Public sector, disrupted                 How disruptive                 innovation can help                 government ach...
Contents1   Introduction4   Disruptive Innovation: A primer8   The public sector economy: A new way to think about the    ...
IntroductionWith governments everywhere facing a sea of            The doubling of computing power every 18debt as far as ...
More money for the same product                      Health care. The steep and steady increase in    “In retail, consumer...
A solution in disruption?The ultimate reason for this difference may bethe presence or absence of a phenomenon called     ...
Disruptive innovationA primer    The notion that the public sector can’t — or won’t — innovate is a    myth. Innovation in...
Despite these examples, however, governmentinnovation is rarely if ever disruptive. Instead, ittypically represents what i...
approaches might be quite attractive for both the                         Examples of disruptive innovation               ...
banking services like mPesa provide cheap and            lacked features such as a webcam and a USB port,simple branchless...
The public sector economyA new way to think about the public sector    You have to look pretty hard to find examples of di...
Governments can shape the marketsin which they operateNot too long ago, residents in many rural areas       of unmanned or...
Each government market involves trade-offsthat drive up costs or reduce performance                 Within each of the mar...
Disruptive innovation eliminates criticaltrade-offsTen years ago, if you wanted to see a 1950s arthouse classic, you could...
Opportunities fordisruptive innovationFive cases in the public sector12
Transforming criminal justice withelectronic monitoringFor decades, politicians have offered voters a stark choice: less c...
Breaking the trade-off                                    specific times of day. The technologies are passive     The tech...
$                                                        bars, at an enormous cost to government, also        $           ...
$                                                                                                                         ...
Defense: Unmanned Aerial Vehicles (UAVs)Warfare is enormously expensive. U.S. military        Thanks to their persistence,...
Breaking the trade-off                                                                 the ability to conduct remote opera...
In 2011, the U.S. AirForce will train more“joystick pilots” than newfighter and bomberpilots.67UAV over Lebanon’s Bekaa Va...
The terrorist attacks of September 11, 2001                                                                        created...
Five lessons learned fromUAV adoptionThe convergence of multiple internal andexternal factors helped UAVs emerge as adisru...
K-12 education         “At least two-thirds of U.S. students will be doing most         of their learning online by 2020.”...
The Khan Academy’s disruptive modelOne of the most disruptive education models      track student progress through experie...
Transforming higher education             $                                                         Few if any sectors of ...
Can online learning achieve good results while                                                    offering significantly l...
As for the quality, from test scores to student                                                                           ...
Intelligence: Open-source data analytics        $                                                           The extreme le...
These analytic technologies can help intelligence                                                                      org...
track the presence of a candidate’s or political                                               Secret sources and methods ...
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
Deloitte's Public sector disrupted full study 2012
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Deloitte's Public sector disrupted full study 2012


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By Carmen Medina - February 10, 2012
The global public sector is under massive financial pressure. But that’s only one of its challenges. Citizens—the public sector’s customers—are also demanding better value for their taxes. And that includes dealing with government in new ways. With every sector of the modern economy and society changing in response to new technologies and social practices, citizens can’t help but wonder why so many government offerings remain shackled by the practices of yesterday.

These conditions indicate that the time is right to bring the principles and practices of disruptive innovation to the public sector. As a recently retired U.S. government senior executive, I am, of course, quite familiar with government’s ability to avoid change until it in fact becomes unavoidable. This persistent late adoption of new and more efficient technologies and processes costs government money, efficiencies, and, perhaps, most importantly, credibility. That’s why public sector executives everywhere need to become familiar with the concepts behind disruptive innovation and consider where in their organization they can plant the seeds of change.

The term “disruptive innovation” was popularized by Harvard Business professor Clayton Christensen when he observed some key factors in the toppling—or disruption—of large corporations. These include outside innovators who 1) start serving underserved customers or markets with 2) new technologies that initially provide a lesser product or service but 3) are less expensive than its competitors. Eventually, the disruptive innovation improves to the point where it captures most of the market share of the large corporation, which almost always is slow to respond to the disruption.

Government officials are not in a position to start new entities to challenge an existing government service. But they do have more ability than perhaps they realize to pursue disruptive innovation from within. I saw several examples of this in my career in the U.S. intelligence community. Unarmed drones, for example, began as a small research program in an obscure section of the U.S. Defense Department, but eventually, officials saw the potential that drones had to provide low cost, persistent surveillance. Today drones, once dismissed by many military professionals, are conducting missions that had been the purview of manned (and often very expensive) military aircraft.

Another disruptive innovation I experienced firsthand was the creation of Intellipedia. In this case, I was the government leader who gave the go-ahead to two individuals who believed that using the Wikipedia model to organize and disseminate intelligence information was a good idea. True to the principles of disruptive innovation, Intellipedia was aimed at an underserved customer—mid-level policy-makers and military in the field—was much less expensive than existing journalistic production processes, and was made possible by new software and technologies

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Deloitte's Public sector disrupted full study 2012

  1. 1. Public sector, disrupted How disruptive innovation can help government achieve more for lessA GovLab Study
  2. 2. Contents1 Introduction4 Disruptive Innovation: A primer8 The public sector economy: A new way to think about the public sector12 Opportunities for Disruptive Innovation: Five cases in the public sector32 Fostering Disruptive innovation40 Conclusion: A path to getting more from lessAbout GovLabGovLab is a think tank in the Deloitte Federal practice that focuses oninnovation in the public sector. It works closely with senior governmentexecutives and thought leaders from across the globe. GovLab Fellowsconduct research into key issues and emerging ideas shaping the public,private and non-profit sectors. Through exploration and analysis ofgovernment’s most pressing challenges, GovLab seeks to develop inno-vative yet practical ways that governments can transform the way theydeliver their services and prepare for the challenges ahead.2
  3. 3. IntroductionWith governments everywhere facing a sea of The doubling of computing power every 18debt as far as the eye can see, taxpayers have months, known as Moore’s Law, results inbeen presented with a very unappetizing choice reduced computer prices of about 6 percent abetween higher taxes or radically curtailed public year and improved performance of 14 percentservices — or, ever more often, both. This paper annually.3 The Univac I mainframe computer, firstproposes an alternative path — a way to use acquired by the U.S. Census Bureau in 1951, wasinnovation to make public programs radically the size of a one-car garage, weighed 29,000cheaper without slashing services; a way to break pounds and cost US$159,000 — about US$1.4the seemingly unavoidable trade-off between million in today’s terms.4 Today, anyone withpaying more or getting less. In short, a way to US$200 can buy a smart phone with a thousandachieve that most elusive goal: getting more for times as much computing power — and can useless. it to tap into a worldwide computing network.5Outside of the public sector, we’ve grown accus- Many other consumer and business goods havetomed to steadily falling prices for better products followed similar paths.and services. In one major sector of the economy, however,Access to a car on a Saturday used to cost prices seem to just keep going up and up, andupwards of US$100. Because most rental agencies without a commensurate increase in performance.were closed on the weekend, you had to rent for And that’s government.several days even if you only needed it for a fewhours — and then purchase insurance and gas.Car sharing companies such as Zipcar now allowurban residents to rent a car for as little as US$7an hour — insurance and gas included.Airline travel was once largely unafford-able for many business travelers and mostfamilies.1 Then along came SouthwestAirlines and other low-cost carriers andnow air travel is often cheaper than takingthe train.2 Public sector, disrupted How disruptive innovation can help government achieve more for less 1
  4. 4. More money for the same product Health care. The steep and steady increase in “In retail, consumers are continually getting government health care costs has exceeded things bigger and cheaper than before,” says Tony nearly all the other categories. U.S. spending on Dean, former Cabinet Secretary for the province Medicaid and Medicare has outstripped inflation of Ontario. “But for public services, we just keep for decades.12 At its current rate of growth, asking citizens for more money for the same government spending on health care in the U.S. product. That’s no longer credible. People feel as will soon overtake private spending.13 Other though they’re paying enough.”6 countries are seeing similar growth. Health care spending skyrocketed by 7.4 percent annually in This pattern can be observed throughout the Canada from 1999 through 2009, far surpassing public sector. the growth in GDP and inflation.14 Health care now consumes nearly 40 percent of some Higher education. If you went to a public univer- Canadian provincial budgets. sity in the 1980s it would have cost you about US$3800 a year (adjusted for inflation). Today, To be sure, performance has improved in many thanks to college costs increasing at twice the of these areas but not nearly as fast as spending rate of inflation, you would have to shell out on has gone up. What’s more, costs have risen faster average close to US$12,800. The state-of-the-art than our ability to pay. The money just isn’t there lab equipment, research facilities and stadiums to support the kind of rapid and sustained cost the price increases have purchased may increase increases we’ve seen in the past decade or two a university’s reputation but they’ve also made across these sectors. it harder and harder for families to afford higher education.7 The average debt load for the class So why does the public sector seem so immune of 2008 was US$23,200, compared to just to the kind of innovation that allows us to get US$12,750 (inflation adjusted) for the class of more for less over time? The lack of competition 1996.8 and profit motive in the public sector certainly plays an important role. As do the political incen- K-12 education. K-12 education cost increases tives to increase spending and protect incumbents are a bit lower than higher education — they’ve over upstart providers. But something else is at merely doubled in the last 30 years in the United work, because industries outside the public sector States.9 We see similar patterns in other OECD also have seen little of the radical “more for less” countries where expenditure per student on innovation we see often in technology and other primary and secondary schools increased on fields.15 average by 40 percent between 1995 and 2006.10 Security & defense. Security and defense also cost more and more each year. U.S. intelligence cost, for example, have more than doubled since 9/11.112
  5. 5. A solution in disruption?The ultimate reason for this difference may bethe presence or absence of a phenomenon called In sectors of the economy where disruptivedisruptive innovation. First articulated by Harvard innovation is commonplace, consumers arebusiness professor Clayton Christensen,16 disrup-tive innovation “describes a process by which a accustomed to steady price reductions andproduct or service takes root initially in simple performance improvements over time.applications at the bottom of a market andthen relentlessly moves ‘up market,’ eventuallydisplacing established competitors.”17 By breaking seemingly immutable trade-offs, disruptive innovation offers a potentially powerfulDisruptive innovations start out less good but tool to policymakers to get more for less: a waycheaper than the market leaders, but then break to reduce costs by upwards of 50-75 percent inthe trade-off between price and performance by some instances while maintaining or improvinggetting better, and typically even cheaper, over services.20time. Disruptive innovation puts the lie to thetraditional notion that you always have to pay In this paper, we advance a contrarian argument:more to get more. that disruptive innovation can not only occur in the public sector, but that it can in fact thrive.In sectors of the economy where disruptive Such an argument flies in the face of the conven-innovation is commonplace, consumers are tional wisdom that the public sector is the lastaccustomed to steady price reductions and place where you find really transformative innova-performance improvements over time — think of tion. While that may generally have been true incomputing, electronics, steel manufacturing, and the past, it needn’t be so.telecommunications.. Creating the conditions for disruption will firstIn sectors with little or no disruptive innovation, require policymakers to view government throughby contrast, costs and prices generally rise over a different lens. Instead of seeing only endlesstime. Government is particularly conspicuous in programs and bureaucracies, the myriad respon-this respect. Studies demonstrate low or even sibilities and customers of government can bedeclining productivity in many government seen as a series of markets that can be shapedsectors. The UK Office of National Statistics found in ways to find and cultivate very different, lessthat total public service productivity actually fell by expensive-- and ultimately more effective — ways0.3 percent between 1997 and 2008.18 Compare of supplying public services.this with private sector productivity, which rose by2.3 percent annually during the same period.19 Before considering how to apply disruption to the public sector, let’s begin by going a bit deeper into the concept itself. Public sector, disrupted How disruptive innovation can help government achieve more for less 3
  6. 6. Disruptive innovationA primer The notion that the public sector can’t — or won’t — innovate is a myth. Innovation in government occurs virtually every day — from the way governments across the world are opening up their data to entre- preneurs to build apps for everything from real time transit information to school test score comparisons to the myriad ways soldiers on the battlefield innovate address life-and-death challenges.4
  7. 7. Despite these examples, however, governmentinnovation is rarely if ever disruptive. Instead, ittypically represents what is called sustaining inno- Where the public sector is innovating —vation. Sustaining innovation can improve existing unless the innovation is of the disruptiveproducts or services, typically adding performancebut at a higher cost — and typically greater variety — costs typically will rise fastercomplexity. Some sustaining innovations are incre- than the rate of inflation.mental, year-to-year improvements. Others aredramatic, such as the new breakthrough businessmodels that emerged from the transition from vating — unless the innovation is of the disruptiveanalog to digital telecommunications, and from variety — costs typically will rise faster than thedigital to optical.21 rate of inflation. What this means is that the most common type of innovation often actually drivesBecause technology allows organizations to add costs up, not down.incremental improvements quickly, products andservices often overshoot the market, becoming How can this be true? Because incumbenttoo “good” — too expensive and too inconve- producers tend to innovate faster than customers’nient for many customers. lives change.24 To attract the top-tier consumers who are willing to pay extra, producers layerConsider the laptop. New features have improved increasingly complex and expensive features ontoits speed, capacity and capability, but the concept existing innovations, overshooting the perfor-of the laptop itself hasn’t changed drastically mance for which mainstream customers arein 20 years. Today, many of the most advanced willing to pay.25capabilities of laptops are irrelevant to most oftheir owners — they can do more than most In the public sector context, the quest for higherconsumers require. Most laptop users spend a and higher performance levels often resultsthird of their online time simply checking email in increasingly complicated and expensiveor browsing the web; they don’t necessarily need approaches — more for more. Think of airporta terabyte of data or high-resolution graphic security. Screening techniques have improvedprocessors.22 dramatically since 9/11 but at a substantial cost, both in price and complexity. Many of theSustaining innovations have numerous strengths, screening technologies were designed to detecttypically driving up quality and performance. They a specific threat item — for example, the bottledare a necessary element of nearly any organiza- liquid scanner. The current checkpoint systemtion’s innovation approach but they do have comprises multiple screenings that are cumber-one major shortcoming: they tend to result in some, lengthy and expensive. A system that couldprice inflation of 6 to 12 percent a year.23 This screen passengers less intrusively, more quicklymeans that even where the public sector is inno- and more cheaply through segmentation or other Public sector, disrupted How disruptive innovation can help government achieve more for less 5
  8. 8. approaches might be quite attractive for both the Examples of disruptive innovation Transportation Security Administration (TSA) and Disruptive innovation comes from a very different the traveling public. The TSA’s Risk-Based Security mold. These innovations can provide a whole new initiative announced in 2011 could potentially do population of “underserved” consumers access to just that: do more without costing more. a product or service that was previously available only to a few. In Africa, for example, mobile Table 1 Disruption theory Private-sector example Usually introduced or successfully taken to market Netflix introduced DVD by mail when DVDs were still by an “outside” organization. Existing competitors relatively new. Netflix was an entirely new player in rarely introduce disruptive innovations. When they the home video market. do, they rarely succeed with it in the newly created market. Typically targets an underserved or entirely new Southwest Airlines’ cheap flights first targeted market. The innovation initially targets a set of users Texas business travelers who previously had to drive who do not need the complexity of existing products. between Dallas, Houston and San Antonio and later leisure travelers who did not regularly travel via airplane. Initially inferior to existing products. The innova- The first digital cameras had slow shutter speed, tion typically begins by offering worse performance poor resolution and fewer capabilities than tradi- than current or existing products. It is, however, tional film cameras. Today, digital cameras are the considered “good enough,” and may be “simpler” primary types used in the market, with capabilities than the status quo. surpassing those of many film cameras. Less expensive than traditional or current Compared to professional dental whitening, which products. Existing products generally become overly cost on average US$400, whitening strips offer complex as new “features” are added, and therefore similar results with a less cumbersome process and a more expensive. When introduced, the disrup- cheaper price tag of US$44 for two weeks. tive innovation is significantly cheaper than similar products. Typically advanced by an enabling technology. The Internet allowed Netflix to introduce a new Disruptive innovations are powered by a technology business model by first offering web-based DVD that independently experiences rapid improve- rentals and, later, instant video streaming. ments in performance; think of computing, mobile communications technology, nanotechnology and biotechnology. This factor helps drive the disruptive innovation toward increasingly complex markets. Sources: Clayton M. Christensen, Innovator’s Dilemma; Clayton M. Christensen and Michael Raynor, Innovator’s Solution; and Michael Raynor, Innovator’s Manifesto.6
  9. 9. banking services like mPesa provide cheap and lacked features such as a webcam and a USB port,simple branchless banking for a population that it was “good enough” for email; playing videos/had been massively underserved by banking insti- music/podcasts; viewing photos, books and pdftutions. Hundreds of examples of disruptive inno- documents; playing games; surfing the web; andvation have been catalogued in recent decades, social networking.ranging from personal computers to mini steelmills. The companies responsible for disruptive In the first decade of the 21st century, only a fewinnovations often grow to dominate the industries hundred thousand tablet devices were sold.29they enter. Apple, by contrast, sold 14.8 million iPads in its first year.30Health Clinics. Disruptive innovations arespringing up throughout the health care industry. Cell phones. In the early days of mobile devices,One example is the MinuteClinic, which offers “good enough” meant a large device, droppedquick and convenient health care delivered by calls, poor audio, short battery life and high cost.nurse practitioners at kiosks in retail stores. The These bulky cell phones did, however, offer theidea behind MinuteClinic is to integrate simple, disruptive advantage of mobility. With improvedhigh-quality healthcare solutions into consumers’ technology over time, these performance trade-lifestyles. MinuteClinic visits are 30 to 50 percent offs began to vanish. As the cost/performancecheaper than an office visit at a primary care clinic, curve changed, so did adoption, with cell phonesand users report a satisfaction rate of more than eventually replacing many landlines and over-97 percent.26 taking computers as the device of choice for most consumers. By 2010, there were more than 5As a new entrant, retail clinics represent a billion mobile phones worldwide, five times thethreat to many traditional health care industry number of PCs.31stakeholders. To consumers, health plans andemployers, they offer an important care alter- Disruptive innovations have revolutionized manynative, with “good enough” healthcare now industries. They’ve affected how we entertainavailable at 518 clinics in 25 states.27 As higher- ourselves, how we communicate with onevolume, lower complexity transactions move to another, how we shop and how we travel. WithMinuteClinic models, they will also help reveal the budgets tightening and little appetite for newreal costs of the more complicated and expensive taxes, what can the public sector learn fromlow volume health care cases because it ends the decades of disruptive innovations? A start wouldcross subsidy that exists today.28 be to take note of Apple’s late 90s ad campaign… it’s time for the policymakers to think differently.iPads. The iPad may represent another disrup-tive innovation. With its simple design andintuitive user interface, the iPad provides a “goodenough” alternative to more expensive laptops forcustomers who don’t require many of the featureslaptops offer. While the first-generation iPad Public sector, disrupted How disruptive innovation can help government achieve more for less 7
  10. 10. The public sector economyA new way to think about the public sector You have to look pretty hard to find examples of disruptive innovation in the public sector. One’s first inclination may be to blame this on structural issues unique to government. And to be sure, profit motives, competitive pressures and other factors that propel disruptive innovation in the private sector are muted or absent in the public sector. Moreover, government rules and regulations often prevent the “less good,” potentially disruptive option from even entering the market for public services. Even so, the lack of disruptive innovation in government is not inevitable. Government actually has certain built-in advantages it can use to overcome some of its distinct structural obstacles, and encourage and shape disruptive innovation. Let’s consider some important points:8
  11. 11. Governments can shape the marketsin which they operateNot too long ago, residents in many rural areas of unmanned or remotely piloted vehiclescouldn’t find many of the retail goods that they conducting air and maritime surveillance, recon-now take for granted today. When they were naissance, command and control, airlift andavailable, their prices were much higher than in combat missions. And the same is true for othercities and suburbs. Walmart brought low prices sectors. If state legislatures, for example, believeand every manner of consumer goods to rural that online learning can transform education —America. It also brought unprecedented buying and do so at a lower cost — they can “grow”’ thepower to the retail market, meaning that the market for this innovation by redirecting existingcompany could deliberately shape the entry of funding from traditional models.products into new markets, and thus help drivedown prices. In the social services arena, the UK government has used its buying power to build aggressivelySimilarly, government’s enormous buying power the capacity of social enterprises and privatehas the potential to shape and create markets providers to deliver an array of social ways that can deliberately foster disruptive Dozens of innovative new models of serviceinnovation. At US$500 billion annually, the U.S. delivery have resulted from this focus.32government, for example, is the world’s largestpurchaser of goods and services. In dozens Within the markets government operates in existof economic sectors, from K-12 education to multiple segments with a diversity of providers —defense, from transportation infrastructure to for profit, nonprofit, public sector, social enter-health care, government is either a dominant or prises and so on. Consider education. Traditionalthe dominant buyer in the market. The public K-12 schools, pre-school, tutoring, test prepara-sector already plays a major role in each of these tion, remedial education, specialized languagemarkets, whether intentionally or not. Instead of instruction and vocational education all constitutesimply supporting status quo approaches whose distinct market segments. Each segment in turncosts typically increase over time, public agencies has considerably different degrees of public andcan use their buying power to steer markets private sector involvement in the market.where they are a major buyer or deliverer towardsmore low-cost, disruptive approaches. This often Thinking of the public sector as a “public servicemeans opening up the market to new, low-cost economy”33 with multiple market segments and,providers. potentially, thousands of providers is a useful starting point in seeing opportunities for disrup-The armed services, for example, have tremen- tive innovation.dous power to affect the types of technologiesthat enter the defense market — choosing,for example, to rapidly expand the number Public sector, disrupted How disruptive innovation can help government achieve more for less 9
  12. 12. Each government market involves trade-offsthat drive up costs or reduce performance Within each of the market segments of the public Other trade-offs exist as well. A common one in service economy exist certain “trade-offs” or government is the trade-off between convenience “constraints.” A trade-off defines the limits of and quality. The IT systems that support many what is possible at any given time. It forces you government programs are extremely sophis- to choose between, for instance, a product that ticated — sometimes so complex that only a is very simple to use and one that might have tiny percentage of public employees ever learn far superior performance possibilities but is more how to use them effectively. The child welfare complicated.34 systems that support social workers in many states and counties, for instance, are big invest- The most common trade-off in the public sector ments aimed at tracking cases. But in many cases, is between the “price” we pay for a public these systems cannot talk to each other and are sector good and its performance. In education, extremely difficult for case workers to use. for instance, it is generally assumed that better performance requires more teachers, smaller Government stimulus spending exemplifies class sizes and better facilities. Under the tradi- another traditional trade-off; that between speed tional model of schooling, reducing the number and quality. The pressure to move quickly vastly of teachers and increasing class size — as is increases the likelihood of fraud, waste, and happening across cash-strapped America today — abuse. Cost overruns, time overruns, cancelled is typically seen as harming performance. projects, poor project selection, bid rigging, false claims, corruption and kickbacks are just a few The same perceived price-performance trade-off of the consequences of trying to move too fast plays out across the public sector. Better intel- to spend public money.35 To try to break this ligence capabilities require governments to spend trade-off, the Obama administration built in an large sums on expensive technologies such as unprecedented degree of public transparency satellites. Safer streets require more prisons. into how the 2009 stimulus funds were spent. Greater national security means more bombers Much of the watchdog role of identifying fraud and more boots on the ground. Reduced traffic was outsourced to citizens themselves who were congestion requires more roads, bridges and encouraged to report suspected fraud, waste, or tunnels. Better performance and capabilities inevi- abuse on a user friendly website. tably seem to involve paying more. Access versus performance is another common trade-off. From schools to policing to libraries, Trade-offs to be broken wealthy communities typically can afford to • Price or performance provide more and better public services than poorer communities. They often pay their teachers • Access or performance/cost higher salaries, have more police officers and offer residents better amenities. Breaking this • Speed or quality trade-off might entail finding a way for children in poorer communities to have access to top-quality • Level of effort or result schools, health care and athletic facilities without • Customer delight or customer convenience dramatically raising costs.10
  13. 13. Disruptive innovation eliminates criticaltrade-offsTen years ago, if you wanted to see a 1950s arthouse classic, you could drive to the nearest videostore, search the movie stacks, hope they carried “Trade-offs define the limits of what isthe movie and hope it wasn’t checked out — not possible at a point in time, not what isa terribly convenient process. Yet it did allow youto watch the movie you wanted to see, when possible for all time. We learn. Weyou wanted to see it — if you were lucky. The improve. We innovate. In other words, wetrade-off was between convenience (watchingsomething that happened to be on cable that figure out how to get more for less.”night) and satisfaction (watching exactly the Michael Raynor, author, The Innovators Manifesto36movie you wanted that night).Netflix shattered this trade-off. Its video streaming all the hassles. By breaking these trade-offs, Zipcarservice allows us to order up any of tens of and 200 other similar car-sharing services maythousands of movies and television shows, and disrupt both the car rental and car ownershipwatch them in the comfort of our home within markets.seconds. What about government? How can disruptiveOr consider automobiles. For many city dwellers, innovation help government to break trade-offsowning a car is a major hassle. They may use their and reduce costs? What are the best opportunitiescars only occasionally, yet still have to fight for to do so? The next section provides five examplesparking spaces or shell out a fortune for garage of how disruptive innovation can significantlyparking on top of a US$400 monthly car payment. lower costs in the public sector by breaking similarAs costly and inconvenient as this is, it generally trade-offs.still beats finding a rental car agency, waiting inline and paying US$50 a day each time you wanta car to go shopping. Catalysts for disruptive innovationIn many cities, however, this frustrating trade-offno longer exists. Car-sharing services such as • Not a sustaining technologyZipcar allow urban dwellers to pick up a car within • Produced by an autonomous organizationblocks of their homes, for less than US$10 anhour. Best of all, you can pick up a sports car for • Less expensive than traditional technologythat special date one night and use a pickup truckthe next day to transport your new sofa. • Maintains cost-competiveness over timeCar-sharing services break multiple trade-offs • Enabled by a rapidly evolving technology— price vs. performance and access vs. perfor- • Demonstrated effectiveness in real-world usemance. People who may not be able to affordcar ownership can have regular access to cars at • Avenues created for low-risk innovationa fraction of the price of ownership, and without Public sector, disrupted How disruptive innovation can help government achieve more for less 11
  14. 14. Opportunities fordisruptive innovationFive cases in the public sector12
  15. 15. Transforming criminal justice withelectronic monitoringFor decades, politicians have offered voters a stark choice: less crime andgreater safety means tougher sentencing laws and a great deal more moneyspent on incarceration. Fewer prisoners, in turn, were seen as equalinghigher levels of crime.This perspective has dominated criminal-justice thinking in much of theworld, and nowhere more so than in the United States, which houses ahigher percentage of its population behind bars than any other country.With less than 5 percent of the world’s population, America has nearly onequarter of the world’s prisoners.”37As of 2008, approximately 2.3 million people were behind bars in the UnitedStates, equivalent to about one in every 100 adults. This represents a 300percent increase in the prison population from 1980, when half a millionAmericans were behind bars.38 Lower-level offenders, moreover, haveaccounted for a significant portion of this growth.This rise in incarceration came at a huge monetary cost. U.S. state correc-tions costs now top US$50 billion annually and consume one in every 15discretionary state budget dollars.39 Prison costs now trump higher educationcosts in some states.40 California, for instance, spends 10 percent of itsgeneral revenue on prisons and only 7 percent on its higher educationsystem of 33 campuses and 670,000 students.41 And the social cost formany minority communities, where a large percentage of the young men arenow locked up, is staggering.42Though the United States tops the charts in prison population, many othercountries from Brazil to Russia, also incur huge budgetary and societal costsfrom extremely high incarceration rates. Public sector, disrupted How disruptive innovation can help government achieve more for less 13
  16. 16. Breaking the trade-off specific times of day. The technologies are passive The technology with the greatest potential to in that the offender’s presence is only noted when break this trade-off and disrupt traditional incar- contact is made. Active monitoring systems are ceration originated as a way to monitor the eating more common, and are called active because a habits of cows. For years farmers have used radio continuous signal exists between the offender frequency-identification (RFID) tags to keep track and monitoring authorities. Typically, some sort of of their cattle. transmitter attached to the offender (an anklet or bracelet) continuously transmits their whereabouts Today, the technologies involved in elec- via GPS or RFID tags.43 tronic monitoring include home monitoring devices controlled by radio, wrist bands and By removing low-level offenders from jails and anklets tracked by global positioning systems prisons and putting them under house arrest, (GPS), alcohol testing patches and even voice local, state and federal governments could recognition. dramatically reduce their spending on incarcera- tion.44 It replaces a one-size-fits-all approach The criminal justice system uses electronic moni- for offenders with one that better segments the toring (EM) technologies primarily for offender population and employs the most appropriate tracking, confirming that offenders are where and cost-effective approach for each offender they are supposed to be or are prevented from segment depending on the crime committed and approaching identified high-risk areas. For potential danger to the community. example, authorities can be alerted when a sexual offender approaches a school or playground. In 2008, the average daily cost of incarcerating a prison inmate in the U.S. was US$78.95.45 By EM technologies generally fit into one of two contrast, the average daily cost of managing categories, passive or active. Passive moni- offenders through electronic monitoring technolo- toring involves programmed contact, whereby gies ranges between US$5 and US$25 per day, a computer calls an offender at random or at depending on the type of technology used and Figure 1: Number of offenders that can be tracked for the cost of one prison bed = Approximately 5 ½ offenders can be electronically monitored for the cost of incarcerating one offender behind bars14
  17. 17. $ bars, at an enormous cost to government, also $ Criminal justice by the numbers removes them from their jobs. They are no longer providing tax revenue to their communities and can no longer provide for their families, increasing the demand for government resources. • Corrections costs (US)=US$50 billion annually Pace of disruption In the United Kingdom, about 70,000 offenders • Consumes 1 of every 15 discretionary annually are subject to electronic monitoring, state budget dollars a number likely to rise significantly in the near future.51 In October 2011 alone, the UK govern- • California spends more on prisons than ment bid out £1billion worth of electronic moni- higher education toring contracts. Significant growth in electronic monitoring also is expected in other Europeanthe community using the technology.46 Many countries as well as Brazil and South Africa.52localities, moreover, bill offenders for the cost ofelectronic monitoring and equipment.47 Figure 2: Potential net savings per day from electronic monitoring $90,000,000Non-violent offenders today make up more than $80,000,00060 percent of the U.S. prison and jail population.48Figure 2 shows the potential savings that could $70,000,000 Total cost per daybe generated by shifting varying percentages $60,000,000of these non-violent offenders from incarcera- $50,000,000tion to electronic monitoring. The approximate $40,000,000annual savings of moving 50 percent of low-level $30,000,000offenders to electronic monitoring would be $20,000,000about US$16.1 billion.49 $10,000,000 $0In addition to direct savings, EM also creates 345,000 690,000 1,035,000significant savings in opportunity costs. The Pew offenders offenders offendersCharitable Trusts estimates that “two-thirds of (25%) (50%) (75%)male inmates were employed and more than half Cost per offenderwere the primary source of financial support fortheir children” before beginning to serve their Cost of incarceration at average $78.95 per daysentences.50 Placing these offenders behind Cost of electronic monitoring at average $15.00 per day Source: Deloitte GovLab. About 2.3 million Americans are behind bars. About 60 percent or nearly 1.4 million of them are low-level offenders. The table reflects net savings generated per day by moving low-level offenders from behind bars to electronic monitoring. Public sector, disrupted How disruptive innovation can help government achieve more for less 15
  18. 18. $ Already, new devices such as alcohol detection patches are augmenting EM by monitoring and Cost savings from electronic monitoring thus discouraging specific behaviors, such as consuming alcohol or drugs. These technologies • Daily costs of prison in the US=US$78.95 a day force the criminal “to monitor himself… effectively outsourcing the role of prison guard to prisoners • Daily cost of electronic monitoring=US$5–US$25 daily themselves.”53 • Savings from moving 50% of low-level offenders from prison to Several governments have made concerted efforts EM=US$16.1 billion to spur the more rapid adoption of electronic monitoring. The United States is believed to be the biggest subscriber to electronic monitoring. Will EM disrupt how we think about incarceration More than 20 different electronic monitoring for non-violent offenders? Only time will tell, but companies provide electronic monitoring for as governments are forced to seek cost reductions more than 100,000 offenders according to best and innovative ways to use existing resources, estimates.”54 Other countries are moving rapidly EM is already climbing the productivity curve (see in this direction. figure 3). Figure 3: Expanding capabilities of Electronic Monitoring (EM) ction Preventative A Criminal justice system tiers of incarceration ion Sobretor: Alcohol Real-Time Act compliance Treatment and training itoring vis active GPS Constant Mon Offender monitoring via radio frequency onitoring Radio frequency Incremental M 1970 1980 1990 2000 2010 2020 Source: Deloitte GovLab16
  19. 19. Defense: Unmanned Aerial Vehicles (UAVs)Warfare is enormously expensive. U.S. military Thanks to their persistence, cost, and flexibility,superiority results from a number of factors, but UAVs are clearly disrupting existing defense andone of them surely is having the most sophis- intelligence operations.60 The Pentagon’s recom-ticated weaponry — and a lot more of it than mendation to curtail the development of theanyone else. But the latest, greatest fighter jets, manned F-22 and F-35 aircraft while increasingships and submarines don’t come cheap. Between its procurement of UAVs is just one sign of thisfiscal year 2000 and 2011, the U.S. Department development.61 Additionally, in the future, theof Defense’s (DoD’s) base budget increased by 91 Navy plans to dramatically expand the number ofpercent. remotely piloted vehicles to perform underwater missions such as finding mines, detecting enemyIn recent years, however, at least one disrup- ships and providing port and harbor security–tive technology has gotten considerable traction missions now routinely conducted by morein warfare. Once a feature of science fiction, expensive manned vehicles.the unmanned aerial vehicle (UAV) has become“the poster child for transformation” of themilitary55 — and what may turn out to be one of Figure 4: Number of UAVs that can be purchased for one manned aircraftthe most important new military weapons of ourtime.Today, the U.S. military, intelligence and bordersecurity sectors employ UAVs for an astoundinglydiverse range of activities, including real-timesurveillance, critical combat search-and-rescuemissions and assistance in the apprehension ofterror suspects. Moreover, UAVs are now beingused to execute operations typically reserved formanned attack aircraft, such as missile strikes onhigh-value targets.56 1 to 11 ratioIn all, it’s estimated the United States has morethan 7,000 UAVs in operation.57 Others are racingto catch up — more than 50 countries have builtor bought unmanned aerial vehicles, according todefense experts.58 Recent estimates indicate thatthe UAV industry, supporting a broad and evolvingrange of military, intelligence and commercialsector activities, will become a US$50 to US$94billion annual business within the next 10 years.59 Public sector, disrupted How disruptive innovation can help government achieve more for less 17
  20. 20. Breaking the trade-off the ability to conduct remote operations with One of the best-known UAVs is General Atomics fewer direct combat personnel.64 And of course, Aeronautical System’s (GA-ASI’s) Predator drone. they do not require a pilot to go into harm’s way. As with other disruptive innovations, the Predator has consistently broken existing cost and perfor- Pentagon officials say the remotely piloted planes, mance trade-offs in the defense and intelligence which can beam back live video, have done more arenas. At roughly US$4.5 million, the Predator than any other weapons system to track down costs just a fraction of the tab for manned insurgents and save American lives in Iraq and aircrafts and satellites; it even undercuts other Afghanistan.65 “[The] remotely piloted aircraft UAVs in cost-competiveness.62, 63 was one of the most important developments since 9/11,” says Air Force Chief Scientist Dr. Mark As for performance, Predators and other UAVs Maybury.66 actually provide several key performance capa- bilities that exceed those of manned aircraft: How did this come about? persistence (the ability to provide persistent coverage over an area for an extended period of The viability of the UAV as a modern surveillance time); flight longevity (days compared to hours and reconnaissance platform first was realized for manned aircraft); undetected penetration; the during the 1980s, when Israel demonstrated ability to operate in dangerous environments; and the advanced capabilities of its low-cost Scout Figure 5: The rapidly expanding capabilities of UAVs Integrated ounter Strike/SEAD/C air ISR aircraft market segment priorities Counter – Air e/SEAD Avenger Integrated Strik emy Suppression En MQ-1 Reaper Air Defen se (SEAD) Strike MQ-1 Predator lligence, GNAT-750 Real-time Inte Surveillanc e, and ce (ISR) Reconnaissan 1980 1990 2000 2010 2020 Source: DGovLab and Innosight LLC18
  21. 21. In 2011, the U.S. AirForce will train more“joystick pilots” than newfighter and bomberpilots.67UAV over Lebanon’s Bekaa Valley. The Scoutwas capable of real-time surveillance and wasdifficult to detect and destroy, as it was made oflightweight fiberglass with a low radar signature.The big break for UAVs, however, came inthe mid-1990s, when the Advanced ConceptTechnology Demonstration program (ACTD), asmall procurement shop at the Pentagon respon-sible for funding and testing innovative tech- Pace of disruptionnologies, decided to invest in them. The Predator Once integrated into defense and intelligenceeffort began with a 30-month ACTD contract operations, the UAV adapted quickly to evolvingawarded in January 1994. performance needs. Recalls General Atomics CEO Tom Cassidy Jr.: “The airplanes, the way weThe Predator’s mission is to provide long range designed them, was for a lot of growth, to be(500 nautical miles), long endurance (up to 40 capable of carrying weapons and to control themhours) and near real-time imagery for reconnais- through satellites. We figured that was kind ofsance, surveillance and target acquisition. These the way of the future…”69 From miniaturizationcapabilities were demonstrated in Bosnia. The to real-time digital imagery, the Predator andperformance data gathered there “convinced other UAVs such as the Global Hawk, Reaper, Skythe military users that the Predator was worth Warrior and Avenger have continuously advancedacquiring.”68 to meet the dynamic challenges of post-9/11 military warfare. Public sector, disrupted How disruptive innovation can help government achieve more for less 19
  22. 22. The terrorist attacks of September 11, 2001 created new demand for weapons systems that could conduct reliable, real-time surveillance and reconnaissance as well as satisfy combat needs. In response to these changing needs, General Atomics equipped Predator drones with Hellfire missiles. The Air Force put the weapon- ized Predator into immediate use in OperationA sampling of the diverse uses of UAVs Enduring Freedom, hitting approximately 115 targets in Afghanistan during its first year of combat operations. According to one report,Military and Intelligence “Iraqi soldiers actually surrendered to a Pioneer,• Reconnaissance knowing that after it spied them, gunfire was• Surveillance imminent.”70• Strike• Close combat support The UAV experience demonstrates that revolu-• Deception operations tionary technologies can disrupt even the most seemingly hidebound operations. UAV propo-Security nents in and outside of government began by• Policing identifying a need for low-cost, basic unmanned• Border Patrol aircraft. Once the initial technology was proven,• Perimeter security – (close quarters, inside buildings, over hills) the UAV manufacturers continually and relent-• Port monitoring / security lessly improved the capabilities. As a result, UAVs have transformed the way the U.S. governmentEnvironmental, emergency response and infrastructure conducts intelligence and military operations.• Surveillance (intelligence, oil rigs and pipelines) Even the successful operation to uncover and kill• Storm and weather monitoring Osama Bin Laden relied on intelligence gathered• Search and rescue by a stealth UAV.71• Emergency management (wild-fire monitoring, suppression, and fire-crew information tool) The flexibility, versatility, and low costs of UAVs• Damage assessment (natural disasters, battle environments) have resulted in their extension into an amazingly• Monitoring real estate diverse set of tasks (see accompanying box).20
  23. 23. Five lessons learned fromUAV adoptionThe convergence of multiple internal andexternal factors helped UAVs emerge as adisruptive innovation in the defense space.#1. Organizational autonomyUAVs were introduced as an alternative tech-nology to manned aircraft by General AtomicsAeronautical Systems Inc., a company outsidethe ranks of traditional military aircraft contrac-tors. The company invested tens of millions ofdollars of its own money into UAV technologyin the belief that UAVs would prove transfor-mational. “Everyone talks about how the worldhas changed,” explained CEO Tom Cassidy injustifying the investment. “We’re building thetechnology for where it’s going.”72 #4. May require significant trial and error Prior to the Predator UAV, the U.S. Department#2. Start off worse but rapidly evolve the of Defense (DoD) experienced repeated failuretechnology launching a UAV program. Between 1975Although the initial UAVs lacked dual surveil- and 1996, the DoD spent about US$4 billionlance and combat capabilities, they were on nine UAV programs that were all canceledsignificantly less expensive than traditional without producing significant real-worldaircraft — and safer for personnel, obviously.73 benefits to national military or intelligenceUAV capabilities rapidly evolved to satisfy the activities.75 Importantly, however, the DoD, thechanging needs of post-9/11 warfare.74 intelligence community and defense manufac- turers didn’t give up.76#3. Highly adaptable platformThe rapid evolution of UAVs was made #5. Proof of conceptpossible by highly nimble platforms that UAVs gained momentum once they wereproved extremely conducive to customization proven in combat. A pivotal point in theirand improvement, which includes everything acceptance was the effectiveness of thefrom video cameras to missiles. Predator during the beginning of the Iraq and Afghanistan wars. Public sector, disrupted How disruptive innovation can help government achieve more for less 21
  24. 24. K-12 education “At least two-thirds of U.S. students will be doing most of their learning online by 2020.” Tom Vander Ark, CEO of Open Education Solutions Today’s students have more choices in classes, customized learning experiences, predicts Tom better facilities and a wider variety of learning Vander Ark, CEO of Open Education Solutions.77 experiences than ever before. But the funda- These new, customized learning systems typically mental way in which most children are taught has are based in the “cloud” and accessible to not changed significantly in more than a century. students anywhere. And while education has become considerably more expensive, it has failed to achieve a corre- Pace of disruption sponding increase in performance. Thanks in part to much greater capabilities, today’s online learning courses are moving rapidly Breaking the trade-off from test preparation and correspondence classes The tradeoff schools have faced is between the into mainstream education. More than 4 million kind of standardized teaching that occurs in most students at the K-12 level took an online course public-school classrooms and the more personal- in 2011, up significantly from just 1 million three ized instruction a student might receive from a years earlier.78 About 250,000 U.S. students tutor or at an elite prep school. Smaller class sizes, attend online schools full time, mostly through smaller schools, “schools within schools” and virtual charter schools.79 other reforms all reflect attempts to move up the performance curve. The trade-off, however, is that The Innosight Institute predicts that the pace such reforms typically are quite expensive. that online learning substitutes for live classroom instruction will increase dramatically in the next Online learning, or a blended learning environ- decade. In 2008, they estimated that by 2019, ment of digital learning and traditional instruc- American high school students will take 50 tion, may be capable of breaking this trade-off. percent of their courses online.80 This was a bold How? By personalizing the learning experience prediction, to say the least. If the current 46 according to individual student learning styles and percent annual growth rates in online learning pace, and doing so without increasing the number continue, however, it may prove too conservative. of teachers. Within five years, most learning Vander Ark predicts that at least two-thirds of platforms will have a smart recommendation U.S. students will be doing most of their learning engine similar to iTunes Genius that can create online by 2020.81 That would indeed be quite a disruption.22
  25. 25. The Khan Academy’s disruptive modelOne of the most disruptive education models track student progress through experiencestarted off as Salman Khan’s side project to points gained as the students master variousprovide tutoring help to his cousins, nephews subjects.83 The five years’ worth of data Khanand nieces. The simple but effective math and now has on how students learn could even-science videos Khan posted to YouTube quickly tually enable the Academy to create lessonswent viral as thousands and then millions of personalized to each students’ learning.students started to watch. All told, Khan’snow world-renowned online learning academy At least 36 schools have incorporated Khanhas delivered more than 30 million lessons to Academy videos and teacher dashboards thatstudents around the world.82 track students’ individual statistics into their teaching model.84 The Los Altos school districtThe 2,700 online course modules offered in northern California uses the Khan videos toby the Khan Academy range from math and “flip” some of their classrooms: students watchscience to art history to banking and money. the taped Khan lectures for homework soEach lesson is free and open to anyone. With teachers can spend class time working one-on-the help of philanthropic supporters, Khan’s one with students, helping them work throughtiny six person team has steadily moved Khan tough questions.85 Teachers in hundreds ofAcademy up the performance curve. The other schools similarly use online tools to flipwebsite now includes a sophisticated analytics their classrooms and deliver more customizedengine that allows teachers and parents to instruction. Public sector, disrupted How disruptive innovation can help government achieve more for less 23
  26. 26. Transforming higher education $ Few if any sectors of our economy in recent $ Higher education by the numbers decades have experienced price and cost increases as massive as those in higher education. From 1982 through 2007, tuition and fees at U.S. • Tuition and fees at U.S. public and public and private colleges rose by an average private colleges rose by an average of of 439 percent after allowing for inflation.87 439 percent after allowing for inflation Three decades of 6 to 7 percent annual price (from 1982 through 2007)86 increases have put college beyond the means of most families without resorting to huge student • 6 to 7 percent annual price increases for loans.88 three decades Scores of books and studies have attempted • The average university spends US$4 to to explain the factors behind this dizzying cost US$5 on overhead for each dollar spent spiral.89 What they tend to conclude is encapsu- on teaching, testing and research lated in a pithy phrase from Kevin Carey of the Washington, D.C.-based think tank Education Sector: “Everyone wants to be Harvard.”90 Every college and university wants to have the leading researchers who publish in top journals and lure federal grants, while also offering the most state-of-the-art academic, sports and leisure facilities. Today’s institutions of higher education try to do so many jobs that they’ve become extraordinarily complex organizations, with huge costs tied up in the overhead and administra- tive costs. According to the Center for American Progress, the average university spends four to five dollars on overhead for each dollar spent on teaching, testing and research.91 The prevailing wisdom in higher education is that it’s not possible to reduce costs and improve quality. The belief is that controlling costs would mean lower quality; reduced course selection; more teaching assistants and adjunct lecturers and fewer professors; and staff layoffs.92 But are these assumptions actually true?24
  27. 27. Can online learning achieve good results while offering significantly lower costs than traditional“A big chunk of the best- college instruction? The evidence suggests it can.known American colleges… During the last decade, the National Center fortry to compete on Academic Transformation (NCAT) has workedexclusivity and the quality with hundreds of public universities to redesignof the experience, not on individual courses around a blended model of education that takes greater advantage of tech-price.” nology.94 These course redesigns have covered all sorts of disciplines, from Spanish to computerAnya Kamenetz, author of DIY U93 science to psychology. They typically incorporate digital learning tools — simulation, video, social media, peer-to-peer tutoring and software-based drills — as well as some traditional classroomBreaking the trade-off lecturing.The key to disruptive innovation in highereducation is to unbundle the different services $colleges provide, and to bring a greater range ofproviders into the market. Blended learning: Where the cost savings come fromAs with K-12 education, online learning isthe technology offering the most potential to The average cost reduction from blended learningtransform higher education’s basic business in higher education has been 39 percent, with somemodel. It can be used to unbundle some of the course costs reduced by as much as 75 percent.95 Hereservices colleges now provide, allowing students are some of the ways these savings have been realized:to pay only for what they need. • Faculty: Less time presenting information, developingDisruptive entrants such as the University of curriculum and grading exams. Greater peer-to-peerPhoenix, DeVry, Western Governors University, learning.MIT’s OpenCourseware and MITx, the UnitedKingdom’s Open University and many community • Resources: Reduced course repetitions. Studentscolleges unbundle the cost of learning from access material when they need it, increasing effi-the hefty costs of stadiums, student unions, ciency of resource use.swimming pools, fitness centers and adminis-tration. Online learning allows their low-cost • Infrastructure: More efficient use of physical models to scale upward and competeagainst traditional colleges and universities. Public sector, disrupted How disruptive innovation can help government achieve more for less 25
  28. 28. As for the quality, from test scores to student satisfaction to graduation rates, outcomes have“The most powerful mechanism of cost also improved according to NCAT.98 At thereduction is online learning. All but the University of New Mexico, the drop-withdrawal-most prestigious institutions will effectively failure (DWF) rate in a psychology course fell from 42 percent in the traditional format to 18 percenthave to create a second, virtual university in the new blended model. Meanwhile, Virginiawithin the traditional university…” Tech’s redesigned math course resulted in test scores rising 17.4 percent and the failure rate plummeting by 39 percent.99Clayton M. Christensen and Henry Eyring, The Innovative University Pace of disruption The average cost reduction has been a whopping As with K-12 education, online higher education is 39 percent, with some course costs reduced by as increasing at a brisk pace. Open University is now much as 75 percent.96 All in all, the cost of deliv- the biggest university in the United Kingdom with ering a four-year degree with only online curric- more than 250,000 students and 1,200 full-time ulum (with instructors) is less than US$13,000 academic staff. compared to US$28,000 and US$106,000 at typical public and private institutions respectively.97 In the United States, about 6.14 million students enrolled in at least one online course in 2010. Fully 31 percent of all college and university students now take at least one course online.10026
  29. 29. Intelligence: Open-source data analytics $ The extreme level of technological sophistication $ Rising costs of U.S. intelligence needed for advanced intelligence has resulted in a number of high-profile failures, perhaps the most well-known being the cancellation of a six-year, multi-billion-dollar effort to develop the next In fiscal 2010, the National Intelligence generation of spy satellites, the Future Imagery Program, run by the CIA and other Architecture.107 Human intelligence or “HUMINT” agencies that report to the Director also comes at a cost — the cost of human life, as of National Intelligence, cost US$53.1 it often requires placing American operatives and billion, while the Military Intelligence foreign agents in potentially deadly situations. Program cost an additional US$27 billion.101 Breaking the trade-off Given today’s budgetary environment, the meteoric rise in intelligence spending is over — in fact many intelligence agencies are alreadyAs with defense, intelligence doesn’t come cheap. planning for significant budget cuts. The questionThe collection and analysis of intelligence has then becomes: can these same agencies providebecome a particularly complex and resource-inten- critical intelligence capabilities at a lower price?108sive task. Better intelligence capabilities historically The combination of two developments suggestsrequired more people, more satellites, and lots the answer to this question may be yes.of very expensive custom technology. Complexityincreased due to new external threats, and by The first development is the rise in open-sourceadding intelligence agencies, creating barriers to intelligence (OSINT). This refers to the broad arrayinformation sharing, and increasing technological of information and sources publicly available fromdemands.102 the media, social networks, academia and other public data. OSINT has been collected since 1940,Civilian and military intelligence cost the U.S. but typically this collection focused on acquiringgovernment US$80 billion in 2010, more than and translating mass media such as newspapers,twice what was spent in 2001.103 This price television, and radio. The analysis of the materialtag dwarfs the US$42.6 billion spent on the was done primarily by individuals and focusedDepartment of Homeland Security or the US$48.9 on understanding trends and differences inbillion State Department budget.104 media coverage of issues. The Foreign Broadcast Information Service was responsible for this mediaMany intelligence capabilities were created, analysis.refashioned or grown in the wake of 9/11.105The massive growth caused even former Defense In 2005, the broadcasting service, previouslySecretary Robert Gates to remark: “Nine years a CIA component, became the Open Sourceafter 9/11, it makes a lot of sense to sort of take Center. OSC was authorized by the Director ofa look at this and say, ‘Okay, we’ve built tremen- National Intelligence, but the CIA functioned asdous capability, but do we have more than we its executive agent. The OSC was charged withneed?’”106 Public sector, disrupted How disruptive innovation can help government achieve more for less 27
  30. 30. These analytic technologies can help intelligence organizations to overcome data overload byOpen source information matched with pinpointing important information and filteringadvanced analytics potentially enables out extraneous data.111 Our everyday actions in the digital world, from posting messages onintelligence to be provided at a lower cost. Facebook to checking a bank account balance, create “digital exhaust” — trails conveying infor- improving the availability of open-source material mation about behavior, preferences and interac- to intelligence officers and others in the govern- tions. Analytics can help exploit this vast sea of ment. The OSC launch signaled a more serious data, thereby turning “overload” into opportunity. commitment to leveraging OSINIT, as well as the In the words of Clay Shirky, “there is no such recognition that the traditional paradigm of secret thing as information overload, there’s only filter intelligence operations comes with a crushingly failure.”112 high overhead cost.109 The Arab Spring provides a useful window The value of open-source information is that it’s into the power of joining open-source infor- essentially free.110 The difficulty with open-source mation with sophisticated analytics. Simply information is two-fold. First, many intelligence aggregating and analyzing tweets provided professionals view open source information as one valuable window into subsequent develop- ‘un-vettible’ i.e., inaccurate, or not actionable. ments. Automated analysis tools discovered that Second, with the world producing the digital an astounding 88 percent of Arabic conversa- equivalent of the Library of Congress every five tions on social media during the first quarter of minutes — sorting out what matters from what 2011 included political terms, up from a mere 35 doesn’t can seem like a Sisyphean task, the digital percent in 2010.113 equivalent of finding a needle in a haystack. Targeted analytics examining social-media discus- A second development, advances in analytics, sions about the Egyptian crisis also revealed that however, begins to address these problems. conciliatory actions might have saved Hosni Rapidly maturing analytics technologies — Mubarak’s job. Of all of the popular demands, modern data mining, pattern matching, data ousting Mubarak was only the fourth most- visualization, and predictive modeling tools — popular, lagging behind intermediate steps can help make sense of the mountains of data such as ousting the interior minister, increasing available today, and apply them to make more minimum wages and ending emergency laws.114 informed decisions. The speed at which these capabilities are getting better cannot be empha- Social sentiment analysis capabilities make it sized enough. Facial recognition search tech- possible to predict to the day when a certain nology, for example, has gotten good enough country might have a significant public protest to where computers can sift through millions of or the growth of a political movement. Software pictures or videos in seconds to link a picture to can also now aggregate buzz expressed across the identity of an individual. various social media outlets to predict election outcomes.115 This includes not just the ability to28
  31. 31. track the presence of a candidate’s or political Secret sources and methods will remain importantparty’s name and brand but the sentiments and for information that can only be discoveredcontext of how they are discussed in social media. through clandestine means. Many of the newAlgorithms can help analysts use open source challenges facing the intelligence community,to track growing distrust of specific attributes of however, from detecting political instability topolitical leaders and political parties or anticipate understanding social dynamics, might most effec-an uprising. tively be answered through open source. As a result open source should no longer be seen, as itPace of disruption is today, primarily as a source of information thatFigure 6 depicts at a very high level how the supports secret intelligence.117 Open source —upward march in capabilities in open source particularly the marriage between large volumesmethods has already impacted intelligence. IARPA of data and advanced analytic techniques —(Intelligence Advanced Research Projects Activity) could eventually emerge as the intelligenceand DARPA (Defense Advanced Research Projects resource of choice for many priority issues.Agency) initiatives exploring how social media andsophisticated open source methods can assist the We live in an open world, yet the intelligenceU.S. government to better anticipate significant community today still operates largely as a closedsocietal events reflect the direction the capabilities loop system.118 Open source approaches provideare headed.116 one way to change this paradigm.Figure 6: Expanding capabilities of open-source intelligence eling Predictive mod Analysis of social media helps Open-source intelligence capability tiers understand underlying causes of Arab Spring ysis Statistical anal CIA establishes Open Source Center Increasingly sophisticated Alerts data analytics software enters commercial markets rts Standard repo CIA Foreign Broadcast Information Service (FBIS) 1940 1950 1960 1970 1980 1990 2000 2010 2020Source: Deloitte GovLab Public sector, disrupted How disruptive innovation can help government achieve more for less 29