On the back of the launch of our new book, Digitizing Government, I posted a few background thoughts in my previous blog — very imaginatively entitled, er, more thoughts on government in the digital age. I continue exploring a few more themes here.
Cloud computing ≠ shared services
“Shared services” dominated much of the discussion about government use of technology over the last decade or so. But for all the talk, little was achieved. In the UK there were the few shared, and ageing, API-based components collectively known as the “Government Gateway” (providing common cross-government services such as authentication, transaction handling and payments): but generally the whole debate became typified by the standoff “I’ll share my service with you, but your service isn’t any good for us”.
The idea that a simplistic, “one size fits all” vertically-integrated, shared services solution for functions such as HR, CMS or ERP was the magic bullet was well-intentioned but naive, given how different organisations operate. The approach lacked a sufficiently detailed analysis of the needs of the various organisations involved and how mature, or bespoke, their requirements actually were. It failed to decompose requirements into those areas where processes and functions were common — and could potentially utilise shared services infrastructure — and where they were unique to each organisation. They also lacked the accompanying management drive necessary to rationalise, simplify and standardise many of the existing processes and functions prior to using a shared technology platform.
So is today’s poster-child — cloud computing — just more of the same, part of the current vogue around ‘smac’ (social, mobile, analytics and cloud)? Like any technology, poorly managed and poorly applied, it’s not going to magically solve complex problems of service design any better than any other option. But as part of a meaningful strategy, such as the UK’s G-Cloud initiative, the adoption of cloud computing will have far more impact than shared services. In the USA:
“The federal government has been gradually adopting shared service business models for administrative services for nearly 30 years. Today, the buzz is all about “the cloud” and its potential to transform shared services as we know them. There’s much hype and a tendency to conflate shared services and cloud computing—things that have many similarities but are not exactly the same. As tips of the spear in an all-out war on government inefficiency, shared services and cloud computing could help drive hundreds of billions of dollars in long-term savings while enabling enormous transparency and performance improvements throughout the government.” 
An important recognition in this transition is the eradication of the “special” or “home-baked” processes, while the accompanying cultural and organisational challenges are eerily familiar:
“The [US] government’s most significant achievement in three decades of shared services gradualism has been elimination of scores of agency-specific payroll systems and consolidation into four centralized providers that serve the entire government today. To this day, most agencies continue to self-serve for most administrative services. Redundant shadow staffs remain scattered throughout most agencies. Inefficient legacy systems continue to operate despite faster, better, and cheaper shared service or cloud computing alternatives. Most government shared services currently operating are under-used and under-performing relative to the state-of-the-art in other sectors. The government remains stuck in an obsolete, industrial age organizational model with vast redundancies and inefficiencies. It has flat-out failed to transform with the times into a lean, high performance enterprise suitable for 21st century challenges.” 
We also need to be ruthlessly honest about the problems that need to be tackled, and the opportunities on offer:
“Enforcing acceptance of standardized systems throughout the government would be one of the toughest, but most critical challenges determined leaders must face. Like the tax code, government administration is rife with complexity—the byproduct of over-designed, agency-unique systems. Agencies must be forced to accept plain vanilla and give up fancy flavors with marginal business value. Moving agencies onto common platforms is fundamental to the streamlining and consolidation necessary to unlock potential savings. It would also open up the government like never before to transparency and performance management improvements.” 
As I mentioned above, in the UK the shared services agenda historically made little headway: few departments share common services and systems. The few cross-government exceptions include examples such as the recent publishing platform, GOV.UK, its underlying performance dashboard, GOV.UK Verify identity assurance and the much earlier API-based platform components of the Government Gateway (currently due to end life sometime in 2016).
This propagation of the “we’re special” mantra and the associated wholesale mid- and back-office bespoking and replication of processes, roles and functions arises not because of any technical constraints, but rather because of a failure to move the public sector away from its inefficient structural silos and the technology stacks that mirror them. A shared services culture and a platform-based approach won’t work in environments where the organisation is not able to re-engineer the way it operates to focus on users (in this case, citizens, business and frontline employees) and their needs rather than its own self-motivated organisational imperatives.
There remain deep-seated cultural, leadership, and organisational issues in the public sector’s current configuration that need to be tackled if we’re not to continue expending precious public sector resources on internal overheads rather than our public services. Part of the problem in the current debate is the failure to distinguish between those jobs (and their associated processes and organisations), that are much needed, and those that are duplicating and repeating what is already being done multiple times over elsewhere. In this sense, as in so many other areas, government is no different to any other large-scale organisation and their inherent tendency towards inertia and the status quo:
“Companies will quickly recognize ideas that fit the pattern that has proved successful for them before. But they will struggle with ideas that require a very different configuration of assets, resources and positions to be successful.” 
Or, as Marshall McLuhan put it more succinctly back in 1967, “We look at the present through a rear-view mirror”.
Deverticalisation / Utility-Commodity
The move away from vertical structures to horizontal ones has rapidly become one of the hallmarks of the digital age. This deverticalisation has in part been enabled by open standards, commoditisation and the existence of common platforms. It’s not a new phenomenon, but part of a cycle of improvement that has moved through numerous industry segments over time. What is different now is that IT — and the essential role of open standards in technology — has brought deverticalisation to traditional “white collar” job roles, functions, processes and organisations.
In the private sector, competitive pressures drive its application. For the public sector to realise equivalent benefits, it has to generate its own “cathartic moment”, to foster an epiphany amongst both the political and public official classes that will enable resource to be moved away from the proliferation of roles, functions, processes and organisations that duplicate and replicate behind the scenes and instead enable them to be deployed to the frontline. While the technology may be different, we’ve seen such processes and impacts before:
“Something happened in the first years of the 20th century that would have seemed unthinkable just a few decades earlier: Manufacturers began to shut down and dismantle their water wheels, steam engines and electric generators. Since the beginning of the Industrial Age, power generation had been a seemingly intrinsic part of doing business, and mills and factories had had no choice but to maintain private power plants to run their machinery. As the new century dawned, however, an alternative started to emerge. Dozens of fledgling electricity producers began to erect central generating stations and use a network of wires to distribute their power to distant customers. Manufacturers no longer had to run their own dynamos; they could simply buy the electricity they needed, as needed, from the new suppliers. Power generation was being transformed from a corporate function to a utility.” 
The same applies now to many of the duplicated processes, functions, roles and organisations of the public sector. Yet the idea of the growth of utility or commodity IT services is hardly a new kid on the block. As Rappa commented in 2004
“The utility business model is shaped by a number of characteristics that are typical in public services: users consider the service a necessity, high reliability of service is critical, the ability to fully utilize capacity is limited, and services are scalable and benefit from economies of scale.” 
The more interesting question is why has this transition proved so slow? The answer is in part found in the behavioural and cultural inertia of the organisations involved — combined with significant vested interests in holding onto and maintaining the lucrative, and failed, business models of the past, such as long-term, wholesale outsourcing and new public management (NPM) (which we discuss in some detail in our book “Digitizing Government” and which has been extensively analysed by Dunleavy et al in “Digital Era Governance”).
Many industries and organisations are beginning to grasp the scale of the change required, but government remains behind the curve and needs to catch up fast — something the recent refocus on the Government as a Platform vision that the Government Digital Service set out in mid-2013 should help expedite. Its online guidance for CTOs recognises that:
“This move to platforms does not assume that government has to develop everything in-house: many of government’s needs can be met by cost-efficient utility services that already exist. Yet government can also help establish best practice in areas such as the privacy of citizen’s personal data, helping lead by example. Wherever appropriate, the government should use existing external platforms, such as, for example, payments services (ranging from third party merchant acquirer services to the UK’s national payments infrastructure). Deciding to develop platforms in-house will happen only where that makes best sense in terms of meeting users’ needs in the most flexible and cost-effective way.”
This distinction between what government needs to do itself (its genuinely unique needs) and those that it can consume is essential. After all:
“The global economy is in the midst of a major business-process revolution as significant as the one that occurred a century ago. As a result of a substantial decline in interaction costs, the new revolution is leading to the widespread de-verticalization of corporate business structures. De-verticalization is the process of separating functions and services from a vertically integrated business. Companies are undergoing this change because they can operate more efficiently and achieve better results by relying on partners to perform certain functions, rather than by maintaining control of these processes themselves. As de-verticalization unfolds in a given industry, supply-chain partners focused on particular aspects of the value chain emerge. Frequently, these partners develop greater economies of scale and superior skill than their in-house counterparts. The development of these partners reduces redundancy of operations in an industry and lowers the barriers to entry. 
The well-managed application of the benefits of deverticalisation will produce a significant reduction in costs — and supports the tight-loose approach that the UK government has been promoting. Good use of technology aligned to effective organisational design enables improved “… internal management, monitoring and control … This can facilitate both greater centralization and paradoxically greater autonomy of decision-making downward and outward.” 
It’s not difficult to see how many of these following benefits might be productively applied within the organisation of our public services:
“Both the reductions in transactions costs and the timeliness of information flow expands the span of control of managers and results in the flattening of organisations. They also encourage “de-verticalization”, “globalization” and “out- sourcing”. The “Product Cycle” has been greatly shortened–reduction in “time to market”–the average product cycle has shortened from 5 years to 12-18 months.” 
Think of the “product cycle” or “time to market” above in terms of successful implementation of a new policy “product” — such as improved welfare services or corporation tax — to understand its potential impact on government. Deverticalisation can help bring about the creative destruction of inefficient and expensive ways of operating, enabling many processes and functions to be simplified and improved. It’s increasingly unsustainable to propagate the current operating model. Public services need to be of the highest quality and delivered as cost-effectively as possible: this requires a major change in the way both the organisations that provide them and the services they provide are designed and delivered.
This change is no longer a divisive political choice of “right” or “left”, but a moral, societal and economic necessity. What does remain far more political is the choice of which services are delivered in-house and which from external services and suppliers. Part of resolving this long-standing issue may lie in properly mapping the landscape — understanding those roles that are unique and specific to the public sector (most typically those on the frontline of service delivery) which can best be kept in-house, and those that are generic (such as many middle- and back-office functions, systems and processes) that can best be sourced externally. But for public services to operate efficiently, in whatever balance of public-private engagement a government and its electorate desires, they will still require the underlying operating model to deverticalise, to transition to one that uses open standards and platform-based commodity components. Some of the characteristics of such changes are summarised in the table below.
As organisations encourage deverticalisation to develop:
“…more fulfillment partners emerge to seize the new business opportunity. Competition among fulfillment partners forces them to improve their skills even further; often, they become more skilled in their own domain than integrated players. Eventually, however, competition also tends to force down prices and lead to abundant capacity. Therefore, once the majority of the industry adopts a deverticalized operating model, pricing often falls to commodity-like levels.” 
Without taking advantage of the significant user benefits of deverticalisation — in particular reduced costs and better use of resources — the public sector will face an increasingly corrosive and existential crisis. The result will be the continued, progressive weakening of our public services over time whilst simultaneously inflating their costs and unnecessary structural overheads.
If frontline public services degrade, quality and productivity drop, staff morale decline, and costs continue to escalate, citizens and businesses alike will not only fail to receive the services required, but will also become increasingly disillusioned with the political and leadership processes that have isolated the public sector from renewal and improvement.
This is why the move to digital has to work: the alternative is unthinkable. Those who continue to stall or block government’s long-overdue modernisation for their own narrow self-interest are playing with the very soul of our public services.
 Marshall, J. Shared Services and the Cloud: Seize the Opportunity. The Public Manager, Fall 2010. p.62.
 Marshall, J. Shared Services and the Cloud: Seize the Opportunity. The Public Manager, Fall 2010. p.66.
 Marshall, J. Shared Services and the Cloud: Seize the Opportunity. The Public Manager, Fall 2010. p.67.
 Chesbrough, H. Open Business Models: How to thrive in the new innovation landscape. 2006. Harvard Business School Press. p.4.
 Carr, N. The End of Corporate Computing. SPRING 2005 MIT Sloan Management Review. p.57
 Rappa, MA. The utility business model and the future of computing services. IBM Systems Journal, Vol 43, No 1, 2004. p.32
 Raskin, A; Mellquist, N. The New Industrial Revolution: De-verticalization on a Global Scale. Research on Strategic Change, ￼August 2005. http://www.alliancebernstein.com
 Lau, LJ. The New and Traditional Economies. January 2001. p.4 . Retrieved from http://www.stanford.edu/~ljlau/Presentations/Presentations/011201.PDF on 26.10.2012]
 Lau, LJ. The New and Traditional Economies. January 2001. p.6 . Retrieved from http://www.stanford.edu/~ljlau/Presentations/Presentations/011201.PDF on 26.10.2012
 Raskin, A; Mellquist, N. The New Industrial Revolution: De-verticalization on a Global Scale. RESEARCH ON STRATEGIC CHANGE, ￼August 2005. p.2. http://www.alliancebernstein.com
 Raskin, A; Mellquist, N. The New Industrial Revolution: De-verticalization on a Global Scale. Research on Strategic Change, ￼August 2005. http://www.alliancebernstein.com p.9