailored services for citizens and businesses. Delivering a great modernization, however, requires more than IT competence and basic project-management skills. On the basis of extensive experience in technology-enabled modernizations in both the public and private sectors, we have identified six important actions that government departments must undertake concurrently:
It is not easy to execute well in all areas, but average results are no longer sufficient. Governments must rise to the challenge by setting bold goals and lifting their readiness for execution. Doing so will allow them to engineer a truly great technology transformation.
Governments are making significant investments in IT. Global investment reached $429 billion in 2015 and is expected to rise to $476 billion by 2020.1 A healthy portion of these funds is aimed at overhauling core IT systems that typically support and enable important business processes and house critical government and citizen data. In many cases, the modernizations have required investments approaching or exceeding the $1 billion mark.
To understand what drives success in core-system modernizations, BCG studied modernization projects worldwide, including numerous public- and private-sector transformations that the firm has supported. We also interviewed a number of public-sector experts who had led core-system modernizations, to get their insights on best practices. (See “Dispatches from the Frontlines.”)
To clarify our understanding of what exactly makes—or breaks—a core-system transformation program, BCG interviewed three experts from around the world who have direct experience in leading and implementing core-system modernization efforts.
CEO, BWI Informationstechnik
Blaschke led the German Federal Armed Forces’ Herkules modernization pro-gram to deliver a resilient information and communications technology (ICT) infrastructure platform. Conducted as a public-private partnership that lasted for more than ten years, the Herkules program encompassed the transformation of the entire nonmilitary ICT infrastructure for the nation’s armed forces.
Former CIO, Australian Department of Defence, and Former Second Commissioner, Australian Taxation Office
Farr was the leader of the implementation of a new core system for taxation, which was an aspect of the Australian Taxation Office’s Change Program. He also led a $1 billion ICT reform program, replacing multiple core systems, when he was the CIO of Australia’s Department of Defence from 2007 through 2012.
Administrator, US Digital Service
The current administrator of the US Digital Service, Dickerson previously led the recovery of the US HealthCare.gov platform. He now supports the modernization of multiple systems across the US government.
On the basis of that work, we found that core-system upgrades are inspired by a number of factors.
First, increasing numbers of citizens expect to conduct business with government using their mobile devices in a way that is as simple as downloading a song from iTunes or buying a product from Amazon.com. Many government systems, however, were developed decades ago and are limited in their ability to support new digital user interfaces and tools. Many of these systems, for example, rely on batch—rather than real-time—processing. BCG research in 21 countries determined that 43% to 82% of citizens are satisfied with online government services. Although this is a significant improvement over 2014 results, the data indicates that in many countries, satisfaction and usage levels remain low. On average, only 40% of surveyed citizens used digital government services once a week or more, with some countries experiencing usage as low as 23% and others as high as 69%.2
Second, many of today’s core systems are inflexible, making it difficult for agencies and departments to respond to new legislation and regulations that might require extensive and time-consuming systems or coding changes. Third, the skills required to maintain these legacy systems are in short supply, as many programmers with such expertise are moving into retirement. And fourth, more and more agencies and departments are able to exploit new off-the-shelf software that can reduce the cost and risk of modernization, a trend that is spurring government technology leaders to action.
We spoke with Peter Blaschke, CEO of BWI Informationstechnik, a public-private partnership that was established to modernize the German Federal Armed Forces’ information and communications infrastructure. He told us, “We had such obsolete technology that repairs were no longer effective and a completely fresh start was required.” Furthermore, he added that they “had a number of IT security risks due to a lack of standards and effective IT governance. Critically, we also had a shortage of skills available within the organization to support this aging technology and very little prospect of closing that shortage.”
For governments that successfully manage the transition to digital services, the benefits are significant. Greg Farr, formerly Australian Department of Defence CIO and second commissioner of the Australian Taxation Office, witnessed this firsthand after that agency’s core-system modernization. “The majority of people comply with the tax system if they know how and if it’s easy,” he pointed out. “Some of the things we did at the time made it easy for them—and quicker. But at the same time, we also sought to design a system where we can catch anomalies in real time. Things like being able to say to them once they have entered data, Did you really mean that? Or, Last year you said this; why is it different this year? More smarts built into the front end means less work in the back end.”
Still, governments face significant challenges as they attempt to conduct technology-enabled transformations. Certain obstacles make it more difficult to achieve success in the public sector than in the private sector. For one thing, because many government agencies and departments lack experience with large modernization projects and are typically risk averse, their projects end up being over-engineered and less than ambitious. In addition, the mismatch between annual public-sector budget cycles and the time frames associated with large projects means that project timelines are often focused more on political considerations and influence than on rational planning.
The public scrutiny of government projects also complicates matters. Not only does it cause leaders to be risk averse—resulting in less than ambitious projects—it also encourages inflexibility. After all, leaders are wary of being branded flip-floppers should they change course midstream—even if compelling evidence supports a shift. And given the large number of stakeholders—including, agency staff, other government agencies, and the public—potentially affected by changes in core systems, building consensus is difficult and can lead to major delays and what we call lowest-common-denominator solutions. The upshot: many public-sector modernization programs fail or deliver mediocre results at best.
On the basis of our experience with large IT projects in both the public and the private sectors, BCG estimates 70% to 80% of public-sector core-system modernizations either fail outright or are disappointments: they have budget overruns, missed deadlines, or fail to deliver expected functionality. (See Exhibit 1.) Another 20% to 30% fall in the “good” range: they deliver largely within budget and on time and essentially meet the general objectives. But they are not transformative, and they don’t realize their full potential. A slim minority—less than 5%—are great. These projects not only come in on time and on budget but also deliver substantial financial benefits (such as dramatically lower costs), nonfinancial rewards (such as an improvement in the quality of services delivered to citizens and businesses), and new strategic options (such as resource-sharing opportunities and new revenue streams).