Tom Burton: Service NSW v auditor war misses the digital point

Is the dispute between New South Wales customer service commissioner Mike Pratt and acting auditor-general Tony Whitfield over the measurement of the benefits of the state’s digitalisation program a case of missing the wood for the trees?

Service NSW is one of the largest all-of-government service reforms in the world, with the aim to rationalise 394 shop fronts, 8000 phone numbers and over 800 government websites that citizens and businesses use to access NSW government services.

Whitfield and Pratt disputed an audit report which found broadly insufficient rigour in detailing and monitoring the realisation of the benefits of the nearly $1 billion, five-year program to unify all of NSW’s services into one delivery system. The primary means of this transformation is a $660 million program to deliver 70% of all services digitally by 2019. This initiative’s total economic benefits were calculated at $1.1 billion, with estimates of achieving benefits worth five times more than its cost by 2024.

Whitfield’s auditors also took aim at some of the delays and revenue shortfalls promised by Service NSW in the original business case to consolidate all major services into one agency. But it is the push to digitalise services and Whitfield’s challenge to effectively redo the business case that is the headline issue.

The role of public auditors is to hold agencies to account, and no one would dispute the need to properly count and capture the benefits of a program of this size.

But capturing in a spreadsheet the dollar benefits of such a large-scale transformation assumes a level of certainty that simply does not exist. It also misses the deep structural benefits to radically rethink the role of government.

Adobe last year commissioned Deloitte to identify the benefits of national digitalisation of government services (PDF). Deloitte predicted total net benefits of $20.5 billion in present value terms — the equivalent of 1.3% or about $2000 per household.

These benefits primarily come from the switch from expensive face-to-face transactions ($16.90 per transaction) to the much lower online transaction ($0.40) and were estimated to save $16.2 billion in net present value terms. Also contributing are the advantages for government from earlier revenue — estimated  to save $1.7 billion.

Deloitte also estimated $8.7 billion of benefits for citizens from saved travel time, wait time and postage, etc. Deloitte estimated the total cost of digitalisation to be $6.1 billion to com up with their estimated $20.5 billion national savings figure.

If NSW is a third of the national economy then this modelling suggests benefits of around $7 billion in net present value to NSW. That is seven times what the NSW bureaucrats conservatively predicted.

The Deloitte work is solid, but is based on the key assumption of a halving of the number of offline transactions from the current 40%. The 20% of remaining offline transactions was based on the fact that one in five people are not online and an observation that face-to-face will continue for Centrelink type interviews, etc.

The key point is the benefits are massive and exactly the sort of productivity improvements as a country we need government to be driving.

Broad benefits in a digital future

And these benefits do not capture the broader innovation changes that come from digitalisation. Service NSW is the poster child for moving quickly, learning from users and stakeholders and improving the platform. As a result, NSW is well ahead of all the states (other than South Australia) and is now having much more sophisticated second-generation deliberations based on real data from real users.

NSW has an active debate among its agency leadership about being digital — as opposed to doing digital. The state is actively working through the thorny issue of digital identity and has an initial product in development. It is also now focussing on how to offer true end-to-end, joined-up digital services.

The contrast is Victoria, which has taken a much more considered approach to its business case, but is still to start its unified service play.

The big prize is not so much the transactional savings but the rethinking of the actual agency architecture that comes with service unification. The obvious question: if over 600 agencies transactions will come through a common platform, what is the raison d’etre for these agencies going forward?

Equally significant is the ability to really focus government efforts based on the data that starts to flow from these large digital platforms. New Zealand is one of the D5 leading digital countries in the world and has enjoyed huge fiscal success focussing its efforts on the 20% of social problems that generate the 80% of costs for government. This is known as the investment approach to government — something Canberra is now focussing on as it looks to reign in longer-term government spending.

And in a world where peer-to-peer review (such as Uber and Airbnb) is doing away with the need for large government licencing and compliance regulators, there is a real question mark over the need for these regulators.

All this is not meant as criticism of the Auditor-General’s office for asking for robust accounting of the benefits of large-scale digitalisation, but rather to not lose sense of the main prize here, and to keep a very strong eye on the mega benefits of digitalisation that arguably will see a complete reshaping of the public sector.

Having the vision of what this new government model looks like — and having the courage to chase those benefits — is the real issue. The whole mantra of the digital transformation movement is to think big, start small, build quickly and iterate. In this world the enemy of good is perfection.