Sustainable Public Financial Management

Leverage “cognitive surplus” to improve public policy

Doug Hadden, VP Products

This is Part 6 of 6 parts detailing the content in my Financial Management Institute of Canada lunch presentation What can we learn about Sustainability from Developing Nation Governments?

Developing countries are adopting processes and technology designed to increase citizen trust while leveraging citizen and civil society cognitive surplus to improve public policy. If the Arab Spring, Tea Party and the Occupy movement has taught governments anything it’s crowdsource to improve public policy – or be crowdsourced.

Many define “democracy” as representative democracy rather than participatory democracy.  Indian MP Ruhal Gandhi suggested that the Anna Hazare hunger strike undermined democracy in India. Yet, it is clear that representative democracy is a thin form because citizens exercise the franchise only during elections.

Transparent and open government data enables developing nations to harness the power of citizens for audit. As I described recently in citizen audit use cases for Public Financial Management (PFM), there are compliance, fraud and performance citizen audit dimensions. Citizen audit is enabled through open data (proactive disclosure of public financial management information on the Internet) and social media collaboration (Internet enabled feedback and discussion.) I further suggested that it is the duty of citizens to leverage open government.

Auditing is expensive. Very expensive in developing countries. That’s why citizens, civil society and businesses are encouraged to help governments. For example, there is nothing better to uncover procurement fraud or poor procurement decisions than competitors.

We have world class external audit in Canada and improving internal audit, as I described in a previous post. David M. Walker, the former U.S. Comptroller General has pointed out that the US Government Accountability Office has a proven return on investment though trapping fraud, improving controls, proposing performance improvements etc. Yet, even audit agencies with proven returns are being cut back.

The Performance Problem

As I’ve pointed out before, performance management in the public sector is more complex than in the private sector. Private sector organizations have a bottom line: profit. There are established measurements like market share, and return on assets. Output measurements like the number of customer complaints handled, and outcome measurements like customer satisfaction survey ratings are factors that influence financials – profitability. If all the KPIs are green and the company is not making a profit, than the indicators are likely incorrect.

There is no bottom line in government. Outputs and outcomes are the results. Financial – in this case, budgets, is the input. This makes it very difficult to determine whether the KPIs are correct. There could be false positives and false negatives.

Social media in government, or Government 2.0, can engage citizens and civil society to report on outputs or outcomes. For example, the Ushahidi platform is used to monitor elections, disaster response and corruption.

The next stage in citizen engagement is crowdsourcing through expert groups or the public. This shows promise when managed correctly. For example, an effort at the White House generated some unexpected ideas. The principle of using citizens to propose and vet solutions reduces the burden on governments and may generate ideas to solve important problems.

Participatory Budgeting to go virtual?

Participatory budgeting is a process originally developed in Brazil to engage citizens to improve budgets. Adoption of participatory budgeting has grown particularly at local government. My sense is that the immediacy of service delivery in local government can create a critical mass of participation. The use of neighbourhood and civil society meetings and government outreach may not be sustainable in large regional governments and many national governments.

My view is that participatory budgeting will become virtual in the future. We can learn from the lessons in participatory budgeting to improve outcomes.

There is some sensitivity in governments to crowdsource policy because policy is considered the purview of political wonks. There is a notion of budget confidentiality in Canada that may restrict the kind of openness enjoyed in developing countries.

Open Government Costs

Many argue that open government, social media, crowdsourcing etc. just costs money. I’ve summarized the business case for open government in a previous entry. A recent Transparency Camp Brainstorm identified the following benefit categories for open government:

• Revenue, primarily in the form of increased tax collection through increased economic activity
• Efficiency, effectiveness and productivity through reduced cost per unit of work including cost avoidance
• Outcome improvements such as achieving higher levels of service delivery or improved health statistics

David Eaves argued that open data can reduce the cost for reduce the costs of Freedom of Information processing

Social Media effects

The resistance to social media and open data in developed nation governments contrasts to the attitudes from many developing countries. I find a greater acceptance of the value proposition of open government in countries like Timor-Leste, whose transparency portal is an amazing achievement, than in G8 countries.  The commitments for the Open Government Partnership show that these countries are innovating beyond expectations. This could result in a more engaged population with a deeper form of democracy than we enjoy in Canada today.

As I’ve written before, social media will be transformational for Public Financial Management. The key driver in developing countries is the need to sustain reform. This doesn’t mean sustaining the PFM “status quo”. Or, tweaking processes. This means continuous modernization and reform. Catching up to developed countries. Leapfrogging developed countries. This effort requires citizen engagement.

Let’s hope that governments at all levels in Canada do not hold back and get leapfrogged.

Doug Hadden, VP Products

Government Performance Management is considerably more difficult than Corporate Performance Management.  Does this mean that instituting performance management tools effectively is more difficult in developed or developing countries?

Technology Leapfrog

The notion of technology leapfrog is that developing countries can skip the incremental steps taken for developed countries to modernize.  Open systems and open standards can be used.  Client/server and wired internet stages can be avoided. The classic example of technology leapfrog is Estonia where the Internet “now tightly entwined with Estonia’s identity.”

The Government of Thailand demonstrates “technology leapfrog” in e-government with a roadmap that includes c-Government (Connected Government), m-Government (Mobile and Multichannel Government) and u-Government (Ubiquitous Government).

Yet, isn’t “government performance management” too complex for developing countries?  Not  necessarily – as we have seen in Timor-Leste where performance dashboards are used and government results provided to the public.

Advantages in Developing Countries

There may not be sufficient capacity in some governments to fully leverage budget-centric performance management tools.  But there are advantages:

• Centralized information: Developing countries tend to have fewer information systems with more centralized systems. Data from sub-national entities is more accessible. And, governments in developing countries are more likely to support public sector and information technology standards to facilitate data collection
• Holistic understanding: Managers in developing countries look at performance and the nature of government in a more holistic way that those in the “West”. Performance Management tools differ from traditional Business Intelligence through a holistic view of performance. In particular, Ministers and senior managers are attuned to macroeconomic effects like commodity prices.
• Development effects: The impact of improved performance is more significant in developing country. Government performance improvements positively affects development results, business confidence, investor Investment, aid effectiveness and remittances.
• Competitive differentiation Improving government performance has a more significant impact for developing countries in the global economy. Governments are more motivated to improve “doing business“, “revenue watch” or “open budget” indexes to create a better business and development environment.

Transparency is Aligned to Performance

The key first step to government performance management is transparency. Transparency is one of the measurements used in international government performance assessments like Public Expenditure and Financial Accountability (PEFA):

B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency
PI-5 Classification of the budget
PI-6 Comprehensiveness of information included in budget documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental fiscal relations
PI-9 Oversight of aggregate fiscal risk from other public sector entities.
PI-10 Public access to key fiscal information

Transparency is more than a superficial step to government performance, as these videos from the Open Government and  International Budget Partnerships describe. Transparency motivates accountability which improves performance.

Doug Hadden, VP Products

IT cartels, IT innovation, and “metamovements.” What do these have in common? What does it have to do with Government information technology?

Strategic Inflection Point

I believe that this represents a “strategic inflection point” for Government IT. The same kind of strategic inflection point described by Andrew Grove when Chairman of the Board for Intel:

They represent, in my description of it, what happens to a business when a major change takes place in its competitive environment. A major change due to introduction of new technologies. A major change due to the introduction of a different regulatory environment. The major change can be simply a change in the customers’ values, a change in what customers prefer. … But what is common to all of them and what is key is that they require a fundamental change in business strategy, and that’s almost a definition of a Strategic Inflection Point. A Strategic Inflection Point is that which causes you to make a fundamental change in business strategy. Nothing less is sufficient.

This is a strategic inflection point for the way that governments manage information technology and the way in which software vendors support governments.

This “double dip” strategic inflection point is driven by:

1. Innovation Necessity: Budget constraints at a time of citizens demanding improved government performance and transparency at lower cost.
2. Value, Risk and Innovation Paradigm: Traditional methods to understand value have become obsolete in the age of social media.
3. Digital Darwinism: IT agility challenges incumbent Government IT providers.

1. Innovation Necessity

John Suffolk, the former UK Government CIO, suggested that governments should not waste a good financial crisis. It’s not just about finding innovative ways to reduce IT costs.  This crisis has seen the rise of what Umair Haque, Director of the Havas Media Lab and founder of  Bubblegeneration, calls the Metamovement:

The Metamovement is a movement of movements. Not all these movements are similar; no two are exactly like; each can be readily distinguished from the next. The Arab Spring is part of the Metamovement; the London Riots were part of the Metamovement; protests spreading across America, under the banner of Occupy Wall St, are all part of the Metamovement.

The Metamovement questions institutions. It demands a change in the status quo of how governments interact with citizens. This has a huge impact on policy and regulation. This is manifested in a demand for improved transparency through Government IT.

As Alex Howard of O’Reilly Radar has pointed out, recent cut-backs in the United States does not mean the death of open government.

Takeaway for Government IT: the government performance and transparency demand is a cornerstone of the Metamovement. Initiatives like the Open Government Partnership is likely the “end of the beginning” for open government data. IT information silos, proprietary technology and focus on IT “control” in government inhibit the ability for countries to respond effectively to citizen demands.

2. Value, Risk and Innovation Paradigm

Government IT decisions tend to be risk-adverse. Small steps are taken, primarily with incumbent software vendors. Yet, this can create an environment that limits innovation and cost savings through what former American Federal Government CIO Vivek Kundra calls “IT Cartels.”  This can result in attempting to find cost-savings through legacy technology“economies of scale” when  modern technology can generate technology can generate more agility while reducing costs and aligning performance with budgets.

As Harvard professor Clayton Christiensen has written, there are significant the differences between disruptive innovation and sustaining innovation. Successful leaders in any category, such as incumbent IT providers, are unlikely to challenge the status quo through disruptive innovation because it disrupts business models.

This fact is addressed in Geoffrey Moore’s new book, Escape Velocity: Free Your Company’s Future from the Pull of the Past. Moore, who developed the Crossing the Chasm technology analysis, addresses this lack of innovation among incumbents. As Mark McDonald of the Gartner Group summarizes:

Moore’s central premise in this well written, actionable and highly recommended book, is that companies have a structural bias for investing in things today that cause it to starve out the new products and services that will generate growth in the next 2 -3 years.

My sense is that this “starving out” reflects Government IT and incumbent vendor approaches to innovation.

Takeaway for Government IT: there needs to be a new approach to risk & results in increasingly transparent world. The Metamovement does not demand tweaking. It does not want a 10% improvement. Traditional approaches to risk in Government IT have become increasingly risky because it is almost certain that these approaches will not result in what citizens want.

3. Digital Darwinism

Brian Solis of Altimeter Group observes the change in the IT landscape. As he says in a blog entry promoting his upcoming book Digital Darwinism:

The reality is that we live and compete in a perpetual era of Digital Darwinism, the evolution of consumer behavior when society and technology evolve faster than our ability to adapt.

Nothing today is too big to fail nor too small to succeed. Disruption not only faces every business, its effects are already spreading through customer markets and the channels that influence decisions and behavior. What works against you also works for you. And, it is what you do now that defines your ability to compete for today and the future. You already recognize the importance technology plays in your business. That’s why you’re here. But recognizing the difference between emerging and disruptive technology and measuring its impact on your business, customer relationships, and products is a necessary discipline to successfully evolve.

Solis also connects the Metamovement with this change in IT in video trailer.

Kay Plantes from the Plantes Company describes some of the fundamental ways that the information age has transformed the economy. She describes the movement from closed to open markets where  ”there was protection for leaders and leading products.” Plantes observes:

In this world, the old strategies of protecting positions through cost cutting, innovating products, branding and marketing just don’t cut it anymore.

Citizens are looking for what Ray Wang, founder and CEO of Constellation Research, calls the “consumerization of IT.” Wang points out that the CIO focus on safe and secure IT limits organizational effectiveness.

For the next generation of knowledge workers, entering the workplace often feels like entering a computer science museum

Takeaway for Government IT: There are significant limits to innovation among many Government IT providers. Make no mistake, governments will innovate the relationship with citizens. The key is that Information Technology should enable these changes. Old models, legacy technology can ensure that ‘big’ will fail.