What is ‘Transformation’, anyway?
Some of the most consistently well-subscribed courses here at Cambridge’s Judge Business School are those involving innovation and the creation of new services. There is a visible appetite to learn about the creation of platforms, such as Google’s, that will support a plethora of ‘servitised’ business models, and discussion of ‘ecosystems’, ‘freemiums’, and utility pricing is the order of the day. Similar talk pervades government, where the credit crunch has sparked an unprecedented level of questions about the continuing viability of traditionally-conceived public services.
Accordingly, almost every government organisation worth its salt is engaged in at least one ‘transformation’ programme. But what, exactly, are they transforming to become? For most, it seems that ‘transforming’ is really about Leaning existing processes, or outsourcing yet more services to one of a small group of private sector companies.
Such efforts are merely fiddling with an outdated model of service delivery that will become increasingly unsustainable during the coming few years. For the reality is that the organisational world stands at the threshold of a ‘quiet revolution’ that will see the progressive dis-integration of vertically-organised departmental functions into standard components, or ‘building blocks’. Since these building blocks are based on open standards, they increasingly resemble everyone else’s, and demand for these components can be aggregated across the market, creating a utility platform around which organisations will innovate.
Benefits of being Open
In an Open marketplace, those who are prepared to componentise and standardise their businesses win in a number of ways over those who insist on maintaining an integrated, ‘bespoke’ way of doing things. I talk about this in my recent podcast, available here. First, they free themselves from long-term, monolithic outsourcing contracts involving entire functions such as Finance, or HR, in which innovative activity usually remains frozen within contractual service levels for the lifetime of the contract: in otherwords, they become more nimble and flexible.
Second, by separating out those components that are standard and low-risk, and which should thus be purchased as a utility (or even consumed for free), there are major savings to be realised across the organisation. For example, although you might previously have thought of ‘Finance’ as a division to be outsourced, several components, such as ‘payments’, ‘print services’, and ‘accounts receivable’ are increasingly available as utility commodities that can be consumed like water, or electricity, via the ‘cloud’. Others will surely follow. Other components peculiar to your industry – for example, exception handling rules – may always remain too specialised to make it to utility status, but these offer opportunities to share with, or even sell to, competitors. In this way, ‘component trading’ will become an increasingly important competence within most operational roles. Jerry Fishenden and I talk about this here – or for a quick overview see some press coverage here.
Third, and perhaps best of all, a component-based view of government offers unprecedented opportunities to build and deliver new services to customers, by literally reassembling or ‘swapping out’ components like interoperable cassettes. For example, I can set up a fully functional outlet for, say, delivery of social services in a morning – and run this out of a library building, or a school after hours, by assembling a combination of components that include case management, HR, and mobile IT. Such agility would have been unthinkable even five years ago, requiring services to be shaped around traditional office structures peculiar to each organisation.
The need for honest debate
There needs to be an honest debate amongst policymakers and the broader civil service about the potentially explosive implications of such a component-based view of the firm for traditional, ‘integrated’ ways of organizing. Here are two examples. First, the price organisations pay for idiosyncrasy will become progressively visible – and unsustainable – within a maturing utility marketplace. We need therefore to understand that Lean techniques – a Whitehall favourite – may merely produce a more efficient idiosyncrasy, rather than a ticket to the Open Standards table. How, therefore, is government engaging with these links between innovation, efficiency, and standardised components?
As a second example, with the percolation of open standards throughout the organisation, public servants will begin to exercise commercial choice at component level. For example, confronted on my desktop with a choice between clicking an icon for free office productivity tools, or an icon for commercial office productivity tools, I am increasingly likely to choose the former if choosing the latter involves explaining a resultant monthly bill to my manager. How, therefore, are we using our understanding of the choice implicit in such consumption-based models to design organisational change programmes based on transparency and individual motivation, rather than managerial decree?
There are many, many more new and pressing questions about the future design and delivery of public services to be addressed by a government that is serious about engaging in a committed way with the Open paradigm. How are component-based business architectures to be developed? How does Open thinking challenge the foundations of many ‘transformation programmes’ currently underway within most public sector organisations? Is there an emerging market for new, ‘service aggregators’ capable of assembling components of public services in new innovative ways? How can public service providers develop and maintain a current ‘market radar’ to enable them to understand which clusters of components are likely shortly to emerge as utilities, in order to avoid making short-sighted strategic investments? How can ‘component trading’ skills be developed within the civil service? I talk about this here.
The end of ‘integrated’ business
Perhaps most importantly, it has been apparent for some time now that there is a need to ignite public debate about the future of ‘integrated’, ‘closed’ business models – both within the traditional civil service, and within the major private sector suppliers to government – which appear increasingly precarious in the face of Open standards. What is at stake is no less than the continuing viability of British public services in the face of unprecedented cuts.
Look at this:
The above diagram shows the need for a significant – and probably painful – policy shift from the present, ‘traditional’ way of delivering public services. The left side of the quadrant (‘Open/utility model’) shows that by standardising, or mandating, business logic and enabling technical standards, government can create a platform that enables it to be agnostic and plural in its approach to technology, suppliers, and commercial arrangements: “we want a service that achieves certain outputs, that complies with certain standards (so we can switch easily). Providing you achieve these, we don’t care how you do it, or what sort of supplier you are”. Such an approach places government in a position of commercial strength, exercising choice regarding technology, suppliers, and the most appropriate (preferably utility) commercial vehicle for services.
Compare this Open Architecture scenario with the right side of the quadrant (‘Traditional way of doing things’), which shows instead that government currently maintains exactly the opposite arrangement: it continues to standardise on technology, suppliers, and commercial vehicles, (e.g. restrictive frameworks, constrained outsourcing contracts): “we have standardised on Company X’s Products; we therefore purchase from Company X; and we have a long term licensing agreement with Company X – and will adapt our own business logic and standards to fit their application”. Within such arrangements, government is purchasing (technology) inputs rather than (service) outputs, and it becomes locked in to proprietary standards and processes controlled by the supplier, with whom it occupies a correspondingly weak commercial position.
Over the coming months, I will use this page as an area to consider some of the major, seismic implications of this shift towards Open public services.