Government productivity: Practical methods to deliver more with less

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This article is the third in a series on the US government’s productivity improvement opportunity. The series has focused on the United States, but the approaches we address can be applied by government organizations worldwide.

Governments around the world have a shared goal: to help their citizens by maintaining order, ensuring economic and physical security, enabling innovation, and providing other valuable public goods and services that represent the interests of the people. Productivity is an important driver of success as governments work toward achieving these goals. As countries worldwide continue to face budget challenges, government organizations are expecting to have to do the same amount of work—if not more—with less funding. We estimate the productivity improvement opportunity in US government alone is $725 billion to $765 billion, split among the federal level and the state and local level—or more than $2,000 per resident.1US government productivity: A more than $2,000 per resident opportunity,” McKinsey, September 5, 2023.

As discussed in the second article of this three-part series, there are multiple roles government organizations can play.2US government productivity: The roles government plays,” McKinsey, October 30, 2023. When playing the role of provider of goods and services, they have several levers available to them to improve productivity. Using a structured approach to prioritizing which levers to pursue allows government organizations to make informed decisions and implement targeted interventions. In this third article of the series, we examine seven levers available to government organizations to capture the productivity improvement opportunity, as well as some considerations for their implementation. We then review lessons learned from successful implementation of these interventions at various governmental organizations around the world.

We recognize and acknowledge that a variety of civic compacts shape how governments set priorities, and thus governments have fundamentally different imperatives from the private and social sectors. Government organizations may make productivity trade-offs in service of those institutional imperatives. Productivity is the focus of this article, but it is just one way to evaluate government activity.

The execution imperative: How to capture the productivity improvement opportunity

Government organizations do not consistently operate under the same productivity improvement imperatives of their private-sector peers. This, coupled with budget cyclicality, means that many organizations lack the necessary muscle memory to continuously identify and capture productivity improvement opportunities. Based on our experience helping more than 300 government organizations improve the effectiveness of their operations, we identified seven levers that government organizations could pursue to improve productivity by adapting private-sector frameworks (exhibit).3Seven levers for corporate- and business-function success: Introduction,” McKinsey, June 1, 2014.

There are seven potential levers to improve government productivity

In a September 2023 survey of more than 50 US government leaders, respondents reported deploying some of the levers but not at consistent rates.4 In general, respondents focused on the levers of enhancing processes and optimizing organizational structure and governance, with more than 20 percent reporting they have pulled each of them. Less than 10 percent of respondents reported having implemented levers for managing demand and sourcing smarter, signaling a likely substantial improvement opportunity among these levers. Below, we elaborate on each of the seven levers and key implementation considerations.

Source smarter

Procurement is a core function with strong potential to unlock productivity improvements, given the high proportion of budget spent on external suppliers. For example, the US federal government alone purchased nearly $700 billion of goods and services in 2022.5 Government organizations could deploy interventions such as centralizing and standardizing procurement operations across departments, developing a structured approach to supplier productivity management, and integrating sustainability and other social criteria into the procurement process. These interventions could expedite process timelines, enhance procurement process integrity controls, and ensure cost-effective acquisition of goods and services.

Key implementation considerations. A first step to sourcing smarter is addressing regulatory hurdles by aligning procurement policies with legislative requirements that ensure transparency and equal treatment for all participants in the sourcing process while emphasizing financial probity and value-for-money considerations. Given the decentralized structure of many government organizations, variability in procurement roles, responsibilities, and skill level is common. Standardizing expectations across the organization can lead to improved execution and adherence to best practices. Adopting a category strategy approach could further streamline processes. In our experience, the largest spending categories spanning multiple departments can often be centralized to reduce redundancy, lower costs through bulk purchasing, and improve supplier management (see the “Consolidate support services” section for more detail). Further, making procurement data more accessible (for example, using generative AI [gen AI] for spend analytics and cost optimization) could aid decision making and enable a shift in focus toward strategic procurement outcomes, such as meeting sustainability objectives.

Enhance processes

Government organizations could enhance their performance by making underlying processes more efficient. A periodic review of processes through the lens of lean management principles, grounded in the delivery of citizen experience, could offer substantial benefits (for example, streamlining licensing review procedures to promote business development). Simplifying back-end processes could help functions (for example, human resources and IT) evolve from a transactional to a strategic partner. Digitally enabled processes linked to databases that provide real-time access to all information could streamline and improve the citizen experience. In addition, embedding a culture of performance management with a customer service orientation could facilitate operational process improvements.

Key implementation considerations. When aiming to enhance process efficiency within government organizations, conducting a comprehensive evaluation, including benchmarking, is essential. Comparing process timelines and quality outcomes with best practices could permit organizations to pinpoint areas for improvement. Organizations could also map future-state processes to identify gaps and opportunities by contrasting them with current procedures. Through mapping and the development of digital twins, government organizations could simplify workflows and improve overall task efficiency. This approach could ensure that improvements are well-rounded and address various aspects of operations. Finally, an integral part of optimizing processes is to prioritize the citizen experience by simplifying access to services. A citizen-centric approach not only increases satisfaction but also fosters greater engagement with government services (see sidebar “Considering customer experience in government”).

Manage demand

Mechanisms for predicting and smoothing demand can yield numerous advantages, such as informing opportunities for process efficiency, improving citizen satisfaction and quality outcomes, and managing employee burnout. For example, encouraging self-service options allows citizens to independently access services. By offering alternative avenues for tasks such as inquiries, form submission, or appointment scheduling, waiting times may fall and convenience increases. Finally, adapting service levels to demand projections can optimize resource allocation, preventing resource bottlenecks during peak periods.

Key implementation considerations. Effective demand management requires a holistic approach. To ensure comprehensive service improvement, it is essential to consider all stages of the citizen journey, from initial inquiries to service delivery and follow-up. Further, looking at inspirational models from around the world could provide valuable insights. One such model is Singapore’s Smart Nation Initiative. Using digital platforms, Singapore revolutionized service accessibility, significantly reducing wait times and the need for physical commutes (see the “Singapore e-government services” section for a closer look at Singapore’s initiative).

Consolidate support services

Consolidating support services, a lever increasingly embraced in the private sector, could offer substantial benefits for government organizations, particularly in the context of evolving remote-work trends. For example, creating centralized service centers in cost-effective locations with a readily available and highly skilled workforce can reduce costs, eliminate redundancy, heighten resource adaptability, and improve support services management. In our experience, the consolidated support services model helps to improve the consistency of service delivery. Further, centralization can lead to the sharing of best practices—thus enhancing outcomes while creating opportunities for professional growth—as employees at the centralized service centers gain expertise in their support areas.

Key implementation considerations. When consolidating support services, it is important to develop a comprehensive understanding of the services being provided, including the relative quality, across all locations. A consolidated model is most effective when the services provided are relatively consistent across multiple locations. A baseline assessment could then be used to identify locations for centralized support of specific services, taking into account locations with more-cost-effective resourcing that can deliver the required level of service quality. The organizational structure must then be reconsidered to ensure clear reporting and adequate support without added layers of bureaucracy. A review of operating procedures and training guides for the centralized services could further improve standardization and service quality following the consolidation.

Transform digitally and automate

Harnessing the potential of digital transformation, analytics, automation, and AI could foster improved citizen experiences and satisfaction. The private sector is already moving in this direction. Previous McKinsey research has estimated that digitalization could deliver productivity improvements worth at least $1 trillion across the global public sector.6Infrastructure productivity: How to save $1 trillion a year,” McKinsey Global Institute, January 1, 2013. For example, implementation of digital tools such as online portals, mobile apps, and user-centric platforms could simplify citizen interactions. Efficient access to government services, payment processes, and information dissemination would become a reality, leading to enhanced public engagement. Using data analytics for workforce management and predictive maintenance could optimize resource allocation. Multiple governments are also experimenting with different approaches for the use of gen AI. For example, the US Department of Veterans Affairs launched an AI competition to create AI-enabled tools to reduce burnout among healthcare workers.7

Key implementation considerations. Introducing digital tools, automation, and AI in government organizations requires a strong focus on quality assurance. Even with automation, human quality checks remain paramount to ensure precision and adherence to established standards. Services provided by government organizations often deal with critical matters, and any errors or lapses in quality can have substantial consequences. As government organizations embrace automation and digitalization, they must also be vigilant about cybersecurity. Measures must be in place to counter potential threats effectively, including investing in robust cybersecurity infrastructure, regularly assessing vulnerability, and staying updated on the latest cybersecurity trends and best practices.

Optimize organizational structure and governance

Improving productivity hinges on refined governance that enhances resource allocation, coordination, and performance management. While structural changes can take longer in government organizations than in their private-sector peers, such changes can be critical to realizing the potential outlined above. For example, holistic evaluation of governance could streamline resource utilization, interdepartmental synergy, and performance excellence. Establishing cross-functional teams for strategic planning can align actions with overarching goals, driving coordinated efforts and resource optimization. Alternatively, establishing a centralized unit for execution and performance management can accelerate project delivery with enhanced quality and cost-effectiveness.

Key implementation considerations. Taking a holistic perspective is paramount when optimizing organizational structure and governance. Broadening the scope of governance reviews allows for comprehensive improvements, amplifying overall efficiency. This means not only evaluating individual departments but also looking at the organization’s operations as a whole. At the same time, it is important to concentrate on specific domains or areas in which there are substantial improvement opportunities—for example, focusing on capital management or strategic asset-planning opportunities for optimization in critical areas.

Invest and deploy talent

Attracting and retaining talent is key to the ability of government organizations to capture productivity improvements. In the United States, the public sector is starting from an acute talent gap: job openings across all levels of government rose by more than 30,000 between August 2022 and August 2023, while hiring decreased by nearly 60,000.8 In a 2022 McKinsey survey, respondents identified “attracting and retaining talent” as the top lever that would improve customer experience across several government services.9 Government organizations can take several steps to address their talent needs, including tapping external expertise through partnerships with institutions such as universities, outsourcing tasks to the private sector, and reskilling existing talent. When developing a talent attraction and retention strategy, it is important to consider nonfinancial benefits (for example, flexible working hours or generous leave policies), which may be more valuable to recruits than financial incentives.

Key implementation considerations. To address the talent gap, government organizations could begin by identifying critical capability gaps. These gaps may be technical and functional in nature, or they may be related to core cross-functional skill sets such as leadership or communication. Once gaps are identified, it is important to determine what work could be done in-house or what should be outsourced. Pursuing partnerships to tap into external expertise can help address critical gaps. For in-house work, the skills required to take on new responsibilities may not be readily available in the existing workforce or immediate hiring pool. However, the costs associated with building skills and reskilling are decreasing. Reskilling employees could permit government organizations to retain the experience and institutional knowledge of their workforce while equipping them with the new skills needed for interventions such as digital transformation. Finally, nonmonetary benefits are potent tools for talent acquisition and retention. For example, respondents to the same 2022 McKinsey survey noted that their top three employee value propositions to improve talent acquisition and retention were nonfinancial, focusing on workplace flexibility, meaningful work, and other nonfinancial benefits such as distinctive short-term leave policies.10

Government organizations and the seven levers: Case studies

Let’s consider several examples of how government organizations applied these levers to improve productivity. (Maximizing productivity improvement in government organizations may require a broad transformation effort. See sidebar “Promoting transformational productivity improvement.”)

Singapore e-government services

Though the Singapore government had carried out multiple e-government programs by 2014, two factors—growing urban challenges and digitalization across the economy—called for a more comprehensive digital transformation, motivating the city-state’s launch of the Smart Nation Initiative.11

The Smart Nation Initiative strove to improve productivity with four levers. First, the government introduced online platforms (such as LifeSG) to manage demand; for example, expanding self-serve options for various services reduced citizens’ wait times and commutes to physical locations. Second, to enhance processes, the government rolled out an e-payment platform that allowed citizens to complete transactions online, reducing fund processing time from a week to a day.12 Third, to avoid administrative overlap, the Smart Nation and Digital Government Group (SNDGG) consolidated and managed multiple initiatives. It worked directly with the prime minister’s office, an example of optimizing organizational structure and governance.13 Finally, the government launched Myinfo, a database service that houses personal information collected by multiple organizations. Citizens could use this tool to fill out digital forms. Additionally, the tool provided data to all businesses to encourage digital innovation in the private sector. This is an example of transforming digitally and automating.

As a result of these interventions, as of 2020, service throughput improved, with 94 percent of government services digitalized. In addition, quality outcomes improved, with 85 percent of citizens reporting they were satisfied with government digital services and 80 percent of businesses noting a reduction in digital transaction times.14

As a result of these interventions, as of 2020, service throughput improved, with 94 percent of government services digitalized . . . and 85 percent of citizens reporting they were satisfied with government digital services.

India universal ID

Before 2009, India’s population of more than one billion people used separate identification cards for different public benefits, such as electoral identity cards to vote, permanent account number cards to pay income taxes, ration cards to get subsidized foods, and driver’s licenses.15 The lack of a nationally recognized form of identification made it harder for many people to obtain the government support they needed because each program targeted a specific need and reached only a certain segment of the population.

To address these issues, the Indian government created the Unique Identification Authority of India (UIDAI). The authority oversees Aadhaar, a unified ID system focused on three elements to improve productivity. The government simplified the process to receive benefits by eliminating the need for multiple identification cards; instead, the system employs biometric verification, an example of enhancing processes. In addition, the development of the UIDAI facilitated centralization of enrollment in the digital ID program, thereby consolidating support services. Finally, to roll out universal IDs across the country, the government developed extensive IT systems to house and process all the data received, an example of transforming digitally and automating.

As of December 2021, more than 99 percent of Indian adults were enrolled in the program.16 With regard to cost efficiency, in 2018, UIDAI reported that the Indian government had saved 90,000 crore ($12.4 billion) since Aadhaar’s inception.17

In our survey of government leaders, less than 40 percent reported some level of success in implementing the levers to improve productivity.18 This underscores the critical importance of more-effective governance, refined change-management practices, and the need for clearly defined goals and KPIs. When the leaders were asked about the decisive factor in the success or failure of implementation, the most commonly reported was the level of commitment exhibited by the respondent’s senior leadership.

For many years, government decision makers, organizational leaders, and researchers have discussed—and largely dismissed—capturing productivity improvement opportunities in government. The case studies cited in this article show that measuring and improving productivity in government is possible, although not as straightforward as in the private sector. To improve the likelihood of success and ensure long-term, sustainable change, it is important for government leaders to identify and employ key productivity levers. If this process can become more systematic, government organizations could capture valuable productivity gains that result in not only cost savings but also, more important, a more satisfied citizenry.

This article is the third in a series on the US government’s productivity improvement opportunity.

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