Seventieth Report - Digital transformation in government: addressing the barriers to efficiency

Departments are mainly making piecemeal changes to legacy systems rather than investing in more efficient wider service redesign which would reap greater benefits. It is difficult to transform services where they are supported by poorly performing legacy systems and data. When government does not have the right resources and capabilities at all levels it tends to make more superficial incremental changes. This is a lost opportunity to fully redesign and transform services to achieve long-term efficiency benefits. CDDO has assessed the scale of legacy issues in 153 systems so far, across 16 departments. The highest-risk systems have been identified and remediation plans have been set up and funded. Some departments can describe the benefits gained from transformation, but many still struggle to systematically identify the opportunity costs of failing to transform. The Cabinet Office acknowledges that decision-makers will under-invest if they do not understand how transformation would reduce future operating costs. The consequences of not having enough capable resources are to defer opportunity and prolong the risks of continuing to rely on legacy systems. Recommendation 2: As part of business cases, departments should explicitly set out how they will resolve issues cause by changes to old legacy systems and data and demonstrate how wider service redesign will reduce the future costs of the services they support. 6 Digital transformation in government: addressing the barriers to efficiency

The requirement for senior generalist leaders to have a better understanding of digital business has not been formalised, and training is not focused on how digital developments interact with the complex government operational environment. The continued engagement with digital transformation of departments at permanent secretary level is essential to maintain traction. Setting up the Digital and Data Board is a good start, although we have heard that some permanent secretaries have been sending deputies. Committees on their own do not deliver anything if the right people do not attend and take required actions. We were also surprised to see that while the standard appointment letter for permanent secretaries includes reference to their financial responsibilities, it does not include anything relating to digital responsibilities. Ongoing capability building and training for senior leaders is essential. Various training programmes are being delivered, but the Digital Excellence programme has only recently been piloted and is not yet widely rolled out. Government acknowledges this area needs continual attention. Suitably experienced non-executives in board roles in departments are an excellent way to guide and educate senior leaders in digital matters. Around half of non-executive directors in government consider they have digital expertise but those with a background in similar legacy environments to departments will be most valuable. Recommendation 3: a) Digital responsibilities, such as improving digital services and addressing the highest risk legacy systems, should be included in letters of appointment at the most senior levels in all departments. The Cabinet Office should set out the steps it will take to work with civil service HR and other relevant stakeholders in writing to the Committee by December 2023. b) All Departments should appoint at least one non-executive director with relevant digital, data and technology transformation expertise to their Board.

Digital skills shortages, including those self-inflicted through headcount cuts, risk costing government much more in the long run because opportunities to transform are foregone, and delays increase the risks of prolonging legacy systems. Government estimates it has under half the number of digital, data and technology professionals it needs, when benchmarked against comparable organisations. Yet departments are constrained in what they can pay and, while they try to offer more for specialist roles, cannot fully compete with the private sector in hard-to-recruit roles such as data architects and cyber security experts. Despite offering interesting opportunities, and the new possibility of digital career progression to executive committee level, departments are vulnerable to trading on the goodwill of staff if pay is consistently lower than outside the civil service. Departments are also rationing digital headcount, such as apprenticeships, when they are struggling to recruit and retain the skilled people they need. Such shortages are a risk to achieving the Roadmap’s aims. Digital transformation in government: addressing the barriers to efficiency 7 Recommendation 4: a) CDDO should support departments to avoid counter-productive digital headcount cuts when they are seeking to double the size of the digital, data and technology profession in the civil service. b) Departments should, as part of its Treasury Minute response, quantify the impact of the under-resourcing of digital skills both on their ‘business-as- usual’ operations and change programmes, and take action to address these such as by scaling back programmes and being explicit about delays and missed opportunities.

Central functions, such as procurement, have not made significant progress in treating digital programmes differently from physical infrastructure programmes. The Infrastructure and Projects Authority is responsible for assuring major programmes across government and has started to appoint people with digital expertise onto review teams. However, CDDO is working with the central functions on some of the broader challenges associated with understanding and embedding digital thinking into the areas for which they are responsible, aiming to address these by 2025. The civil service is more specialised than it was 10 years ago but is still quite generalist and policy-driven overall. The types of challenge are: • Departments find it easier to secure capital funding than for ongoing resource allocations to run services. However, limiting resource expenditure on systems can be a false economy. Cuts can have a devastating future impact and exacerbate existing problems with legacy systems. • Procurement processes are considered inflexible and do not comfortably fit with the complexities and uncertainties of digital programmes. Departments often cannot precisely define and scope their requirements yet continue with procurements and expect suppliers to make priced proposals as if these uncertainties were not a problem. Once awarded, contract lots are not always allocated to best fit the delivery plan and focusing on cost minimisation rather than best outcome can lead to defensive behaviours from all parties rather than constructive partnership. Recommendation 5: Central functions should write to CDDO by December 2023 to describe their strategy and plans to achieve the necessary digital reforms to central processes so CDDO can identify what blockers and disagreements exist, and how to resolve them.

We are unconvinced that departments will be able to maintain commitment to the agreed Roadmap activities in the face of competing pressures and priorities. Departments must buy in to the long-term advantages of following the digital change agenda. CDDO can monitor progress from the centre, but departments must continue to play their part in completing the agreed activities in the Roadmap. Lack of sustained leadership engagement is a risk to delivery that needs to be taken seriously and CDDO must continue to push for priority with senior leaders. We agree that overall pressures on spending in the current climate require better delivery for improved efficiency at lower cost. Competing pressures and changing priorities will present challenges to the delivery of the Roadmap despite CDDO’s best endeavours. 8 Digital transformation in government: addressing the barriers to efficiency Effective and timely reporting is necessary to hold departments accountable for completion of the agreed Roadmap activities, and CDDO must ensure it maintains suitable levers to keep progress from stalling. Recommendation 6: CDDO should report to Parliament in six months’ time, and 6-monthly thereafter, on each department’s progress towards achieving the Roadmap commitments they have agreed to. We note that the first 6 monthly report has been published. Digital transformation in government: addressing the barriers to efficiency 9 1 Leadership, skills and capacity

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Cabinet Office about how digital transformation is progressing across government and what is being done to address the barriers and challenges.1

Pressures on spending in the current climate require better delivery for improved efficiency at lower cost.9 However, competing pressures and changing priorities will present challenges to the delivery of the Roadmap, despite CDDO’s best endeavours. CDDO is using quarterly assessments, supported by its digital dashboard, to monitor progress against commitments and identify where departments may be going off track and the steps needed to correct this.10 CDDO must maintain suitable levers to keep progress from stalling.11 As a committee, we believe in transparency as a means of holding people to account and in our view CDDO should publish updates to keep departments to the tasks they have committed to.12 Senior leadership understanding of digital

Only a small proportion of senior decision-makers in government have first-hand experience of digital business and senior digital leaders in departments struggle to communicate their messages effectively because their wider leadership teams lack sufficient knowledge of digital issues.13 The continued support of departments at permanent secretary level is essential for maintaining traction and setting up the Digital and Data Board is a good start. However, we have heard that some senior leaders have been sending deputies and have had to be reminded that they are expected to attend in person.14 Boards and committees are only effective if the right people attend and commit to the agreed actions.15

We were also surprised to see that the standard appointment letter for permanent secretaries makes no mention of their responsibilities for improving digital services, despite including others such as managing public money. Including reference to digital responsibilities would make clear the importance of the area.16 For example, it would mean permanent secretaries are fully aware of their responsibilities to address legacy systems.17

Ongoing capability building and training for senior leaders is essential. It is being progressed through various training programmes but requires continual attention.18 We heard that a Digital Excellence programme has been piloted recently, although not yet widely rolled out. So far 300 people have been trained but this represents less than 5% of the senior civil service so far, against the target of 15% by September 2023.19 CDDO itself recognises it will take sustained effort and focus from senior leaders across government to meet the target of 90% set out in the Roadmap, so in our view this is unlikely.20 We would also expect this training to include detailed coverage of government’s digital operating environment and the existing constraints and issues associated with legacy systems and data.21 9 Q 73 10 Qq 55, 69 11 Q 55 12 Q 70 13 C&AG’s Report, para 26 14 Qq 45–49 15 Q 49 16 Qq 42–43 17 Q 30 18 Q 7 19 Q 44; C&AG’s Report, para 26 20 Qq 30, 36 21 C&AG’s Report, para 3.23 Digital transformation in government: addressing the barriers to efficiency 11

The use of advisers and non-executive directors with digital experience in board roles in departments is an excellent way of educating senior leaders in digital matters. Around half of current postholders consider they have digital expertise. However, those with a background in similar legacy environments to government will be of most value as they will be best placed to understand how digital developments interact with government’s complex operational environment.22 Digital skills shortages

There is a major digital skills shortage in the UK and skilled digital professionals command a premium in the market, making it hard for departments to recruit.23 Government estimates that the number of digital, data and technology professionals in the civil service is around 4.5%, less than half the number it needs when compared to an equivalent industry average of between 8% and 12%, and so the number will need to double.24 Departments are facing particular shortages in roles such as data architects and cyber security experts, which are difficult to recruit and where the skills command a premium in the market.25 Government is trying to improve pay for specialist roles, and considers that this is improving the situation.26 However, the Roadmap’s aims will not be achieved and the cost to government will be much more over the longer term if opportunities to transform are delayed or foregone and reliance on legacy systems is prolonged.27

CDDO told us that government can offer interesting and rewarding opportunities, and the possibility for digital career progression up to levels of seniority that were almost unheard of several years ago.28 It believes this can make a career in the civil service a more attractive proposition.29 Nevertheless, we are still concerned that, if pay is consistently lower than outside the civil service, government is over-reliant on the goodwill of staff.30

Headcount reductions can be counter-productive at a time when government knows it needs to double its digital, data and technology capability and is struggling to recruit the staff it needs. We were therefore disappointed to hear that apprenticeships had been a victim of departmental decisions on headcount culls.31 Government should continuously invest in staff development for clear long-term benefit. 22 Qq 57–59 23 C&AG’s Report, para 27 24 Qq 11, 30 25 Qq 13–14 26 Q 31 27 Q 16 28 Q 14 29 Q 31 30 Q 32 31 Qq 1, 23, 26–28 12 Digital transformation in government: addressing the barriers to efficiency 2 Addressing inefficiencies and transforming legacy services Single service owners and timely metrics

A single director-level owner for each service, with accountability for its end-to-end operation and decision-making authority for continually improving the service, would enable departments to form a complete and joined-up view of their services and associated costs.32 Understanding the full cost base of an existing service is key to delivering efficiency. CDDO told us that in the private sector, information such as unit costs, time to serve and error rates is ‘foundational’. Without good information on a service’s starting point, it is very difficult to make a business case for improvement, and provide a baseline for tracking those improvements.33 Government has some visibility of the digital, data and technology element of a service’s costs. However, it is challenging to get a full picture from the point where a user begins to interact with a service through to the final decision. This is a core aim of CDDO’s ‘top 75’ programme.34

We heard that the lack of a single service owner makes it very difficult to answer questions about the costs of providing a service more widely across government.35 There can be many handovers between different teams delivering a service – policy, operations, digital and transformation. Furthermore, not all services are fully digital and require manual administrative effort to switch between different systems.36 Only 10 of government’s ‘top 75’ services are at a ‘great’ standard, when assessed for how easy they are for people to use and how efficiently departments are providing them.37

CDDO found that, for half the services it has evaluated, there is no single senior individual who has ownership of the full service, encompassing both the online citizen- facing portals and the back-office systems that perform the other processing. Instead, many different programme directors, operational leaders and digital leaders are involved.38 CDDO agrees the need for an end-to-end service owner to address the need for full visibility and end-to-end accountability for a service.39 Piecemeal changes to legacy systems

Across government, legacy systems are a key source of inefficiency and a major constraint to improving and modernising government services. Legacy systems are difficult and expensive to run and maintain and there are substantial hidden costs from additional business processes to overcome their limitations.40 CDDO has assessed the scale of legacy issues in 153 systems so far, across 16 departments. The framework provides 32 C&AG’s Report, para 3.6 33 Q 56 34 Q 52 35 Q 54 36 Q 6 37 Qq 2–3 38 C&AG’s Report, para 3.5 39 Q 37 40 C&AG’s Report, para 3.17 Digital transformation in government: addressing the barriers to efficiency 13 a consistent way of ranking legacy systems across government.41 The highest-risk systems have been identified and remediation plans have been set up and funded.42 The framework is expected to be rolled out to remaining departments by April 2024.43

Government has a low level of maturity in the transformation of digital services and the benefits to be gained from a more fundamental approach are estimated to be three or four times the current level.44 Past approaches have focussed on improving websites and front-end screens , making services “look good but not be good”, whilst not addressing the limitations posed by the existing legacy systems and data.45 The tendency to tweak rather than re-engineer is a lost opportunity to transform services and gain efficiency benefits.46 Piecemeal legacy system development introduces unwanted additional complexity and can increase costs.47

Government recognises that the scale of the challenge on data is also enormous. It hopes that its data maturity framework will help address data maturity challenges across government. However, the committee has taken evidence many times on the challenges on data yet government has made little dent in addressing the issues in the last decade.48 One of the challenges to joining up citizen data is that it is not seen as a priority for one department to do work to benefit another department when compared to their own pressing priorities.49

Redesigning services requires a more fundamental look at processes, not just the digital and technology elements.50 CDDO recognises this needs people not just with skills in technology, but also those who understand end-to-end processes, have the ability and willingness to analyse organisational structures, and the right capability and credibility to make the level of change required.51 Some departments can describe the benefits gained from transformation but struggle to systematically identify the opportunity costs of failing to transform.52 Incremental change is government’s fall-back response to things which are deemed ‘too difficult’ and when transformation gets de-scoped.53 If senior leaders do not understand how transformation would reduce future operating costs, they will continue to under-invest.54 41 Qq 53, 63; C&AG’s Report, para 3.20 42 Q 1 43 Q 63 44 Q 15 45 Q 65 46 Q 41 47 Q 62 48 Qq 76–77 49 Q 38 50 Q 65 51 Q 66 52 Qq 62, 72 53 C&AG’s Report para 1.6; Qq 15, 17–18 54 Q 62 14 Digital transformation in government: addressing the barriers to efficiency 3 Reform of finance, procurement and policy processes Central functions’ understanding of digital

Digital change requires specific ways of investing, funding and procuring digital services and requires upskilling and capability-building to introduce and adapt new approaches. Processes which work for other programmes are not always well-suited for digital programmes. But government central functions have not made significant progress in understanding what makes digital programmes different from infrastructure or construction programmes or reflecting this in policies and procedures which departments are required to follow.55 We heard that the Infrastructure and Projects Authority now includes a digital expert on review teams and reviews digital projects differently from other types of project.56 Nevertheless, the civil service is still quite generalist.57 All central functions should continue to engage with CDDO to address process challenges and shape the future of digital government.58

Departments find it easier to secure capital funding for new developments than ongoing resource funding to maintain systems and keep them up to date.59 Moving services to cloud-based providers introduces new pricing models with an increasing emphasis on ‘pay-as-you-go’, which transfers traditional capital requirements to resource expenditure.60 Limiting resource expenditure means that departments can struggle to maintain services adequately once they have been built, and this can be a false economy. Cuts to maintenance budgets can have a devastating impact on the ability to maintain services in the longer term and risk undoing all progress on legacy systems.61

Procurement processes are considered inflexible and do not take account of the complexities and uncertainties of digital programmes, as set out in the C&AG’s report on The challenges in implementing digital change.62 Departments often cannot precisely define and scope their requirements yet continue with procurements and expect suppliers to make priced proposals as if these uncertainties were not a problem. Once awarded, contract lots are not always allocated to best fit the delivery plan and focusing on cost minimisation rather than best outcome can lead to defensive behaviours from all parties rather than constructive partnership.63

The civil service is still quite generalist and led by people with a primarily policy background rather than by those with direct experience of digital business operations.64 Policy professionals do not have sufficient understanding to develop policies which work well in a digital organisational environment.65 There is low integration between policy 55 C&AG’s Report, paras 3.28–3.29 56 Q 66 57 Q 67 58 Q 68 59 C&AG’s Report, para 25; Q 62 60 Q 54 61 Q 69 62 C&AG’s Report, The challenges in implementing digital change, Session 2021–22, HC 575, paras 2.11–2.14 63 Written submission, DXC Technology DGE0004 64 Q 67; C&AG’s Report, para 31 65 Q 65 ; C&AG’s Report, para 26 Digital transformation in government: addressing the barriers to efficiency 15 teams and those teams involved in change, operations and services leading to policies and legislation that are difficult to implement digitally. Lack of a single service owner worsens this situation because there is no single point of focus for policy teams to interact with. Appointing single service owners will help to improve cross-functional working66 but digital capability building for policy people is needed. 66 Q 37 16 Digital transformation in government: addressing the barriers to efficiency