Net gains for citizens

Governments cut costs and improve service by putting more of their information and services online. The main obstacle, however, is access to the internet. A report by McKinsey Quarterly gives a model to implement web-based government services. The model follows three stages: 1) outsourcing of government services to a private supplier, 2) inter-departmental cooperation or “one-stop shopping” to cut time spent finding information , and 3) commercial exploitation of the web portal. Problems with this model are the same as any private enterprise, except on a larger scale. If a private enterprise fails to provide adequate public services, the results are not consumer flight, but angry citizens. Nevertheless, if government services are handed over to the private sector and lower costs and better service are the result, will citizens turned consumers care that the public sector is run by a private enterprise

Net gains for citizens

John W. Hunt
Friday, September 28, 2001

The world's leading economies spend 40 per cent or more of their revenues on services for their citizens. When things get tight, cost reduction is thrust centre stage. The call for better, cost-effective government services is universal.

The McKinsey Quarterly (www.mckinseyquarterly .com) has just published a review of how governments are updating their services by using the internet. The authors claim that, worldwide, in 1996 there were three government initiatives to update services in this way. Over the past five years there have been 500 - to say nothing of hundreds of local, regional and international initiatives.

One critical restriction on updating services is access to the internet. This varies widely. Whereas 60 per cent of the population in Iceland and 40 per cent in the US have access for at least one hour a day, only 1.3 per cent of Malaysians do. Even within Europe there are huge variations.

McKinsey lists Singapore, the state of Washington, and the UK as the best examples of governments using the net to improve services. Singapore's portal gives people access to all government services from a single website.

The authors propose a three-stage model for the adoption of web-based government services.

There are numerous examples of the first stage - the online delivery of services by individual departments. Vehicle registrations and renewals, parking fines, passport applications, welfare benefits and taxation are already being conducted extensively over the internet.

This first stage usually produces a massive change in the structure and size of the department. A single department can outsource the entire task of building and servicing its website to a private supplier. As a way of restructuring, this is a massive lever for change.

For example, before the Department of National Savings in the UK subcontracted its processing to Siemens, it had more than 4,000 staff. Peter Bareau, an outsider, was appointed to run the department. His chief strategy was a partnership whereby 4,100 staff moved off his payroll and on to that of Siemens. The transformed department now has 130 staff.

The stakes for the private suppliers are high and the risk of failure is daunting. Had Siemens botched the processing of the Department of National Savings services, 30m customers would have screamed for its blood.

So while stage one of McKinsey's model may sound like eliminating paper and getting better control of information and cash, it is often highly significant both for the department and for the entry of a private sector supplier into a market.

The second stage of their model sees inter-departmental co-operation. The objective is to save citizens from having to traipse from one agency to another: one-stop shopping for services.

This initiative has three triggers. The private sector suppliers begin to see duplications and suggest refinements across departments. Also, having published performance criteria, the government has created a form of market pressure. It has no choice but to listen. Finally, there is pressure from those same public/civil servants who changed employer with the first subcontract. In their new role as private sector employees they work for several departments. They know where the opportunities lie.

In fact, many private companies (Accenture, EDS, International Business Machines and Siemens) have accepted loss-making first contracts just to get into a public sector market. They know the real money is made, subsequently, from selling their experience, systems and processes across departments.

Whatever the triggers, the important change in stage two is, ironically, another layer of structure. If departments are to co-ordinate their web services, then there must be a co-ordinating authority, otherwise public resources may be unaccounted.

The authors quote the UK's Defence Logistics Organisation as an example. Its role was to co-ordinate procurement across the army, navy and air force. First it had to be given the authority to implement its decisions. Even so, it took 18 months of talk and persuasion to create a single agency.

Stage three foresees the commercial exploitation of the single government portal. This could provide the biggest pay-off, and cut costs by 35 to 45 per cent.

The authors cite the state of Washington as an example of the commercial potential of a single government portal. It has 600,000 hits a month. Stage three will depend on how far citizens are prepared to go to reduce the cost of government services by allowing commercial companies a fuller role.

We have already come much further than most of us realise. The private sector is much better at running organisations based on large numbers of repetitive tasks. Does it matter to a citizen if a public or private employee processes those tasks?

Probably not, on the surface. However, significant values are involved. What happened to that cherished view of public sector organisations as collectives representing our interests?

Private and public employees now work together in the same building. Next they may begin to think that they share the same beliefs. That would be progress.

G. Al-Kibisi,K. de Boer, M. Mourshed and N.Rea (2001), Putting Citizens On-line Not in Line, McKinsey Quarterly, Special Edition On Line Tactics, Number 2, pp 65-73

© Copyright The Financial Times Limited 2002