Rising to the New Challenges of Transactional Services in the Public Sector


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Companies and government agencies alike are moving their activities online.

The rising curve of online service delivery adoption has raised expectations of service levels. Yet many transactions in the public sector are often still provided by systems that were not intended, designed and built to support the exponential user and data growth.

Subsequently, the rise of online service delivery not only requires new investment but also adds new risks in making these systems secure for an online world with its increasing levels of cyber crime. Both the private and the public sectors are under pressure to reduce the costs associated with delivery of transactional services.

But since our last paper on the topic was published, three significant trends have emerged:

- The increased urgency to reduce fraud and non-compliance
- The changing nature of Business Process Outsourcing (BPO) and Shared Services strategies moving away from pure cost reduction to transformational outsourcing
- The rapid rise of Cloud technology, with dramatic changes to delivery models

Read our paper to learn more about how government can learn from the private sector in order to tackle these issues.

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Rising to the New Challenges of Transactional Services in the Public Sector

  1. 1. Public Sector the way we see itRising to the New Challengesof Transactional Services inthe Public Sector
  2. 2. © 2012 Capgemini. No part of this document may be modified, deleted or expanded by any process or means without prior written permission from Capgemini.2
  3. 3. Public Sector the way we see it Contents Introduction: A Fresh Perspective 4 Setting the context: twice as good, in half the time, for half as much 6 Public Sector Transactions 8 Leveraging Private Sector Experiences 10 Summary 18Rising to the New Challenges of Transactional Services in the Public Sector 3
  4. 4. Introduction: A Fresh Perspective In 2008 Capgemini published a public sector are often still provided paper on financial transactional by systems that were not intended, services in the public sector1. In it we designed and built to support the explored the general trends regarding exponential user and data growth. transactions in the public sector and Subsequently, the rise of online compared these to the private sector service delivery not only requires new to see what lessons might be learnt. investment but also adds new risks in This is an updated version of the making these legacy systems secure earlier paper as we felt the need to an online world with its increasing refresh our views on how the public levels of cyber crime. sector could learn from the financial services industry. Both the private and the public sectors are still under pressure to Our close relationship with the reduce costs associated with the financial services industry has shown delivery of transactional services. But it has comparable challenges with since 2008 three other significant the public sector. For example, the trends have emerged. The first is the financial services industry has the increased urgency to reduce fraud challenge of multi-channel customer and non-compliance. The second interaction and shareholders seeking is the changing nature of Business efficiency. In the public sector Process Outsourcing (BPO) and Shared there is pressure from the public Services strategies, moving away from and the politicians to cut budgets pure cost reduction to transformational and spending while improving the outsourcing. The third trend is the customer interaction and experience. rapid rise of Cloud technology, with Both sectors have industrialized dramatic changes to delivery models. processes with transactions that are In the following sections we will briefly replicated for billions of events, with introduce these three trends and a similar need to reduce the cost of explore them in further detail in the these processes. ensuing chapters. Since we published our paper in In the wake of the financial crisis 2008, much has changed. Due to the the concepts of risk and fraud financial crisis and the subsequent prevention have moved much higher austerity measures, governments in up the agenda in both sectors. Banks the developed countries now need to and other financial institutions are balance cost cutting with maintaining faced with increasing regulation to or even improving service levels. minimize systemic risks and stricter Developing countries face the growing requirements on capital and liquidity, challenge of having to deploy new, while public sector organizations are complex and scalable transactional under increasing political pressure service capacity for their citizens. to scrutinize tax yields and benefits Companies and government agencies payments. In developing countries the alike have continued to move their need to reduce fraud and increase tax activities online. The rising curve of revenues is equally great, although the online service delivery adoption this is driven more by the need to1Rising to the challenge of Financial Transactional has raised expectations of the service increase revenues to fund governmentServices in the Public Sector, Capgemini, 2008 levels. Yet many transactions in the services in a rapidly growing4
  5. 5. Public Sector the way we see itenvironment. The changing economic private finance and accounting This paper examines how privateconditions have also influenced sector the trend of offshoring and transactional service providerscustomer behavior. For instance, outsourcing business processes (banks, other financial serviceaccording to a UK survey in 2009, the has continued. What has changed providers, insurers) have respondednumber of people who considered it following the global financial crisis to these three trends in order toacceptable to file a fraudulent claim is that the strategy has moved from find commonalities and transferableduring a recession rose by 27% as offshoring and outsourcing for lessons to benefit transactional servicecompared to 2008.2 reasons of costs and compliance provision in the public sector. We do control to more comprehensive not believe that the nature of bothAs a way of tackling fraudulent business outcomes. Sourcing sectors and their challenges are fullyand non-compliant behavior, both strategies, whether implemented interchangeable. Yet we do think thatthe private financial sector and the internally through shared services providing cost efficient and effectivepublic sector have begun to invest in or through an external partner, transactional services is vital in theadvanced fraud detection solutions. need to imply cost reduction and public sector and that private sectorMoving away from manual fraud standardization as well as creating experiences can be leveraged in orderdetection processes that largely added value from the back office to enhance public sector delivery.depend on the personal expertise of processes to drive insight beyondstaff, new investigation solutions are transaction processing.4 Similarlybased on risk scoring and predictive in the insurance sector, there is aanalytics to identify fraud patterns. growing realization that outsourcing decisions need to shift from a pureIncreasingly this means that fraud cost saving focus to a more holisticdetection is moving to the front of business transformation approach.5the process through the use of riskscoring models that combine rule- Cloud technology has not only seenbased engines, data mining, database a rapid rise in adoption, but hassearches predictive modeling and moved well beyond the technological(social) network link analysis.3 perspective. More and more CloudBy applying these methods, client conversations are about how it willbehavior can now be modeled and change business models insteadpredicted more effectively. There has of just the IT estate. For financialbeen a growth in variables that are institutions Cloud can offer anow part of the analysis, such as the number of advantages, including costeconomic climate, unemployment savings, usage-based billing, businessrates, geography, demographics, etc. continuity, agility and Green IT. CloudThese environmental variables in technology in the financial sector isconcert with specific empirical and witnessing a gradual transition fromhistorical collection and payment on-premise to Cloud-based services. 2Insurance Fraud More Acceptable Duringhistory create more and more holistic This is especially the case for general Recession, Insurance Daily Article, 2009behavioral models that significantly business applications such as customer 3Global Trends in Life Insurance: Claims,enhance the ability to detect and relationship management (CRM) and Capgemini, 2011prevent fraud and/or non-compliancy. enterprise resource planning (ERP).6 4The Finance Transformation – The Outsourcing The public sector has also started to Perspective, Capgemini, 2011In our 2008 paper we explored how explore Cloud, realizing that new 5Global Trends in Life Insurance: PolicyBPO experiences from the private approaches are needed to deliver Administration, Capgemini, 2011sector could benefit transactional services that are ‘twice as good, in half 6Cloud Computing in Banking, Capgemini, 2011service delivery in the public sector. the time, for half as much’.7 7The Government Cloud: Time for Delivery,What we have seen is that in the Capgemini, 2011Rising to the New Challenges of Transactional Services in the Public Sector 5
  6. 6. Setting the context: twice as good,in half the time, for half as much For this paper we will use the agencies are transforming themselves definition of a transaction as defined in an attempt to keep up with the by Graham Walker. In his paper expectations of the modern citizens “A Quiet Revolution: Government’s around rapid, customized and Transactional Services”8, Walker sets secure online transactions with the out a simple generic mapping of the government. transactional process. Transactions can be readily mapped on to this Yet this transformation needs to take process and typically take place in the place at a time when revenue streams public sector for three main reasons: that are open to governments have become tighter. The fiscal situation of n Where the citizen fulfils financial almost all the advanced economies has obligations to the state—for deteriorated and economic downturns example, the payment of income are now limiting how much the tax taxes, municipality taxes, sales taxes, burden can be increased. So, the excise duties, road taxes, fines and taxpaying public is shrinking as penalties, health and social insurances. populations are aging worldwide. This has resulted in the multiple challenges n Where the state fulfils financial of delivering services better, faster and obligations of the citizen—for cheaper. example, payments of social security benefits, unemployment benefits, Efficiency & Effectiveness agricultural payments and pensions. This challenge can be turned around n Where the state acts as a service and the opportunity seized to provider (in some instances a transform the way that governments monopoly service provider) and deliver services. The public sector the citizen purchases products has to look at how it can take out or services from the state—for cost and drive efficiencies. For example passports, visas, discounted example, staffing typically takes municipal travel passes and student up a high percentage of the costs loans. for running government services and there is an opportunity to take While on the conceptual level advantage of this by: these processes have remained the same, public sector organizations Re-examining the current business n are now faced with changing processes that support transactions, customer expectations and new for instance the back office technologies at a time of political functions; and economic strain. The rapid growth in the use of the internet Looking at how embracing new n and social media means that the technologies can reduce the costs customer requirements regarding per transaction and improve the the exchange of information, customer experience; accessibility of the government services, data re-usage and so forth Looking at how standardizing and n8Graham Walker, A Quiet Revolution: are fundamentally different than sharing of business processes and ITGovernment’s Transactional Services, IPPR, 2005 what was a decade ago. Public sector6
  7. 7. Public Sector the way we see it can create economies of scale with insurers to lower administration cost- other government agencies; and per-policy compared to insurers with in-house operations. Additionally, Looking at the option of outsourcingn outsourcing has allowed insurers to certain routine tasks so that efforts convert from fixed costs to variable can be redirected to more costs, which can further lower overall specialized, effective tasks. operating expenses. By outsourcing back office functions such asHigher value through policy administration, insurers arespecialization able to focus more on their core competencies of sales and marketing,Given the pressures that governments underwriting and asset management.10are faced with, it is possible to foresee In our section on BPO/Shared Servicesa fundamental change to the way and Cloud delivery we explore howgovernment services are structured. public sector agencies can benefitIn essence it will be a move from from these specialized experiences ingovernment agencies ‘doing the private sector.everything’ to a new role consisting of‘being focused, efficient and better’.Specialization allows for a level ofinvestment in creating high qualityservices for users that is difficult toachieve when governments need tooperate multiple smaller services. Thismultiplicity results in a dilution ofinvestment for any particular service.A similar role change can beobserved within the private sector.Many banks have found that theefficiency of the traditional integrated‘produce-to-deliver’ or ‘doingeverything’ payments model is nolonger optimal. Traditionally, bankshandle everything, from developingpropositions to producing payments,managing client relationships andoffering a whole series of otherservices to their clients. Through anumber of procedures (regulation,liberalization, commoditization andtechnological development) banksnow adapt their business models byspecializing, outsourcing or sharingcertain services.9 9World Payments Report 2011, Capgemini, 2011Global sourcing has also allowed 10Global Trends in Life Insurance: Policy Administration, Capgemini, 2011Rising to the New Challenges of Transactional Services in the Public Sector 7
  8. 8. Public Sector Transactions Pooling and Sourcing of administered and processed by Services separate government entities, are increasingly being pooled and In the UK, the Netherlands and soon blended together. In some cases the US the tax agency is now the transactional services are being provider of social security benefits, sourced to the tax agency, handling tax credits and other payments. In payments that used to be paid out Denmark the tax agency is responsible by social security agencies. This is for vehicle registration and the in line with the broader trend of associated road taxes, while France is providing a joined-up government to currently preparing a vehicle tax to be the citizen. What has changed is that collected by the Ministry of Ecology. technological developments (such The UK has recently announced the as Cloud) now allow a fundamental merger of around 50 separate social acceleration in the delivery of joined- benefits into one Universal Credit up transactional services. system, while also merging the operation of income tax and National Types of Transactional Services Insurance Contributions. Looking across the public sector we All these examples show that have found that there are significant traditional transactional services, overlaps in the back office functions Figure 1: Mapping of Transactional Services in the Public and Private Sectors by Repetitiveness and Frequency Simple homogeneous Internet banking Tax Benefits payment payout Inter-bank Invoicing 2 3 clearing Payment Loan Receivables of fines management & payables Records Passport management Repetitiveness application Finance & Debt mgt & accounting enforcement Barth/ death registration Benefit Tax return & application validation 1 4 Business Tendering intelligence Colour coding: Financial Sector Risk Public Sector management Complex, variable Far fewer than Annual Frequency Far greater than national population (order of magnitude) national population8
  9. 9. Public Sector the way we see itresponsible for transactional share information, it will be inevitable jointly) seeking to boost transactionprocesses. There is commonality that citizens will have to submit their volumes and scale to expand existingamong the transactional services personal information over and over businesses and generate additionaloperated in some of the key delivery again when transitioning with their revenues and/or facilitate newunits of the government and it is government. business models.11clear that there is a great potential forsharing and aggregation of services. Moving towards Standardization Breaking down transactional servicesThis would naturally result in cost into their basic building blocksefficiencies and economies of scale. Government transactional services shows that they are standardized and have more in common across common in organizational and processTheir position within the framework countries than is thought. In many terms and that their lowest commonin Figure 1 will vary between countries governmental agencies denominator is information and itscountries, but the question is how involved with transactions have processing. An information-centricto select suitable business areas already taken the business approach approach to optimizing an organization’sand processes for improvement. of standardizing and merging their people, processes and technologyIn those that occur frequently underlying processes. is the only way to guarantee that(quadrant 1) preventing waste is the structures and processes will be able tobusiness driver, since inefficiencies As shown earlier, some governments drive the performance and efficiencyare multiplied. Conversely, the are in the process of merging improvements in both the financial aspotential for economies of scale lies payment processes by making the well as the public sector.here. The more repetitive processes tax agency the principal payer of(quadrant 2) are those that could social security benefits. But it is notmost easily be industrialized leading only financial transaction processes Capgemini is the partner forto reduced costs. So those financial that are merging. For a long time, the French Ministry of Finance.transactions that make the best Belgium has been successful with The multi-year change program,targets for improvement are areas ‘authentic registrations’, making the Copernic, has delivered:such as invoicing and tax and benefit basic information components such aspayment, both of which are highly user and authorization management • Online tax declarationrepetitive and occur frequently systems, citizen identifiers, digital capabilities for up to 11(quadrant 3). The transactional signature cards and secure electronic million citizens;services that qualify for industrialized mailboxes transferable across • Simplification of citizens’pan-government solutions (when government. France has successfully tax affairs and transactionslooking at cost efficiencies) are those created core business data for its through different channels;that are repetitive and undertaken by citizens and businesses, leading to • A system which has better interoperability, scalabilitymultiple agencies. a single and universal data view of and business alignment, the taxpayer. The single view has while also being much easierThe scale of the transactional processes allowed the tax agency to be data to maintain; andoperated by advanced industrialized hub for citizens, businesses and other • Authentic registrations,nations is enormous and growing government agencies. allowing taxpayer and civilrapidly in developing countries. servants with fresh, accurateAt this level, any imperfections in Standardization and merging of and consolidated data -individual processes are amplified transactional processes can also be reliability of business databy numerous factors. When observed in the financial sector, the national and transversalmultiple agencies replicate financial reasons include improving efficiency, repositories.transactional departments, there are reducing costs and streamlining thevast opportunities to be more cost more automated elements of theefficient and effective. And when payments value chain. Standardization 11World Payments Report 2011, Capgemini, 2011government agencies do not effectively is fueled by banks that are (sometimesRising to the New Challenges of Transactional Services in the Public Sector 9
  10. 10. Leveraging Private Sector Experiences Transactional services in the private BPO and Shared Services sector have a lot in common with those in the public sector. Both are The pooling of business functions about handling transactions on a into silos for greater standardization, massive scale, seeking to balance automation and control is an ongoing cost optimization with customer trend in the private transactional satisfaction. But apart from generic service sector. The rule of thumb has observations, we can see that both been that, if tasks can be documented the private and public sectors are to an 80/20 level or higher, if they are reacting to the three trends we repetitive, and if they can be learned described in our introduction. in no more than six weeks given a BPO/Shared Services, Fraud and certain skill level, then they can be Yield Management and Cloud outsourced. Private sector experiences Computing are rapidly affecting have shown that sourcing can be the way transactional services are applied to transactional activities, but delivered. In this chapter we examine far less to high value-adding activities private sector experiences with the such as decision making, strategy or three trends to see how they can be policy. Private sector experience has leveraged to enhance public sector also shown that transactional activities transactional service delivery. account for 80% of the headcount. Figure 2: Typical Division of Business Processes into those that can be pooled into Shared Services or Sourced, and those that cannot. • Receive invoice • Scan invoice • Check invoice • Automatic purchase order based invoice matching • Receive payments • Resolve invoice without • Match customer purchase orders with customer payments with invoices • Raise standard accruals • Identity disputes • Maintain vendor master data • Identify collection • Make payments ‘problem accounts’ • Book standard accruals • Resolve vendor queries • Forward non-paying • Register assets • Close problem accounts to • Manage back accounts • Depreciate assets • Reconcile general ledger 100% either a collection • Reconcile bank according to with sub-ledgers • Produce agency or a lawyer statement depreciation policies • Prepare statutory accounts standard reports 50% 30% 30% 20% 20% Accounts Accounts Cash and Fixed Financial Management payable receivable banking assets accounting reporting 20% 30% 20% 30% • Set credit policy • Communication of • Make physical • Post non standard accruals 50% Shared activities • Resolve customer expectations regarding inventories and write-offs Non-shared activities queries cash movements • Perform physical • Perform business reviews tagging • Liaise with tax authorities10
  11. 11. Public Sector the way we see itFigure 2 provides a clear overview by the need to reduce overheads,of the typical scope of private sector banks are also looking at otherShared Services.12 aspects of their financial transactional processes, including risk management,Financial institutions usually follow asset management and securities. Ina structured decision matrix in order this environment, the imperative forto qualify what would be best to keep payment providers going forward willin-house and what would be best to be to distinguish their propositionsoutsource. A typical decision matrix and demonstrate their value throughwill look at the interplay of: increased specialization.n complexity – the more complex a So the response to the changes in process, the more likely it is to be the payment landscape has been delivered in centers of expertise to reassess how services — back, specialized in the processing of a middle and front office — are single function; structured. But the underlying trend has been towards BPO, Sharedn the relationship with the core Services and specialization. business – the higher the strategic impact of the process, the more n Similarly to companies in the energy likely it should be retained and telecommunications sectors in-house; (which have been responding to regulation, liberalization,n critical mass – the higher the commoditization and technological volumes and the potential for advances), banks have specialized standardization, the easier it is to their business models as achieve economies of scale (see also underlying products and services Figure 1); and have become more standardized.n the local impact – the higher the n Many banks find that the efficiency local impact (regulations, language, of the traditional integrated flexibility of support), the more ‘pro¬duce-to-deliver’ payments likely the activity is to be kept in model is no longer optimal. The the country, rather than in a central traditional approach in which banks hub.13 handle everything—from developing propositions to producing paymentsThe irreversible move away from and other services—may no longercash and several national and supra- prove optimal when dealing withnational regulatory initiatives14 have the current industry challenges. Asforced banks to transform their the payments value-chainpayment services and the underlying disaggregates, a sourcing modelvalue chain.It is not a surprise that becomes more likely. 12The Finance Transformation – The Outsourcingbanks have particularly looked at Perspective, Capgemini, 2011how they can take out cost in their n Following from this there is a long- 13The Finance Transformation – The Outsourcingoperations. The focus has been on the term trend in the banking industry Perspective, Capgemini, 2011repetitive, highly manual processes to assume entire new specialist 14Such as SEPA in Europe and the Durbinthat can be automated to lower roles. As the payments industry Amendment that cap credit card swipe feesoverheads and protect profits. Driven progressively becomes more in the USRising to the New Challenges of Transactional Services in the Public Sector 11
  12. 12. Figure 3: A move to Specialized Transactional Service Delivery by Government Agencies Policy & Policy & Regulation As-a- Regulation Service Registry Registry Assesment, fraud Assesment, fraud management, management, bespoke solutions bespoke solutions As-a- Managed -Service Transaction Transaction From “doing everything”... ...to “being focused, efficient and better” commoditized, some financial Fraud and Yield Management institutions are transforming themselves into Wholesale Transactions in the private financial Payments Provider (WPP) or Retail sector closely resemble paying benefits Payment Services Provider (RPSP), and credits in the public sector. For which requires fundamental shifts example, as is the case in the insurance in vision and propositions.15 sector, the processes of registry, assessment and transaction (Figure 4), If governmental transactional agencies are beset with a growing challenge of apply a similar approach of BPO, fraudulent claims. The public sector is Shared Services and subsequent under political pressure to protect or specialization this would imply that: even increase the tax yield and to cut (benefit) spending. So for the public Core policy, regulation, assessment n sector, it is worth taking a close look and fraud management functions at how the banks and insurers tackle will remain the core responsibility the similar issues of Fraud and Yield of government agencies that provide Management. transactional services, As the adoption of non-cash payments but instruments grows, so does the potential for fraud in the financial sector. The Citizen-based functions— registry, n payments industry is pursuing various transaction and all accompanying technological innovations to tackle citizen contacts and interactions, can fraud and enhance more secure non- be commissioned ‘as-a-service.’ This cash transactions—and thereby bolster could mean sharing services with consumer confidence. The adoption other parts of the government (registry of new chip technology on payment services) and/or joining forces with cards (EMV chips) has already proven the third-party providers to handle to be effective with a massive drop in (bulk) transactions. This will free up fraud cases. Attention is focused most, civil servants to focus and specialize on however, on e-commerce transactions, core functions where they can add the especially as electronic thefts are15World Payments Report 2011, Capgemini, 2011 highest value (Figure 3). increasingly hitting the headlines.1612
  13. 13. Public Sector the way we see itBut it is not just technical innovations n Manual examination of claims toand developments that change the identify fraud involves a high risk ofnature and propensity of fraud. In human error and does not offerour introduction we mentioned that protection against new fraudthe economic downturn has changed techniques.people’s perception to filing falseclaims. Unsurprisingly, since 2008 n The legacy solutions remain difficultthe topic of fraud has gained more to integrate, making it hard toattention within the private sector. detect suspicious activity acrossAccording to a North American survey product lines.in 2010, 50% of the life insurersreported that fraud detection and n Older technologies result in pooridentification improvement were top data quality due to their inability toconcerns for them, compared to 29% of integrate third party data.life insurers in a similar 2008 survey.17 New investigation solutions based onTaking the example of life insurers, our risk scoring and predictive analyticsanalysis has shown that they have long allow more granular analysis of data tobeen using out-dated technologies with identify fraud patterns and thus allowlimited fraud detection capabilities. In for early fraud detection. The scoringthe past, the sector also demonstrated models use a combination of rules-an overall low interest in the based engines, data mining, databaseacquisition of new tools to help identify searches, predictive modeling, andfraud through advanced data-mining network link analysis (including socialtechniques. However, this started to media) to identify the possibility ofchange in late 2008 and early 2009 as fraud in an insurance claim. Enterprise-insurers were put under pressure to wide data warehouse systems thatseek new methods of reducing losses. capture historical information from fraud cases and integrate informationThe current challenges related to from third-party sources have madefraud detection have driven increased the fraud detection processes moreimplementation of advanced powerful.18 Better fraud detectiontechnologies in the life insurance processes (Early Fraud Detection)industry for three main reasons: Figure 4: Benefits of Early Fraud Detection at Insurance Companies19 Reduce Reduced Fraud Claim Cost Investigation Time Reduce False Positive 16World Payments Report 2011, Capgemini, 2011 Better control over premium 17Gartner, Inc.: “Insurers Must Become More increases as losses are minimized Aggressive at Addressing Underwriting and Claims Fraud”, Kimberly Harris-Ferrante, June 2011 Low Premium Rates + improved Claims processing 18Global Trends in Life Insurance: Claims, Capgemini, 2011 Improved Customer Satisfaction 19Global Trends in Life Insurance: Claims, Capgemini, 2011 – Capgemini Analysis 2011Rising to the New Challenges of Transactional Services in the Public Sector 13
  14. 14. Figure 5: Technology Aided Fraud Identification22 Customer Blacklists Risk profiles Validation Legitimate Claims All Claims Validated } Suspected Matched ✖ ✓ Fraudulent Claims leads not only to lower claims of fraud that has already been expenses, it also increases customer committed – so called downstream satisfaction (Figure 4). activities. In downstream processes, once repayment is made, recovery Public sector agencies involved in of payment requires time and cost, large transactional volumes also mostly for people concerned, and need (near) real-time insight in may not result in success, especially possible fraudulent or non-compliant in identifying the fraud cases. transactions. Just as insurers and Keeping this in mind, it may be banks, tax and welfare organizations tempting to take the radical approach handle millions of transactions on a of ‘prevention being better than cure’ daily basis. Fraudulent transactions and limit investments downstream. account for millions of Euros of However in the public sector this is uncollected tax and unjustly paid out unlikely to be a successful strategy as benefits. As an example, the HMRC many tax frauds (in contrast to many states the UK tax gap to be around banking, credit card or insurance € 40 billion 20 while social benefit frauds) require a combination fraud is estimated to be around € 1.4 of upstream and downstream Billion.21 techniques in order to be successful. In general, the private sector’s Drawing from the experiences in main focus is on fraud prevention the financial sector, public sector by identifying high risk activities organizations should implement new and by refusing the provision of a technological solutions in order to service or product, or by flagging execute their tasks around: high risk cases for investigation before a transaction is completed n Monitoring inbound citizen20UK tax gap narrows to £35bn, says HMRC, – so called upstream activities. communication to identifyBBC, September 2011 This is in stark contrast to the fraudulent transactions through21DWP Website, December 2011 public sector approach, which rules, heuristic measures and22Fraud Detection in Healthcare from Capgemini is mainly focused on detection, forensics.and Palantir, Capgemini, 2011 investigation and prosecution14
  15. 15. Public Sector the way we see itn Applying data in conjunction with Private sector experiences show that agile business policies and business technological solutions can help staff Connect is HMRC’s strategic rules across: to compile customer ‘black’ or ‘watch’ risking tool that cross-matches lists and profile risks ‘upstream’. one billion internal and third l Advanced data validation; Combining technology with skilled party data items to uncover and focused staff will significantly hidden relationships across organizations, customers and l Predictive models and enhance fraud detection capabilities their associated data links, segmentation; (Figure 5). Private sector experiences such as bank interest, lifestyle show that better fraud detection indicators and stated tax l Networks linking data items capability lowers the cost of service liability. It captures information and customers; delivery and enhances customer from 30 different data sources, satisfaction (Figure 4). and transforms the data into a l Risk and propensity models. standard format for Connect Cloud Computing analytical and ‘spider diagram’n Using input from data and advanced visualization tools. HMRC analytics to design and execute Financial institutions are moving statisticians produce target outbound public campaigns aiming cautiously towards the Cloud, with profiles and risk and intelligence investigators generate at driving desired customer IT spending on Cloud technologies campaigns and cases for behaviors. expected to be €17 billion in 2012.23 investigation. Automated feeds Although the private sector has into HMRC’s case managementIn the public sector better Fraud identified the benefits of Cloud system allocate work to theand Yield Management capability is computing (including cost savings, correct caseworkers, andnow more important than ever. The usage-based billing, business their feedback further refineslikelihood of fraud in those developed continuity and agility), there is no intelligence in Connect.countries that are affected by the silver bullet for all the demandingeconomic downturn is growing and business needs. Capgemini’s analysisall governments desperately need the has shown that banks tend to adoptuncollected tax yields. As we have a gradual evolutionary approach toseen in the BPO/Shared Services Cloud computing services, evaluatingsection, sourcing and specialization each project based on the type ofcan free up staff to focus on applications and nature of the data.assessment and fraud management. Lower risk projects that are likely to Figure 6: Cloud Computing Adoption Propensity at Banks Delivery Channels Client Sales and Servicing Customer Analytics and CRM Enterprise Resource Planning (ERP) Enterprise Content Management (ECM) Corporate Functions Core Business Functional Systems Retail Banking Corporate Banking Investment Banking Payments Asset and Wealth Management Funds Management Treasury Reconciliation Collections Enterprise Data IT Development Application Infrastructure 23Cloud Computing in Banking, Capgemini 2011 Cloud Computing Adoption Propensity High Medium LowRising to the New Challenges of Transactional Services in the Public Sector 15
  16. 16. move first to a Cloud model include Cloud solutions are also becoming customer relationship management enablers for public sector agencies and enterprise content management. seeking to introduce standardization, Higher risk projects will involve core cost efficiency and increased service business functional systems, such as levels. Typically, payments processing wealth management or core banking. and underlying systems have been Figure 6 shows Capgemini’s analysis designed and implemented in of which functions within banks are isolation, all with their own separate applicable for moving to the Cloud. applications and maintenance. Cloud technology has the potential In the longer term, Capgemini to reduce the cost of these business expects banks to have an application processes and the IT that supports portfolio mix of on-premise and them by disaggregation, consolidation cloud-based services delivered across and sharing. a combination of private, hybrid, and public cloud-based deployment Public sector agencies can enhance models. We believe the share of the transactional and citizen-facing Cloud services will gradually increase services of the banks by adopting in the service mix. Private clouds Cloud. Using (private) Cloud are expected to increasingly become technology to transform separate the deployment model for Cloud transactional processes into a pan- services among banks, giving financial government function is about: institutions full control through ownership and operations of their n Streamlining the current application Cloud systems.24 and process landscape; 24 Cloud Computing in Banking, Capgemini, 201116
  17. 17. Public Sector the way we see itn Smooth migration, maintaining software management and Launched in 2002, reliability and consistency; infrastructure. eProcurement Scotland (ePS) is, in essence, a private Cloud.n Maintaining service levels within the The ‘as a Service’ concept is both With Capgemini as a long-time same underlying process; the key enabler and, because it partner, ePS has evolved into a also creates demand simply from scalable, ‘as-a-Service,’ multi-n Moving towards virtualization, the potential benefits it offers, a tenant and partially consolidation and potentially driver. Significant business benefits pay-per-consumption system. outsourcing; and include reduced costs as a result Indeed it was a Cloud before of the virtualization of the services the term was widely used. Then Increasing the flexibility of legacy and a reduction in license costs ePS platform now processes systems and reducing the cost of for software because most Cloud more than €4 billion per year, representing about one third introducing (legislative) changes. software and platform solutions are of the total public procurement sourced on a pay-per-use basis. The influencable spend. AccordingCloud technology also has the concept also reduces the amount of to Audit Scotland, the systempotential to make transactional infrastructure required because this generated annual savings ofservices better and more customized too can be sourced from the Cloud, € 528 million in 2008/09. Overby improving communications with which means saving potential on IT 1.6 million transactions gocitizens and other public sector maintenance capacity. through the system annually,agencies. This can be done by: and it is used by over 65,000 Cloud solutions ensure flexibility registered users and more thann Innovating with new delivery towards changes in legislation, 93,000 suppliers. models; product portfolio and political This Cloud platform has enabled ePS to take an evolutionary demands. The improved reuse of data, approach to replacing existingn Engaging and enrolling the harmonization of processes through procurement arrangements. The customer in the service delivery standardization, and the easier sharing idea of ePS was revolutionary in chain; of existing data ensure that fewer the way it reconfigured existing mistakes are made. Massive cost practice, but wisely it did notn Better response to user demands, reductions are also anticipated on data demand an instant revolution for policy changes, and changing entry, whilst improving quality. all of the Scottish public sector. customer behavior; The ‘as a Service’ concepts cann Enabling services that meet the facilitate the division between routine customer’s desire to experience tasks and specialist tasks. This will joined-up services from mean that for routine tasks, in which government; process steps are standardized, the agency can make use of reusablen Enabling the blending of government data with little human interaction services with social networks or other and intervention. As such, recurring private services; and standard bulk processes (such as registration and transaction, Figuren Being agile in creating new solutions 3) can be transformed to a ‘Service’ using Cloud composing services and sourced from Cloud providers, from existing elements.25 whether within government or through commercial third parties.Earlier we discussed how BPO and This will not only make deliveryShared Services allow the public of the transactional service moresector agencies to source and handle efficient, but will enhance assessmentroutine tasks jointly or ‘as a Service.’ and overall quality. This will free theThe ‘as a Service’ concept of Cloud staff within the agency and they willcomputing means that services, be able to specialize and focus onplatforms and storage/infrastructure compliance and other functions wheresolutions are ordered, accessed and they can add the highest value.26used over the internet, eliminatingthe need for local implementations, 25The Government Cloud: Time for Delivery, Capgemini, 2011 26The Journey towards the Tax Office of the Future, Capgemini, 2011Rising to the New Challenges of Transactional Services in the Public Sector 17
  18. 18. Summary In this paper we have described how Although we do not believe that the Fifty US states are seeking the three dominant trends of sectors are fully interchangeable, affordable solutions for BPO/Shared Services, Fraud and Yield we do feel that experiences can be modernizing their unemployment Management and Cloud are changing transferred for mutual benefit. As a insurance legacy systems transactional service delivery. We have direct consequence of the difficult to increase flexibility and examined the impact on the private fiscal situation, now and in the efficiency. Our current solution— sector, along with its response and foreseeable future, we believe that Capgemini’s UI (unemployment how the public sector can benefit from many public sector transactional insurance) solution—is a shared, hosted software solution these experiences. service providers can benefit from that optimizes fundamental private sector experiences. Capgemini processes such as registration, The trend to source and/or share has the experience and capabilities to benefits administration, tax business processes has been ongoing help the public sector agencies in their calculations, appeals process since 2008, although the focus has journey to enhance vital transactional management, overpayment shifted from pure cost savings to service delivery, and make their processing, adjudication, tax more holistic business outcomes. services better, faster and cheaper. audits, collections, accounting, Connected to this trend is the role and reporting. This type of shift by financial service providers, Capgemini is one of the world’s solution can be built upon and moving away from doing everything foremost outsourcing providers rolled out to multiple state to more specialist roles. We foresee a and leaders in the BPO services. We agencies simultaneously. We are currently implementing the similar evolution for the public sector have undertaken more than 60 BPO Capgemini’s UI (unemployment delivery organizations, commissioning implementations for top companies insurance) solution in the State common processes and bulk including Zurich Financial Services of Nevada, for the Department transactions ‘as a Service’ while policy and HSBC. Our BPO services range of Employment, Training, and setting and fraud detection remain the from traditionally outsourced Rehabilitation (DETR). focal point of the agency. The topic processes to those at the core of of fraud and yield management has the business. In the public sector, become more important than ever, Capgemini has been responsible for all both in the developed and emerging IT systems and IT-led transformation countries. Since the public sector services at HMRC in the UK, is facing fraud challenges similar to including managing a multi-sourced the private sector, leveraging new environment. Capgemini is currently technologies to enhance employee implementing the Capgemini’s fraud detection and yield enhancement UI (unemployment insurance) capabilities on urgent basis. Finally, solution in the State of Nevada, for we observed that although adoption the Department of Employment, is gradual, the promise of Cloud in Training, and Rehabilitation (DETR). terms of enhancing transactional Capgemini’s UI (unemployment service delivery is enormous. Private insurance) solution is a BPO sector experience shows that customer solution that optimizes fundamental relationship management and transactional processes, such as enterprise content management has the registration, benefits administration, most propensity for Cloud delivery. tax calculations, appeals process Public sector organizations have a management, overpayment huge potential to move their citizen processing, adjudication, tax audits, interaction and transactional service to collections, accounting, and reporting. the Cloud, using ‘as a Service’ models for facilitating of cost efficiency and Capgemini has the offerings and specialization.18
  19. 19. Public Sector the way we see it experience to help our clients design more relevant. Capgemini believes their Fraud and Yield Management that enterprise systems should not strategies – our business experts move wholly and rapidly into the have deep knowledge of underlying Cloud, a view that is based on more processes and compliance approaches; than five years of Cloud computing our technology experts have the experience in the private and public ability to master available solutions sector. Instead, we favor the adoption and develop new state-of-the-art of hybrid models where enterprises systems in partnerships with SAS, initially retain centralized IT systems Oracle and Palantir. Capgemini but target services toward Cloud is the partner of many banks and platforms. Capgemini offers its insurers who face the challenge of clients a strategy and transformation transactional fraud, illegitimate claims roadmap that highlights the and money laundering. We also context and building blocks of this enable healthcare providers and tax journey, encompassing the enabling and welfare agencies to reduce their technology and the new systems and exposure to fraud and to protect yield. infrastructure around the new delivery concepts. We are able to leverage our For businesses and organizations private sector experience (such as today, the question of where, when with the Royal Mail Group) to public and how to leverage the benefits of sector agencies that have the ambition Cloud computing has never been to reap the benefits of Cloud delivery. ­­ About Capgemini ® ® With around 120,000 A deeply multicultural organization, people in 40 countries, Capgemini has developed its own way Capgemini is one of the world’s foremost of working, the Collaborative Business providers of consulting, technology and ExperienceTM, and draws on Rightshore®, outsourcing services. The Group its worldwide delivery model. reported 2011 global revenues of EUR 9.7 billion. Together with its clients, Learn more about us at Capgemini creates and delivers business www.capgemini.com and technology solutions that fit their needs and drive the results they want. Rightshore® is a trademark belonging to CapgeminiRising to the New Challenges of Transactional Services in the Public Sector 19
  20. 20. www.capgemini.com/publicContactIan PrettyGlobal Tax & Welfare LeadIan.pretty@capgemini.comJan-Jaap HarkemaManaging Consultant,Capgemini Consultingjan-jaap.harkema@capgemini.com Cover-Reference NumberRightshore® is a registered trademark belonging to Capgemini. The information contained inthis document is proprietary. Copyright© 2012 Capgemini. All rights reserved.