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Perspectives

2018 Federal Civilian Agencies Industry Outlook

Reviewing the impact of IT modernization, cognitive technologies, and blockchain

A conversation with Deloitte Federal Civilian Sector leader Diane Murray—her view on the major challenges and opportunities facing federal civilian agencies in 2018.

How will federal civilian agencies look different in 2018?

Many agencies are reimaging how they achieve their missions and there are a few high-profile examples. The State Department has proposed sweeping changes designed to drive operational efficiency and transform the customer experience. The Department of Agriculture has signed on as a “lighthouse agency” with General Services Administration (GSA) to modernize its IT operations and infrastructure. The Treasury Department will use the new tax legislation to help spur the IRS to modernize IT and restructure business processes.

All cabinet-level agencies submitted reorganization plans in response to the President’s executive order. Some have already declared bold action while others have so far taken an incremental approach. The availability of decision makers and champions is often a deciding factor. Career civil servants are developing plans within agencies that in some cases are still waiting for new political appointees. Still, others have not yet started to rethink their operating models and processes; but the writing is on the wall. What excites me is I am seeing a greater willingness to engage seriously with the call to transform government than I’ve ever seen before.

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Is this because of the new administration?

Yes and no. There has been an appetite for change—for increased efficiency, service and accountability from the government—for some time. However, certainly, this administration has played a catalytic role. Some new executive orders (such as reorganization and reducing regulation) require agencies to rethink old approaches. The push for a tighter budget is also a factor and likely to become an even stronger pressure as agencies look ahead to 2019.

But those are not the only driving forces. Innovations in the private sector are showing the power of new business models and technologies and agency leaders are taking notice. To help accelerate the spread of these ideas, the White House Office of American Innovation (OAI), through GSA, is establishing a number of IT Centers of Excellence. It will be interesting to see how these new centers, working with “lighthouse” agencies, can help to leverage demonstrated private sector best practices to modernize government. The recently passed Modernizing Government Technology Act provides agencies with new tools and incentives, to include the mandate to accelerate modernization efforts and the flexibility to establish working capital funds to support these efforts.

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What solutions specifically are you referring to?

There are many. The IT Centers of Excellence focus on five areas with new solutions available: Cloud adoption, IT infrastructure modernization, customer experience, service delivery analytics, and contact centers. IT modernization is a tremendous and necessary opportunity for government, and the rapid development of cloud solutions is an essential catalyst. The cloud is now changing the economics of IT modernization and offering clear and measurable benefits—both cost and business agility. I believe our federal clients will get serious about cloud in 2018. We could see a dramatic move from strategy to implementation and the agility cloud offers.

Robotics and artificial intelligence (AI), aka cognitive technologies, have also made the leap from an interesting innovation to a core enabler of transformation. Cognitive has potential to transform many government operations, particularly in the areas of finance and customer service. Deloitte estimates that even low levels of AI penetration into government applications could save almost $100 million annual person-hours, worth over $3 billion dollars. Labor savings dollars, however, are just one dimension of potential benefit, and not the most important one. As reported in a recent Harvard Business review article on AI, “reduced headcount” ranked ninth among the goals AI. The top four goals were more transformative—enhancing products and services, optimizing business processes, freeing workers to do more creative tasks, and enabling better decision making. Our federal clients are taking note and will follow suit.

Blockchain is another emerging technology with potentially transformative impact on the way agencies conduct their business. Governments around the world are exploring a plethora of blockchain applications in financial transactions, land registration, elections, identity management, and supply chain traceability. Most of the progress to date has been outside the US, but it is only a matter of time. Several agencies, including GSA, have recently announced blockchain programs and I expect this trend to continue.

Demonstrated success in the private sector and with early federal adopters can accelerate the use of these and other technology innovations. The IT innovation drumbeat will only get louder as the Office of American Innovation promotes its agenda and with the continued influx of the government of executives with business experience.

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Is it just about technology?

No, though technology is usually a part of the story. For example, agencies have long been exhorted to improve customer satisfaction. Today, customer insight tools such as in-depth field research, human-centered design, and behavioral economics are becoming more widespread. They can offer opportunities to improve customer experiences while improving the economics of service. I expect to see expanded use of these tools as agencies pursue rising expectations with shrinking budgets. The specific solutions built often include technology, e.g., a smartphone app, but the insights are not necessarily technology dependent.

Shared services is another long-talked-about but an under-realized opportunity for civilian agencies. Shared data to foster insights, shared services for business, human resource and back-office activities, and shared resources for mission. These are all areas where I expect to see continued and expanded interest from government leaders. This administration is clearly directing agencies to move in this direction. Agencies who previously provided services to others are rethinking that role and others who feel it is core to their mission are stepping forward and proposing bold solutions. For example, why are there five homegrown legacy payroll systems in this age of software as a service? Sharing is a hallmark of today’s new economy, so why not expect expanded sharing in government.

This administration is also asking federal agencies to look at some of the government’s long-standing intractable problems. One such problem that affects civilian agencies is improper payments. Improved insights into program participants, more real-time data, and advances in predictive analytics will set the stage for breakthroughs in reducing improper payments, especially if agencies collaborate on solutions. The ubiquity of better, faster data coupled with the power of analytics can open up opportunities to address this and other historically intractable problems.

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What would your message be to civilian agency leaders?

Change is inevitable. This administration has made its priorities clear-infrastructure, jobs, decisions based on data, customer service, and private sector innovation. Find the intersection of your mission and these priorities, and focus on rapid, measurable outcomes. The political headlines can be distracting. Agencies executives should put them on the back burner as much as possible and seize the opportunity to improve the way they deliver on the mission. There is no time likes the present to transform the way they make decisions and deliver citizen services.

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In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.

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