In 2015, governments globally spent 15.7% of all global IT dollars, and yet GovTech represents an under-served market in terms of innovation. When it comes to cost and capability, the gap between technology available and the services delivered has widened to the point where governments around the world are trying to change the way they approach IT. This change and focus on “GovTech”, if executed without a lot of bureaucracy creates a huge opportunity for IT firms everywhere.
The digital transformation of government, both internally and externally, is just beginning. Canada has many advantages when it comes to GovTech, including proximity to global and US SaaS solutions, an understanding of non-US data residency requirements and the unique capacity to service these requirements, an advanced open-data initiative, and a move towards small scale procurement.
GovTech is…
Readers will intuitively understand what GovTech represents, but never thought about the specifics. GovTech companies are focused on building hardware and software tools for governments that are significantly better than existing technologies. In hopefully all cases, the new technologies will be built to replace sometime decades old systems that would today be considered “bloat-ware,” and are inspired from the ground up by the user experience. Built to offer simplicity and leveraging the best possible security technologies and the cloud, GovTech systems should enable seamless interactions to all users regardless of modality of connection. Simply put GovTech enables all levels of government to become more efficient, more responsive, and able to serve the modern society via digital “always-on” services.
The Government of Singapore recently laid out a valuable visual representation of GovTech:
The Modern Public Service is a Digital Public Service
Governments spend a lot of money on IT. In one single paragraph from the 2016 Canadian Federal budget, the government earmarked close to $400 million “to support the transformation of government IT systems, data centres and telecommunications networks.“ $400 million from one incremental spending item at one level of government in one country. Gartner estimates for 2015 put annual worldwide IT spending on government at $425 billion dollars, or 15.7% of the total across all industries.
In December 2015, Kevin Lynch, wrote an article exploring the technology needs of a modern public service. In this article Lynch drew parallels between the rapidly developing financial technology sector and innovation opportunity in governments, highlighting the export opportunity in the sector.
“The tools of the FinTech trade are new platform technologies, huge scalability, big data, cloud computing, and customer-centric business models – all applicable to government operations.
So why not “GovTech”? Many of the core functions of government are equally amenable to such innovations, and offer improvements in costs, productivity, service and the public’s experience of dealing with government.
An added benefit of being a leader in GovTech would be the enormous export potential for these Canadian firms to market their innovative applications to governments around the world.”
His word carries considerable weight; Mr. Lynch is the former Clerk of the Privy Council (the highest Public Service officer in Canada), current vice-chairman of the Bank of Montreal, and a recipient of the Order of Canada. But why should entrepreneurs or investors get excited about GovTech now, why Canada, and where is the export opportunity?
The knock on government as a target customer for technology entrepreneurs has always been due to the complex procurement processes, large contract size, and the highly customized requirements that make it possible for only a handful of large tech companies to really compete. However, this is changing:
Cost of the Cloud
The price difference for development and maintenance of custom IT solutions vs. cloud based SaaS solutions has become so large that cash-strapped governments have taken notice. There are some lingering issues such as data residency for governments outside of the US, as well as the poor fit of government procurement processes to SaaS customer acquisition models, but smart businesses and governments are finding ways to address this. Cloud services represented 8.5% of all US Federal government IT spending in the 2016 fiscal year, an increase of 70% from the previous year.
The US Patriot Act and Edward Snowden’s exposure of the US spy program have caused governments around the world to draft policy preventing their data from being hosted on servers located in the US. Canada could unintentionally benefit from this. By the end of 2016, Amazon Web Services, Microsoft Azure, and Oracle Cloud will all have data centres located north of the border. Canada could potentially become a launching site for GovTech SaaS export if foreign governments prefer to have their data stored outside of the US.
Potential uses of Government Data
Governments around the world are recognizing the power of the data they are sitting on, both for their own decision making and for industry/public use. When it comes to business intelligence, governments face the same issues as the private sector: how can they bring together data from different silos to provide a coherent, useful, and visually appealing analysis?
Open data initiatives are springing up around the world. These initiatives have governments providing datasets or APIs that the public can freely use to feed data into their own solution. The uses of this data are just beginning to be tapped. One such example we are familiar with is Foundry Spatial. They provide data visualization and mapping of openly available government hydrology and environmental data. They have built mapping tools primarily to support the natural resource sector in Western Canada, but there is great potential for export of a platform such as this. Management of water resources is becoming critical around the globe, and user needs for data analysis should be fairly consistent from region to region. As jurisdictions around the globe embrace open data in the same way Canada has, organizations that are already using similar data will be well positioned to enter each new market.
Power of User-Centered Design Recognized
Following the recent birth of my son, I was impressed at the user-centered nature of the birth registration process. One single online form served four different government ministries from two levels of government. This portal registered my son in four separate programs, while convincing my sleep-deprived brain to spend some extra money for a commemorative birth certificate. The whole thing took a little over five minutes.
Now compare that experience to the registration of a different kind of baby, a new business. In most parts of the world lawyers charge a decent amount of money to just help people navigate the different registrations at different levels of government. But it does not have to be this way. In Estonia, a country of 1.3 million people, you can register a company in 18 minutes without leaving your computer.
“Estonia has probably the most joined up digital government in the world. Its citizens can complete just about every municipal or state service online and in minutes. You can formally register a company and start trading within 18 minutes, all of it from a coffee shop in the town square. You can view your educational record, medical record, address, employment history and traffic offences online – and even change things that are wrong (or at least directly request changes). The citizen is in control of their data.” – Peter Herlihy, UK Government Digital Service Blog
Governments are realizing that they can bring user-centered design to far more than just birth registrations and the technology to serve these initiatives does not have to cost millions of dollars or require a company the size of IBM to support it.
Small Scale Government Procurement
When possible, governments are beginning to chop up their mega-contracts into smaller components so that small and medium-sized businesses have a chance of winning them. In the most extreme example of this trend, some governments are experimenting with crowd sourcing to solve some of their smallest problems. The government of British Columbia in Canada recently launched the BCDevExchange where the government posts small IT problems and pays $1000 for the best solution. Initiatives such as this tell us that governments are committed to finding a way to make their procurement processes work for small businesses.
Exporting GovTech
Exporting is something government-focused technology startups need to think about early on. The risk-averse nature of governments means that a record of success, even in a different country, can tip the scales, even when competing against a local business. Winning government business generally indicates that a certain level of due diligence has been performed, and standard met. By winning business with multiple organizations, a company can avoid becoming dependent on one level of government or on one jurisdiction, mitigating significant risks if an election changes government priorities.
Governments across the globe are changing their approach to technology investment and beginning to adopt cloud solutions in the same way private industry has; the coming years will see a major shift in where government IT dollars go. Yet governments have unique concerns that are not met by existing private sector solutions so businesses must specialise to some extent.
Businesses that successfully serve governments on the leading edge of this digital transformation trend have the potential to expand globally as other governments follow suit with their own digital transformations. Ten years ago selling to government was seen as risky for small companies. Today, GovTech opportunities have changed the dynamics. The IBM’s of the world will still dominate, but no longer to the exclusion of smaller providers.
Alacrity has a keen interest in GovTech. Many of our current portfolio companies deal with government agencies globally. Our partner, Wesley Clover also has a long history with governments globally, both directly, and via many of its portfolio companies.