Perspective Hugo Trépant Robin Schofield Anna Brown Homy Dayani-Fard Next Generation Government Transformations How to Improve Customer Service and Reduce Operating Costs Without Investing £500 million in New IT Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 58 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit www.strategy-business.com. Visit www.booz.com to learn more about Booz & Company. CONTACT INFORMATION Hugo Trépant is a partner with Booz & Company’s government practice in the United Kingdom and specialises in strategic business transformation, especially for large complex change programmes and Booz & Company’s role as strategic integrator. He can be reached at +44-20-7393-3230 or [email protected]. Robin Schofield is a principal with Booz & Company’s Global IT practice. Robin primarily serves civil government clients in the United Kingdom. Robin also has experience in IT strategy and IT effectiveness for banking, insurance, and energy clients. Robin can be reached at +44-20-7393-3597 or [email protected]. Anna Brown is an associate with Booz & Company’s London office. Anna serves civil government clients in the United Kingdom, and has particular expertise in chanage management. She can be reached at +44-20-7393-3733 or [email protected] Homayoun (Homy) Dayani-Fard is an associate with Booz & Company’s London office. Homy has advised clients in the public sector and financial services on strategic transformation programmes, with a particular focus on IT innovation and IT performance improvement. Homy can be reached at +44-20-7393-3509 or [email protected] Colin Brash, Jo Miles, and Charlie Taylor also contributed to this article. Originally published as: Next Generation Government Transformations: How to Improve Customer Service and Reduce Operating Costs Without Investing £500 million in New IT, by Hugo Trépant, Robin Schofield, Anna Brown, and Homy Dayani-Fard, Booz Allen Hamilton, 2008 Next Generation Government Transformations How to Improve Customer Service and Reduce Operating Costs Without Investing £500 Million in New IT Appetite is diminishing among senior civil servants for using large Information Technology (IT) investment as a means to transform government services. Booz Allen Hamilton research shows that government departments can improve customer service and reduce operating costs without always investing in costly, and often risky, IT-led business change. Departments can do this by taking bold steps to transform their businesses without making IT changes and, where investment in IT is necessary, by changing the way they approach and manage IT projects. In Booz Allen’s experience, this new kind of transformation can often be even more successful than its ITenabled counterpart. Changing Needs Booz Allen research indicates that the UK government has invested as much as £17 billion in new IT projects since the government’s 1999 “Modernising Government” white paper was published (see sidebar). Among these new IT projects, the National Health Service’s Connecting for Health, the Ministry of Defence’s Defence Information Infrastructure, and Modernising Government The “Modernising Government” white paper of March 1999 launched a long-term programme to improve Britain’s public services. The programme’s three objectives were to ensure that: n n n Policy-making is more joined up and strategic; Public services focus on their users, not their providers; The government delivers high-quality public services. the Court Service’s Libra programmes are landmark initiatives. However, business users have criticised some of these investments, for reported cost overruns and delays have dogged successful implementation. Additionally, the availability of further investment funds has been reduced (see Exhibit 1) as public sector spending has swelled, according to government figures, to more than 42.3 percent of Britain’s Gross Domestic Product. HM Treasury has had to scale back its forecasts for economic growth. Faced with a tight Comprehensive Spending Review 2007, senior civil servants are now asking: How can I achieve my modernisation goals on tighter budgets while simultaneously avoiding many risks of IT-led business change? Booz Allen’s Point-of-view Our research shows that government departments can do more to improve customer service and reduce operating costs without spending so much on IT (see Exhibit 2). These improvements and cost reductions can be accomplished in two ways: n n By taking bold steps to transform their businesses independent of IT system changes; By changing the way projects IT is implemented. Bolder Steps to Transform The IT-dependent life cycle of business change has become the standard for recent government transformations. This life cycle starts with a strategy for change. The cycle proceeds with development of a revised operating model, organisational structure, and business processes. Next comes a lengthy process of building IT to support the desired new way of working. Finally, if successful, the government department rolls out the replacement system to users along with some change management and training. Our research reveals that stripping IT-dependency out of this sequence can reduce the cost of transformation by as much as 60 percent. But the question remains, what results can government departments achieve without new IT? Booz Allen believes that breaking dependency on IT actually helps government departments focus on important non-IT changes needed to transform their Exhibit 1 UK Government Spending on IT-enabled Change Diminishes Sharply Between 2004-2005 and 2005-2006 (source: National Audit Office 2007) Spend (£ million) 1,000 800 600 400 200 2003-04 2004-05 2005-06 institution. Results can be dramatic and subsequent IT changes are based on a more solid foundation. Examples of bold non-IT changes that government departments can make to affect transformation include: 1. Reorganisation to tackle long-standing business issues; 2. Better performance management of middle managers and staff; 3. Management of workforce capabilities to meet changing needs. We describe these changes in more detail below. 1. Reorganisation to Tackle Long-standing Business Issues Mentions of “reorganisation” often yield a fatigued response from staff members, or cynicism that in time, “everything will go back to the way it was.” Good reorganisation, however, tackles long-standing business issues that matter, issues that hold people back from properly doing their jobs. Handled properly, reorganisation can have a dramatic impact by: clarifying organisational goals and objectives; rationalising a portfolio of activities; simplifying products offered; streamlining interactions with customers; and reducing a costly office footprint – all with few IT dependencies. In all these activities, government departments benefit from accepting that the best way to serve the whole population is by dealing with more complex cases as exceptions rather than trying to develop processes to deal with every customer’s circumstances. This kind of successful business transformation has been implemented before: The Home Office, which in May 2007 split into two separate departments for security and for justice, readjusted after struggling with an expanding departmental remit and conflicts of interest between its former constituent parts. n sign paper forms, standardising benefit rules, and using risk-based verification to reduce the number of times The Pension Service asks customers to supply evidence. 2. Better Performance Management of Middle Managers and Staff The British Government has certainly held its senior civil servants accountable for recent performance by rewarding the success of some and holding others heavily responsible for failures in their departments. In Booz Allen’s experience, however, pressure to perform at the top does not always translate into improved middle management nor does it necessarily equate to increased productivity among rank-and-file staff members. To provide huge potential for customer service improvement and waste reduction, it is best to target better performance management at the The Pension Service successfully worked with ministers between 2003 and 2007 to simplify State Pension claims and Pension Credit applications by removing the requirement for customers to n Exhibit 2 Comparison of common IT-enabled transformation model and recommended next generation alternative Common IT-enabled Transformation Model Recommended Next Generation Alternative Business IT Business IT People People Reduced overall cost Same level of impact grades of administrative assistant through to grade 6 (or their equivalents). Management information provided by IT systems can certainly help. However, more important actions are needed to recognise high performance and tackle deficiencies. For example, government departments must encourage managers to hold regular staff meetings to provide feedback and discuss progress on development needs. Similarly, managers must differentiate between their staff members, offering incentives to good performers and using their department’s consequence process to address poor work. Where incentives are inadequate, Human Resources (HR) should make implementation of better tools a top priority. These kinds of measures help create an organisational culture where performance is talked about openly and taken seriously, with managers at all levels taking action. Unfortunately, there are few examples of UK government departments that have extended performance management to all levels of the organisation. However, Britain’s retail banks – once notorious for poor customer service and lack of competitiveness – made good use of such staff incentives as the cornerstone of their transformations in the 1990s, with considerable success. 3. Management of Workforce Capabilities to Meet Changing Needs Government departments recognise that they compete for skilled employees, especially people who can readily adapt to different work methodologies and new IT. However, government departments face significant challenges in addressing many issues related to workforce capability. For example: recruitment policies and processes may not be fit-for-purpose; remuneration may be inadequate to attract external hires for key positions; or, training may be out-ofdate with respect to current business needs. Private companies have taken seriously the process of identifying and addressing capability gaps in their workforces. The private companies have made HR directors strategic business partners tasked with worrying about this issue; they have set up centres of excellence for recruiting, payroll, and training; they have recruited new entrants to meet specific skills profiles; and they have changed HR processes so that HR managers work with business units to meet capability needs and not just deal with “problem cases.” Instituting these private sector measures can be an important transformation enabler to a government department. For example, a section of the Department for Work and Pensions (DWP) is using simulated customer calls to test candidates applying for customer advisor positions. As well as improving the quality of new hires, this allows candidates to better understand what the job entails, thus improving retention upon completion of staff member training. Only when HR planning, recruitment, and reward measures are pieced together into a comprehensive workforce capability strategy can government departments realise the same benefits as private companies. Changing the Way IT is Implemented Although we have discussed how government transformations can occur without IT spending, avoiding it entirely is not always possible. Inadequate IT may hamper business change. Or, new IT may be needed to support revised business processes or performance management systems. Nevertheless, there is much that government departments can do to reduce IT costs. Three such effective actions are: 1.Make best use of existing systems rather than building new; 2.Where a replacement system is required, change business processes to allow commercial products to be used “as-is,” rather than be customised; 3.Use application sharing, offshoring, and pay-for-use arrangements to reduce capital expenditures and transfer risk. We describe these actions in more detail below. 1. Make Best Use of Existing Systems Rather Than Building New Government department managers often see existing systems as hindering change. Systems integrators and product vendors may encourage this view. More often, however, existing systems – whether mainframes or UNIX client-server – should be seen as functionally rich and reliable platforms, with limitations that government departments can overcome. For example, government departments can extend existing systems to provide the missing functionality needed for business change. Although it is unfashionable to use legacy programming languages and skills, government departments often have those capabilities in-house, or they can be bought on the contract market. One example of this practice is from the DWP, which is successfully building its new Employment and Support Allowance benefit on top of existing systems. Alternately, when existing systems do not integrate with newer ones, cannot scale to serve enough users, or cannot offer online services, government departments can use “wrapping” technologies such as Web services and message queuing to overcome limitations. In these instances, Web services can act as plumbing between different systems (and potentially different departments), enabling them to work together in lieu of having to replace older systems with ones compatible with newer technology. Message queuing allows for execution of transactions without receiving systems necessarily being available, thus saving money as it is costly to make existing systems available online 24 hours-a-day. HM Revenue and Customs uses this type of wrapping to provide online interfaces to its National Insurance Recording System (NIRS2). 2. Where A Replacement System Is Required, Change Business Processes to Allow Commercial Products to be Used “As-is,” Rather Than Be Customised Government departments cannot always extend or wrap existing systems; instead replacements may be required. In such cases, most government departments already look for Commercial-off-the-Shelf (COTS) products to meet their needs. However, the cost of customising a COTS product to meet detailed business requirements is high and its use locks the department into higher application maintenance costs when vendors produce new versions of their products, which are often incompatible with the department’s customisations. Instead, government departments should change their business processes to match functionality provided by the best-fitting, available, and reputable COTS products. This approach is contrary to most IT system development methods and it involves some hard trade-offs. Nevertheless, if executives challenge their business analysts, they often discover that departmental processes can change. Sometimes departments find that the business processes offered by a mature Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM) package are even more advanced than their own. Most importantly, departments can save as much as 70 percent on implementation costs while avoiding the situation of one government department that so extensively customised an electronic document and records management package that later upgrades proved almost as expensive as the original implementation. 3.Use Application Sharing, Offshoring, and Pay-ForUse Arrangements to Reduce Capital Expenditures and Transfer Risk There are situations in which government departments cannot make use of existing systems or implement “as-is” COTS products. In such a situation, a COTS customisation or custom-build is required. However, government departments can still implement new IT at a lower cost than that to which they are accustomed. One of the most cost-effective methods is to share applications across more than one government department. Back office systems such as Human Resources, procurement, supply chain management, and finance are particularly suited for this treatment. Similarly, departments that share similar functions can use common IT components to manage relationships and make payments to customers. Finally, all local authorities have the same statutory responsibilities, thus enabling them to define common business processes among them that can potentially share the same supporting IT. Government departments can also reduce costs of IT development by as much as 30 percent by using offshore providers, according to Booz Allen research. Offshoring has previously been viewed as problematic for government entities because of British jobs and customer data moving to foreign countries. However, many systems integrators have evolved into businesses with requirements, analysis, and design capabilities in home countries like the UK, supported by build and technical testing capabilities in lower-cost countries such as India. This structure allows government departments to contract with a UK public limited company, while much of the IT development takes place offshore. Outsourced providers are sometimes willing to build new systems at their own expense in return for a pay-for-use scheme that adequately compensates for this risk. Government departments need to evaluate these schemes carefully for value-formoney, as government borrowing is cheaper than the private sector’s cost-of-capital. Government departments must also take care to ensure that pay-for-use costs do not become fixed improperly, and that outsourced providers do not charge punitively for lower or higher-than-forecast business volumes. Despite these management concerns, government departments should evaluate the benefits of transferring IT development risks to third parties through sound contracts that are robustly managed. These methods of cost containment are all the more powerful when government departments can combine elements of the above strategies, for example, pay-for-use of back office shared services from a UK-based third party with offshore development capabilities. Savings in such an instance can represent a significant reduction from more standard approaches. Conclusion Government departments clearly have less funding for modernisation under the 2007 Comprehensive Spending Review. However, this should not hold back executive teams from improving customer service and reducing operating costs. Breaking dependency on new IT for transformations can radically reduce the costs of change. Through removal of IT change as an easy option, managers are encouraged to thoughtfully address business issues and improve performance through realistic means. BOOZ & COMPANY WORLDWIDE OFFICES Asia Europe Middle East South America Beijing Hong Kong Mumbai Seoul Shanghai Taipei Tokyo Amsterdam Berlin Copenhagen Dublin Düsseldorf Frankfurt Helsinki London Madrid Milan Moscow Munich Oslo Paris Rome Stockholm Stuttgart Vienna Warsaw Zurich Abu Dhabi Beirut Cairo Dubai Riyadh Buenos Aires Rio de Janeiro Santiago São Paulo Australia, New Zealand, and Southeast Asia Adelaide Auckland Bangkok Brisbane Canberra Jakarta Kuala Lumpur Melbourne Sydney North America Atlanta Chicago Cleveland Dallas Detroit Florham Park Houston Los Angeles McLean Mexico City New York City Parsippany San Francisco The most recent list of our office addresses and telephone numbers can be found on our Web site, www.booz.com. Printed in UK ©2006 Booz & Company Inc.