Putting citizens online, not in line

During that time, more than 500 electronic-government initiatives have been launched around the world--up from three in 1996. In many cases, the early results have been promising. A few years ago, for example, obtaining an import or export license in Singapore required applicants to fill out 21 different forms and then wait 15 to 20 days for 23 government agencies to process the request. But since the government launched TradeNet, applicants have had to submit only one online form, and they receive a license as soon as 15 seconds later.

To gain a better understanding of e-government's potential, we examined major initiatives around the world and undertook a significant amount of research. We found that the real value of e-government derives less from simply placing public services online than from the ability to force an agency to rethink, reorganize and streamline their delivery before doing so, much as the redesign of core processes in the 1980s transformed many businesses. And it isn't just the Internet-savvy industrialized nations that can benefit; e-government programs can introduce world-class technology players to developing economies.

Better, cheaper government
When citizens and businesses get online instead of waiting in line, they can obtain faster, more convenient access to government services, and with fewer errors. Singapore's eCitizen portal, for example, allows people to access all government services from a single Web site. Moving? Just type in your address once, and it is automatically sent to all government agencies, such as the post office and the police department. Starting a small business? With just a few clicks, you can apply to Singapore's Ministry of Law for a patent and to the country's Trade Development Board for an import license, and you can post job vacancies with the Ministry of Manpower. While Singapore is perhaps furthest ahead in the e-government game, the United Kingdom, the U.S. state of Washington, and many other places are close behind.

Our experience suggests that just 15 percent of e-government's benefits stem from technology; the rest come from streamlining the delivery of services. The two together can produce dramatic cost savings per transaction. In Arizona, processing a vehicle registration renewal online costs the state only $1.60, while the cost is $6.60 for customers who renew in person. And the Web site hasn't cost taxpayers anything: It was created and is maintained by IBM, which receives 2 percent of the fee for each online renewal. These fees save the state's Motor Vehicle Division nearly $2 million a year, and the amount could easily double or triple as more people choose to renew their licenses on the Web.

The U.S. Internal Revenue Service can process an electronic tax return for just 40 cents, while a paper return costs the IRS $1.60. On average, 40 percent of the expenditures of state governments in the United States pay for the delivery of services, so the potential savings are enormous.

The savings come mostly from using a rule-based decision engine to issue permits or to perform other tasks automatically, provided the user meets specific requirements. Singapore's TradeNet, for example, can issue no less than 95 percent of its import-export licenses automatically, allowing the government to reduce the size of its work force or to enhance service by redirecting employees to more valuable activities.

Additional cost savings come from capturing information more accurately. Electronic filing with the IRS, for instance, eliminates the need to scan handwritten tax forms, thus reducing the incidence of data errors and audits. Receiving tax and other payments online allows the government to invest the funds immediately. Paper and document storage costs fall dramatically.

E-government can cut procurement expenditures as well. Federal, state and local governments in the United States spend a total of $568 billion annually on materials and services. By aggregating procurement and putting it online, private companies have found that they can cut costs by as much as 20 percent to 25 percent. If the U.S. government achieved commensurate economies, it could save $100 billion or more. This tantalizing prize explains why several e-government efforts have focused first on procurement and only later on interactions with the public. Ultimately, going online promotes better public decision-making and more responsive government.

In some countries, e-government can also spark the growth of the New Economy because governments that are committed to putting their services online must build a public infrastructure, create a regulatory and legal framework for online transactions, and promote Internet penetration. Local high-tech ventures depend on all of these factors.

Getting to E
Once a government has decided to reinvent itself online, it faces a continuum of options. At one end of the spectrum, it merely puts existing government services on the Internet; at the other, it creates a megaportal that offers both government and commercial services. Which option makes sense depends on how committed public officials are to overhauling government, on their vision of e-government, and on their ability to execute.

Putting services online
The least costly form of e-government, and the easiest to carry out, is to put existing services online. Led by individual departments, these efforts require little or no cross-department cooperation and only a moderate redesign of processes. Such services might include obtaining a work permit, renewing a vehicle registration or filing a tax return.

Online delivery typically reduces costs by 20 percent to 25 percent and improves the quality of service and convenience for customers. Most e-government efforts in the United States, for example, fall into this category.

Because these efforts are relatively straightforward, many government departments--at little or no cost to taxpayers--outsource the entire task of building and maintaining their Web sites to private companies. Governments can pay companies a percentage of the value of online transactions (as Arizona's Motor Vehicle Division does) or a combination of fixed and variable fees; either way, it is important that companies receive financial incentives to increase online usage. If the department decides to build the online application itself, this typically costs $30 million to $45 million, which covers building the portal as well as automating the service-delivery process.

But simply transferring existing services to the Internet leaves significant value untapped. Government functions remain in their silos, leaving the burden of integrating services to consumers. Citizens would be better served if, for example, they could simultaneously take care of two related chores, such as renewing their vehicle registration and paying their outstanding parking tickets.

Where interdepartmental politics and lack of leadership make more sophisticated online integration impossible, Web sites for individual departments represent a step forward. Departments don't have to take on the enormous task of redesigning the delivery of their services and coordinating the functions of different agencies; many can achieve quick wins on their own. This observation may hold especially true for functions, such as tax payments, that are largely independent of other government services.

The public face of this coordination is a single portal. The result is a one-stop shop for government services--an approach that can reduce costs by 35 percent to 45 percent while radically improving the quality and convenience of services, much as Singapore's eCitizen Web site and Washington state's Access site hope to do.

Clear leadership is essential to make this effort work. Redesigning the delivery of services and improving their coordination are difficult tasks, especially for public-sector organizations that rely heavily on consensus and lack the final authority of a chief executive officer. Governments must therefore create a cross-departmental coordinating body with the clout to choose common standards and systems for all departments so that their services fit together and offer all people the same look and feel.

The United Kingdom's military e-procurement project dealt with the problem of authority by putting an objective third party--the Defence Logistics Organisation (DLO)--in charge. The politics of combining procurement for all three branches of the military (accounting for roughly 50 percent of total government procurement) could have been fierce. But, unlike a temporary task force, the DLO had real power and organizational status, and it enjoyed the support of senior politicians.

The DLO spent eight months mapping existing processes, four months creating new ones, and six months getting stakeholders to buy in to the result. In the end, it redesigned all processes for inventory management, purchasing, commerce and finance. The secret of its success was that the DLO invested more time in winning support for its initiatives than in developing a solution. In e-government efforts, planners can't overinvest in communication and consensus building.

Creating an integrated government-service portal also requires a large financial investment. Since each department typically has its own legacy systems, communication with a central Web site requires complex and costly middleware. Putting 10 to 15 services on an integrated portal can easily run to $100 million or more. To make this investment worthwhile, governments must avoid merely adding an expensive high-tech Web site to outmoded and convoluted service delivery processes. It is all too easy to build a Web site without actually improving service.

Watch out, Yahoo
If private companies were allowed to establish a presence on government portals, the economic returns could ultimately extend well beyond mere cost savings. A government portal, almost by definition, receives a large volume of traffic. Since most government services are mandatory, a user-friendly and well-publicized government site is likely to attract huge numbers of visitors. The Washington state portal, for instance, receives an average of 600,000 hits a month. A U.S. state's e-government site could therefore bring participating vendors more traffic--not even counting business users--than Amazon.com and eBay have combined.

A wide range of commercial services could coexist comfortably with the services that a government portal was designed to provide. When citizens electronically recorded an address change with a government agency, for example, a private service provider could also notify their friends and the magazines to which they subscribe. They might also be able to use the same Web site to select moving companies, open new bank accounts, and change their telephone, utility and media providers. Such a portal would offer citizens greater convenience and give the private sector invaluable access to consumers.

Combining public and private services is no doubt politically more acceptable in some parts of the world, such as Hong Kong and the United Kingdom, than in others. Surprisingly, such services are also being combined in the United States, where users of the IRS Web site can, for example, click a link to Intuit, which will sell them software for preparing their tax returns electronically. In Hong Kong, a private Web site that also offers commercial services hosts e-government transactions. To ensure that people understand the difference between public and private services, the Hong Kong government disclaims any responsibility for the latter and doesn't endorse them. Before people are given access, they must acknowledge their acceptance of the government's position by clicking a button. The IRS site includes a similar disclaimer.

The cost of building such a hybrid portal isn't significantly higher than the cost of building one that contains government services alone. Hybrid sites have a choice of revenue models. The government could charge companies a fee based on the number of people who click through to their sites. Or it could charge a fixed fee based on the size and location of a company's icon, just as the Yellow Pages does with advertising. Alternatively, the government could pay an independent Web site operator to put official services online. Hong Kong, for example, pays a private company a flat fee of 80 cents for every government transaction completed on the site. For the government, this is a bargain compared with the average cost--$1.90--of processing a transaction at the counter.

Because governments are responsible to the public, whose interests they hold in trust, they have to be very careful when selecting and structuring private-sector partnerships. Countries should adopt this public-private hybrid model of e-government only if it is clear that citizens understand when they are moving from the government to the commercial part of a site and know which services are official and which are commercial.

Making it happen
Planners start with grand visions of online services but then flounder amid cross-agency squabbling. Or they fail to attract enough customers or get sidetracked by expensive high-tech bells and whistles. Our research on e-government efforts around the world has helped us identify three critical lessons for their proponents.

First, don't underestimate the resistance of government employees to change. Washington state overcame this barrier by creating the Digital Information Academy. Mandated by the state's governor, the academy helps departments map their existing services, encourages them to rethink the design of their services, and tries out new processes on focus groups. By involving government employees, the academy makes them less fearful and gives them a stake in e-government's success. To ensure cooperation between departments, the governor required all of his chiefs to sign contracts stipulating the services they would put online within a specified time frame. When friction arises, the academy mediates.

Second, e-government services don't justify the investment if citizens and businesses don't use them. The majority of the people of almost every country don't have Internet access, so e-government initiatives must include efforts to increase Internet penetration and usage. Most countries will have to develop channels other than personal computers in homes. In Dubai, for instance, where PC-based Internet penetration is below 15 percent but mobile-telephone penetration is above 50 percent, e-government will eventually adopt wireless applications. In Hong Kong, where Internet penetration is more than 40 percent, the government is nonetheless building e-government kiosks in shopping malls, supermarkets and railway stations.

But access isn't enough: E-government must also give the public financial or other incentives to use the Internet for transactions. In the United States, for example, people who file their tax returns online get their refunds deposited into their bank accounts within three weeks--half as long as it takes those who file paper returns to get a check in the mail. More than 30 percent of U.S. tax returns are now filed online.

Finally, e-government can be either a profit engine or a financial black hole, depending on the strategy and mind-set chosen. Its cost ranges from $30 million for department-specific efforts to over $100 million for fully integrated service portals. Unless companies, too, invest at the outset, governments must justify these commitments by identifying, up front, the specific ways in which costs will be cut and people will be served more cheaply and conveniently. The National Information Consortium, for example, agreed to provide e-services to the citizens and businesses of the U.S. state of Virginia in return for a cut of every transaction.

E-government, in short, allows the private sector to operate in areas that used to fall strictly within the public domain. The challenge for policy-makers is to recognize that what is good for business is consistent with good government.

For more insight, go to the McKinsey Quarterly Web site.

Copyright © 1992-2001 McKinsey & Company, Inc.