Digital Transformation: The Challenge for Government

March 8, 2019


Member of the Board, Allegion

The digital revolution has hit many companies hard and has forced them, regardless of the industry or the location, to make the changes necessary to learn not only how to survive in the new environment, riding the digital wave, but also to take advantage of the new opportunities created in this new environment.

Governments are equally facing the digital revolution, and while their existence may not be threatened by digital competitors, they have an obligation to surf the digital wave as well, in order to meet the growing expectations of citizens. The interaction between citizen and government is no longer determined by the traditional hierarchical power structure. Governments and all Public Administrations must now focus on the “customer experience”, just like any private corporation.

With one click you can find online many articles and studies that describe the steps that any Government/Public Administration should take in order to digitalize their processes and services and to be able to serve citizens faster and more efficiently. Topics covered include Smart cities, digital government platforms, security and protection of data, improving mobility and automation, among many others. When reading these articles, just as for the corporate world, you could believe that the only challenge to be overcome is the acquisition of technology, as if the results will follow automatically in due course.

But this is not the case. Just as in the case of the corporate world, for governments the key to digital transformation is not the technology itself, but the creation of a vision, the correct and faithful implementation of this vision, implemented by the correct individuals, and at the correct time, in order to achieve the desired cultural change.

In the case of governments, the change of culture is even more challenging due to the traditional hierarchical rules-based system that has been built up over time. This system is rapidly becoming obsolete. Governments need a new way to interact with their stakeholders: citizens, constituents and communities, as well as the various arms of the administration and the business community. The expectation of these stakeholders has grown considerably in light of technological change, and they will no longer be satis ed with such an obsolete and inefficient system.

When governments worldwide have budget problems, they usually turn to the easiest solution: increasing taxation, but this can have a determinantal impact on the economy. Lack of public funds due to budget mismanagement drastically affects how quickly governments and public administrations can achieve digital transformation, but it is not the only reason why most governments are lagging behind. The development and implementation of online systems that reduce the delays and waiting times involved in any bureaucratic process only scratches the surface of what governments could do if they placed digital transformation at the top of their list of priorities. Above all, to achieve the best digital outcome for everyone, governments need to focus on how to rethink their relationship with the private sector in a mutually beneficial way.

Governments should create an ecosystem where all the stakeholders involved (the citizens, the private sector, private agencies, etc) are able co-create, co- design and co-deliver new services. This will drive economic growth, and fundamentally transform the role of Government. The new roles the Government will be required to play are the provision of the necessary physical and cyber-infrastructure, along with the introduction of few and well- de ned regulations with the aim of facilitating audits and making businesses accountable. This would result in a win- win situation where the citizen benefits both directly from better services and indirectly from the growing economy.

Another factor that is slowing down digital transformation in the public sector is that many decision-makers in the bureaucracy are operating in an environment without an overall vision driving the process. They may have no direct business experience and may not be required to consider the impact of their decisions on the business community or the wider economy and society.

One example of this problem is the introduction of a digital invoicing system in Italy. Effective 1 January 2019 Italy introduced mandatory electronic invoicing for private businesses. The requirement applies to all transactions performed between business who are resident or established in Italy.

This obligation, which arises from an EU Directive, has forced most companies to update their IT systems as well as their internal processes, in order to comply with these new regulations. It is too early to say whether this change will be beneficial or not, but my educated guess is that the Government will not receive the desired outcome of higher tax receipts, as this requirement will most probably only increase the already large proportion of businesses in Italy that avoid paying taxes.

Why this is happening? Because the core motivation behind the introduction of this new system was not to introduce a service that could bene t business as well as the government. It was driven by the Government’s desire to acquire direct control over the invoicing of businesses, thinking that this would automatically result in higher amounts of collected taxes.

Another example of where digital transformation is going wrong is the implementation of the EU’s General Data Protection Regulation, the GDPR. One of the most important aspects of the digital revolution is the sheer quantity and depth of data which it is now possible to amass. The amount of data being concentrated in the hands of a few large tech companies is enormous. Not only does this data concentration represent an insurmountable barrier for new entrants into the market, which creates a de facto oligopoly, or in some cases, an effective monopoly, but it also represents a grave threat to individual privacy.

The best way to ensure data and individual privacy are protected is to regulate the big tech companies, in order to balance the concentration of market power they now have, which arises directly from the volumes of data they have collected. These companies are now so big and so influential that the only response by regulators should be a direct and targeted market intervention, as has already been done in the past.

When faced with this problem, however, the EU took a blanket approach, requiring the GDPR to be implemented in all EU member states and by all businesses, regardless of their size. They did not take into consideration the timing and necessary implementation and training costs incurred by the business community.

Both the digital invoicing system and the GDPR are examples of potential opportunities where the public sector could have worked co-operatively with the business community to co- develop standards and regulations, as well as a road map to follow for the implementation of these systems. What the Government failed to understand is that when it comes to small and middle size businesses in particular, every euro counts, and the implementation of such processes like the two above are a burden that small and middle size companies cannot sustain, unless they move capital away from their core business with consequences for their financial results and for the overall economy.

Digital transformation represents an opportunity for governments and the public sector which should be embraced as a way to downsize and to become more agile. An example would be the reduction in personnel costs that digital transformation will bring, the channeling of savings into infrastructure upgrades, or the reduction of utility costs.

Digital transformation has presented the government and public sector with a unique opportunity to transform their culture for the best, to be nearer to their citizens, communities and business in a way that has never been possible. But this can only happen if governments listen to the concerns of those governed, if they cooperate with their community and, above all, if they put their need for control and power in beneath the well- being and development of society and the business community.

Carla Cico, who was born in Verona, Italy, earned her MBA at London Business School. She is the former CEO of Brasil Telecom, S.A., the third largest Brazilian fixed-line operator and of Ambrosetti (Beijing), China, part of the Ambrosetti Group, an international strategic consultancy company, whose headquarters are in Milan, Italy; as well as Rivoli S.p.A., an infrastructure Company, based in Verona. She was the first female CEO in the Telecom sector in South America. Carla has strong M&A experience and listed Brasil Telecom on the New York Stock Exchange. Brasil Telecom was the first and is even today still the only Brazilian Telco Company listed abroad. A multilingual global leader with far-reaching expertise in all the aspects of international business within multicultural environments, Carla has furthered her career abroad, including in China, India and Brazil. She was ranked 25th in Fortune Magazine’s “The World 50 powerful Women in International Business” (October 2004) and 32nd in Forbes Magazine’s “The World’s 100 Most Powerful Women” (August 2005). In 2003 she was elected best CEO in the Latin America Telecommunications Sector (Reuters Institutional Investor Research). Independent Director in Boards of both listed and non-listed companies. Carla is a sought after speaker for many industry summits, with a focus mainly on Telecommunications, Management, Strategy and Developing Countries.