4 Principles for Making Digital Transformations Work

U.S. federal and state agencies face a formidable challenge: to deliver services of increasing quality and sophistication without extra resources. One way that agencies can improve outcomes for constituents is to integrate advanced technologies (such as artificial intelligence, automation, cloud, and natural-language processing) and management practices (such as agile software development, design thinking, and DevOps) through digital transformations.

Digital transformations have produced “stacked wins” at some agencies: significant improvements in customer experience, employee engagement and mission fulfillment, at lower operating costs.

At other agencies, though, digitization efforts have fallen short of expectations. McKinsey research indicates that U.S. government entities trail organizations in other sectors in adopting digital technologies and approaches. We see several reasons for this. Bureaucratic software-development approaches often cause agencies to spend more time adhering to processes (for example, documentation, meetings, and approvals) than creating digital features. IT budgets have remained flat, and most of the money goes into maintaining legacy systems. Agencies miss opportunities to improve customer experiences because their departments focus on singular customer interactions. Finally, assembling digital talent in a government context is persistently difficult.

We know from experience that government agencies can complete effective digital transformations—if they reinforce new technologies and management practices with fundamental changes that enable them to respond more creatively and quickly to constituents’ needs. Here are four principles that help agencies benefit from digital technologies and ways of working.

Principle 1: Set Up a Digital Nerve Center

Digital transformations proceed more smoothly when they are championed by a senior agency official, such as a chief digital officer, CIO or deputy secretary, who can secure cross-divisional leadership support along with adequate funding and staff. Just as importantly, the staff who manage a digital transformation should be organized into one team, or nerve center.

A digital nerve center performs several useful functions. It conceives of bite-sized digital projects that yield large benefits with minimal funding. The nerve center helps projects advance quickly, by clearing administrative barriers, facilitating collaboration across departments, and promoting more agile ways of working. Nerve centers also help build agencies’ longer-term capability and capacity for developing future digital solutions. Some organizations have set up central development teams known as digital factories. Others embed digital-delivery experts in existing development teams to help steer those teams toward new methods.

Principle 2: Implement Agile Methodologies

Agile development involves forming teams of business specialists, product owners and software developers to create minimally viable software features, expose them to users and refine them through multiple development cycles. The advantages of agile development can be great. The Social Security Administration recently shifted to agile with the aim of making its $300 million IT modernization program more effective. Afterward, the program delivered new application capabilities for one-third of the regular cost while exceeding customers’ expectations.

Agencies make the most of agile when they promote collaboration and flexibility among product teams, finance departments, procurement departments, senior leaders and other constituencies. For example, product and procurement groups can prepare contracts, such as agile blanket purchasing agreements, that allow specifications to be defined as development progresses, rather than up front. A finance team may need to accept greater uncertainty about when and how funds for a project will be spent. Investments in engineering can also help. The most sophisticated agile development groups follow an “automate everything” approach, in which most testing and deployment is programmed.

Principle 3: Reorganize Around Customer Journeys

Agencies ordinarily put different departments in charge of the various interactions that make up a complete customer-service process or journey. This can limit agencies’ perspectives on how to improve customer experiences. A better approach is to look at each customer journey as a whole. McKinsey has found that customers report higher satisfaction with government services when agencies manage journeys well from start to finish. Collaboration also helps agencies stretch their IT budgets: rationalizing operations before digitizing them allows less money to be spent on enabling technologies.

In one recent effort, a federal agency worked with internal and external stakeholders to redesign eight customer journeys so the end-to-end experience would be enhanced, and not just individual interaction points. The result was a fivefold increase in the rate of service delivery and a dramatic improvement in customer experiences.

Principle 4: Build a Core of Digital Talent; Add Outside Talent When Needed

Digital talent is scarce, so agencies will likely need to draw on multiple pools of workers to staff their transformations. In-house employees are best for management tasks like defining a vision for a digital transformation, handling the concerns and priorities of internal stakeholders, or evaluating and prioritizing projects. Some agencies have hired tech-industry veterans, whose experience complements that of colleagues with more time in government.

Third-party support is also important and valuable: outside talent can bring new practices, technologies, and experiences to complement the employee perspective. Federal agencies can turn to resources like the U.S. Digital Service or contracting vehicles like multiple-award blanket purchasing agreements, which can help scale resources up or down and align payment to outcomes rather than inputs.

Getting Started with Pilot Projects

The changes involved in digital transformations can arouse skepticism, if not reluctance. One way to convert skeptics to supporters is to rapidly complete a series of digital pilot projects. These show that digital methods work: cross-functional teams design better processes, and modern software-development techniques increase efficiency.

For example, if an agency chose to pilot the transformation of customer journeys, the agency’s leaders would first allocate funding and staff to work on a few high-priority journeys. Next, the agency would assign relatively small cross-functional teams (typically six to 12 people) to conceive new processes and technologies—using digital-economy approaches like design thinking—for making the selected journeys efficient, satisfying and seamless. Finally, software engineers would build the necessary digital features, collect user feedback, and make refinements.

We have seen pilot projects generate minimum-viable software products and helpful process changes in just eight to 12 weeks, with modest investments. This approach helps agencies create momentum for their digital-transformation programs—and ultimately deliver better services.

Steve Cheng is a partner in McKinsey’s New York office, and Mark McMillan is a partner in the Washington, DC office.

This post is based on a longer article, “Harnessing the power of digital in US government agencies,” which is available at McKinsey.com.