Digitalization strategy for countries (using Germany as an example)

In course of the formation of a new Federal Government following the German Bundestag elections on September 24, 2017, various interest groups in Germany have called on the Grand Coalition to set up a „Digital Ministry“. I have taken this as an opportunity to develop a high level concept, which illustrates how the digital transformation of a country could be effectively organized in the dynamic era of digitalization and globalization, where speed and agility are essential, and which major topics should be included and considered in the digitalization strategy of a country.

The original blog was published on February 16, 2018, in German language under the headline „Digitalization Strategy for Germany“ (see: https://kubraconsult.blog/2018/02/17/digitalisierungsstrategie-fuer-deutschland/). Since it comprises comprehensive facts and figures, which are specific for Germany and therefore do not apply to most other countries, I decided not to translate the German version one to one into English, but to write new version instead, which is more generic and adaptable for other countries. However, I will utilize many examples from the German version for illustration purposes. For translation of the embedded links to German newspaper articles please use e.g.: http://itools.com/tool/google-translate-web-page-translator.

Overarching laws, rules and regulations

Germany is a member of the European Union (EU) and has to comply with EU laws, rules and regulations. With regard to „digitalization“ there are various EU agendas and EU programs, which have to be considered by the digitalization strategies of the EU member states, e.g.:

• The „Digital Agenda for Europe 2020“, which is part of the „Europe 2020 Strategy“ – both released by the European Council already in 2010 (see: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/framework/europe-2020-strategy_en).
• As a further development of the „Digital Agenda for Europe 2020“, the EU Commission presented in 2015 the „Strategy for a digital single market for Europe“(see: http://europa.eu/rapid/press-release_IP-15-4919_en.htm).

These examples are good insofar as they illustrate two major challenges: On the one hand overarching laws, rules and regulations, a country has to comply with, may be outdated (three or even eight years is a very long period of time in a dynamic industry such as the IT and telecommunication industry). On the other hand the overarching laws, rules and regulations in a federation such as the EU usually are designed for the „average water temperature“ of the entire Union across all countries and unfortunately Germany is not really comparable with Malta or Luxemburg with regard e.g. to economic power, number of citizens, or area size and the resulting requirements for the digital transformation.

Organizational environment and scope of Digitalization

The question of whether a „digital ministry“ makes sense or not can of course not be answered independently of the organizational logic of the other Federal Ministries in the Federal Government of a country. In addition, parameters such as the number of persons employed in the public administration and the volume of total public budgets (revenues, expenditure) must also be taken into account.

In case of Germany, 489,460 persons were employed in 2016 in the public administration at federal level, 2,364,095 at state level, 1,464,410 at municipal level and 371,055 in social security organizations – in total 4,689,020 employed persons. Not to be forgotten are subcontractors and external consultants commissioned by the public administration, who are not part of the above-mentioned employment figures.

According to the German Federal Statistical Office, the total public budget in Germany in calendar year 2016 comprised expenditures of €1.326142 trillion and revenues of €1.351851, which translates into approx. 42% of the German gross domestic product of € 3.14405 trillion. In the following I will focus on federal level to keep my considerations as simple and comprehensible as possible.

The public administration of the Federal Republic of Germany, with 489,460 employees, expenditures of €362.651 billion and revenues of €376.645 billion, has the the size of a large corporation. According to the German Federal Statistical Office, the work of the public administration (e. g. laws, decisions, services) affects 82.6 million inhabitants in Germany (including 40.8 million male and 41.8 million female inhabitants, 9.2 million foreigners and 18.6 million citizens with a migration background) who live in 41.0 million households (see: https://www.destatis.de/EN/FactsFigures/SocietyState/Population/Population.html). In 2016 of the 82.6 million inhabitants in Germany, 45.4% earned their living by gainful employment, 26.3% lived predominantly from pensions, 24.7% were predominantly provided for by relatives and 4.2% were dependent on unemployment benefits.

As already mentioned, the public administration of the Federal Republic of Germany has at federal level the dimension of a large corporation. Large corporations usually organize their corporate headquarters in a structure with functions such as Strategy & Development, Finance, Human Resources, Purchasing, IT, Corporate Communications, Research & Development and Legal & Compliance.

The organizational logic of the Federal Government and its federal ministries in Germany is completely different, as shown in the following graphic from Wikipedia (see: https://de.m.wikipedia.org/wiki/Bundesministerium_(Deutschland)). A total of 14 federal ministries – in addition to the Federal Chancellery – are listed there for the expired legislative period from 2013 to 2017:

 

Although German Chancellor Angela Merkel has declared the subject of „digitalization“ to be a „top priority“ in Germany, there is currently a great confusion of competences between the ministries, as shown by a reply from the Federal Ministry of Transport and Digital Infrastructure (BMVI) to a request from Green member of parliament Anna Christmann, on which the German „Tagesspiegel“ reported on February 26, 2018 (see: https://www.tagesspiegel.de/wirtschaft/digitalisierung-kompetenzgerangel-um-die-chefsache/21006554.html). According to the BMVI, a total of 482 employees in 14 federal ministries are working on digital issues in 244 teams in 76 departments.

Now, a country is not one to one comparable with a company, but on the other hand there are similarities between the tasks of a government and those of a board member – not least because both have to make decisions that affect a large number of people, because both have to carefully deal with money (taxes, investors‘ capital) or because both have to successfully develop their area of responsibility (state, company) in a sustainable manner with a long-term focus.

The question must therefore be allowed why a country like Germany needs 14 ministries with 24 levels distributed over „higher“,“upper“,“middle“ and „simple“ service, and why there is no such thing as a ministry for „Strategy & Country Development“ in this organizational logic, nor is there a ministry for „Digitalization“ (with comprehensive responsibility beyond Digital Infrastructure)?

Neither can a German Chancellor effectively run a government comprising 14 ministers, nor can a chairman of the board of directors effectively manage a 14-member executive committee. It should come as no surprise that in such an organisation, the decision-making processes are elaborate, inefficient and slow (due to protracted interdepartmental coordination, among other things).

But what could a tighter, more efficient organizational logic for the federal level look like? Well, for example by aligning ministries and tasks on the one hand with target groups (citizens, other states) and on the other hand differentiating between sovereign and infrastructural tasks, which leads to the following exemplary proposal:

• Federal Chancellery including Strategy & Country Development
• Civic Ministry (comprises all essential tasks that have a direct influence on citizens/families): Work&Social Affairs, Education, Family, Youth, Women, Senior Citizens, Health, Nutrition and Consumer Protection
• Ministry of Foreign Affairs & Security (comprises all essential tasks in dealing with other states): Federal Foreign Office, Development and Defence
• Ministry of sovereign Steering & Controlling: Finance, Procurement, Justice and Home Security
• Ministry of Infrastructure: Economy, Research&Development, Digitalization, Housing, Transport, Energy, Energy, Nuclear Safety, Environment, Nature Conservation, Agriculture

It is certainly possible to discuss this exemplary proposal and the allocation of individual ministries in a splendid way, but that is not the essence of the matter at all. Instead, I would like to stimulate a discussion on how encrusted, historically grown structures can be broken up and adapted to the requirements of the 21st century (agility, flexibility, speed).

Digitalization Strategy for a country using Germany as an example

This would have brought us to the actual subject of this blog, namely the digitalization strategy for a country, which, like any functional strategy, must be derived from the medium- to long-term goals for the overall development of the country and should also take into account the considerable potential of information and communication technology as an enabler. Infrastructure and education of citizens should be understood by a Federal Government as strategic assets/levers, which need to be systematically developed and protected in the interest of national wealth, wellbeing and security.

A digitalization strategy for a country should cover at least the following elements:

1. Assignment of clear and unambiguous responsibilities for Strategy&Country Development and Digitalization at Federal Government level
2. Development of Infrastructure with modern, efficient and secure information and communication, energy, and transportation networks
3. Develop digitalization competence of citizens, parliamentarians, Federal Government and employees working in the public administration
4. Strategic investments in research and development for key technologies with significant socio-economic impact and potential including generous funding of startups with digital business models and particularly platform business models
5. Effective protection of citizens‘ privacy, corporate intellectual property and the internal and external security of the country (including decentralized energy networks, transportation networks with connected cars, hospitals and utilities etc.) against espionage, sabotage and cyber attacks (e.g. by setting up a Cyber Security Competence Center)
6. Creation of practicable and robust legal bases for the use and exploitation of innovative key technologies (e. g. autonomous driving, care robots) and a tax system in which digital business models (e. g. digital platforms or factories largely without employees) are adequately taxed
7. Protection of key technology providers with relevance for the country’s wealth, wellbeing and security against takeover by foreign companies, e.g. by means of a „Sovereign Wealth Fund“, which finances strategic investments of the state at home and abroad and which creates an effective instrument for the participation of citizens in productive assets
8. Definition of standards and norms (e.g. protocols and APIs) to ensure interoperability and security e.g. in the Internet of Things
9. Digital transformation of the public authorities‘ processes including implementation of electronic workflows, efficient and user-friendly procedures for the secure identification&authentication of citizens and access to eGovernment self-services in a citizen portal accessible via smartphones, notebooks, desktops
10. Utilization of innovative technologies such as Blockchains to convert e.g. vehicle registration, land registries or residents‘ registers to a modern technical basis and to provide secure eVoting services and a state-owned cryptocurrency

Again I will utilize Germany in the following as an illustrative example for the necessary considerations to develop a digitalization strategy for a country.

With a gross domestic product of €3.263 trillion (USD 3.651 trillion), Germany was in 2017 (still) the fourth strongest economy in the world, however, in the long term, Germany will not be able to maintain this position due to the faster growth of populous emerging markets such as India, Indonesia, Brazil, Russia and Mexico and the opposite demographic trend in Germany, and is likely to be the ninth strongest economy in the world by 2050.

Today, Germany’s prosperity and economic development depend to a large extent on foreign trade: In 2017, Germany exported €1.279 billion worth of goods and imported goods worth €1.035 billion. According to the Federal Statistical Office, German exports in 2017 were thus 6.3 % higher than in 2016, and imports 8.3 % higher than in 2016. Exports of the four largest product groups (vehicles and parts, machinery, chemicals and computers, electronic and optical products) account for about 50% of total German exports in value. The seven main export product groups (including electrical equipment, pharmaceuticals and similar products and other vehicles) cover more than two thirds of all German exports (see: https://kubraconsult.blog/2019/07/04/germanys-performance-as-export-nation-facts-and-key-success-factors/).

In order to survive in global competition with other nations, German companies must maintain their ability to develop and produce high-quality high-tech investment goods, but also acquire a leading role in the development of key technologies that will fundamentally change the country’s economy and society in the coming years and decades (see: https://kubraconsult.blog/2017/03/17/the-socio-economic-consequences-of-digitalization/).

These include among others:

• The digital platform economy, in which platform companies from the USA (Google, Apple, Facebook and Amazon) and China (Alibaba, Tencent, Baidu) are by far the leaders today (see: https://kubraconsult.blog/2017/11/04/digital-business-models-and-platform-economy/).
• Digitalization and Automation, e. g. by means of robots/drones with artificial intelligence, whose performance capability will be enhanced in the future by Quantum Computing, with the result that millions of jobs will be replaced in the medium term not only in production but also in service professions (e. g. sales staff, consultants, nurses and geriatric nurses, drivers).
• Electric Mobility in combination with CarSharing and Autonomous Driving (or electric powered aircrafts with autonomous control and vertical take-off and landing capabilities – see: https://kubraconsult.blog/2017/11/18/flying-instead-of-driving-electric-cars-are-not-the-best-solution/).
• Increasing networking of different areas of life, such as the „Internet of Things“, of buildings or vehicles as well as energy supply (with a large number of decentralised renewable energy sources).
• IT security risks resulting from this increasing networking (e. g. blackouts in energy supply, identity theft, cyber terrorism).
• Blockchain technology with its effects e. g. on the financial industry by eliminating intermediaries (e. g. banks, insurance companies).
• Virtual or augmented reality or 3D printing.

The need for action for the German government is significant: According to a study provided by the management consultancy Accenture from 2014/2015, in a cross-comparison of 17 national economies, Germany came in at a mediocre 9th place in terms of digitalization – just ahead of China, which is developing rapidly due to its dynamic growth (see: https://www.welt.de/wirtschaft/article138456261/Warum-Deutschland-nur-digitaler-Durchschnitt-ist.html).

 

The Netherlands, followed by the USA, Sweden and South Korea, were the countries with the most digitalization progress. India, Italy and France were the least prepared for future technological developments.

The authors saw a lot of catching up to be done by Germany in many areas of business. Above all, they criticized the fact that, so far, hardly any other industry has had remarkable digital business models coming from Germany. Highly successful digital business models such as Google, Amazon or eBay all originated in the USA. Even the emerging market of China, with the online retailer Alibaba or the search engine Baidu, has produced Internet giants.

According to the Accenture study, Germany also performed not too good in a comparison of the underlying conditions. The authors wrote that there are weaknesses above all in the infrastructure and in the rules for the digital economy. In all major European economies, the supply of broadband Internet and mobile Internet was better than in Germany. This situation is unlikely to have fundamentally improved in the last 4 years.

The German Federal Government must therefore invest heavily in modern infrastructures as strategic asset for the country’s future development in order to effectively support German companies in the urgently needed transformation into the age of digitalization, e. g. by providing broadband networks, 5G mobile phone networks, WiFi hotspots (e. g. in public facilities and means of transport), energy supply networks, but also efficient and intelligent transport infrastructures (roads, airports, ports). Care must be taken to ensure that rural areas are adequately supplied.

The Federal Government’s tax revenues in Germany have risen from €190.0 billion in 2005 to €300.0 billion in 2017, i. e. by 58% within 12 years, with an upward trend. In addition, according to calculations by the Deutsche Bundesbank, the German government had to pay a total of €290.0 billion less for interest rates since 2008, i. e. since the beginning of the financial crisis and the start of the low-interest policy, than before the financial crisis. In 2017 alone, the German government’s interest savings amounted to a total of € 50.0 billion (see: https://www.welt.de/print/welt_kompakt/print_wirtschaft/article172403133/Vergiftetes-Zinsgeschenk. html). An end of the economic growth phase cannot be foreseen at present, but the next financial and Euro crisis is as certain as the Amen in the church. If not now, when should Germany invest in its future?

As a flanking measure for the establishment and development of modern infrastructures, start-ups in the field of innovative key technologies – in particular start-ups with digital business models – should be supported by generous funding programmes and the provision of risk capital.

The Federal Government must also help German companies to reduce their dependency on information and telecommunications technology (e. g. processors, hardware, operating systems, application software, network components, satellites, cloud solutions, social media) from the USA and Asia and the resulting risks to citizens‘ privacy (threatened e.g. by digital platform enterprises) and corporate intellectual property (threatened e.g. by hackers and foreign intelligence services). It is a matter of national security to adequately and effectively protect information and communication systems and networks, energy networks or transportation networks against espionage and sabotage. The threat caused by backdoors in hard- und software components should not be underestimated in this context. More detailed background information on the related risks can be found here: https://kubraconsult.blog/2017/08/20/how-the-us-government-discredits-the-us-american-it-industry/ and here: https://kubraconsult.blog/2017/04/25/thy-spy-in-your-pocket/.

Not least for this reason, I consider the statements made by EU Digital Commissioner Mariya Gabriel in an interview with the German Frankfurter Allgemeine Zeitung (FAZ) on October 29, 2017 to be a disastrous misjudgment: „The Internet has been dominated for years by companies from Californian Silicon Valley. Time and again, the demand has been voiced that the EU should create European counterbalances to Google, Apple or Facebook and build up European champions in a targeted manner. EU Digital Commissioner Mariya Gabriel has given a clear rejection. We should not waste our energy trying to copy the success of others, the Bulgarian said in an interview with this newspaper. „We don’t need a European Google, we need to focus on our own ideas and innovations.“ There was no reason for the EU to freeze in awe. „In fields such as nanorobotics, security chips and the digitalization of automobiles, we’re tops.“ It’s just not that visible.“ (see: http://www.faz.net/aktuell/wirtschaft/diginomics/mariya-gabriel-im-interview-kein-europaeisches-google-15266391.html).

Digitalization is also changing the threat posed to war and terror, so that for example, not the nations with the most powerful armed forces and the most innovative and dangerous weapons systems will be dominant, but the nations with the best cyber-warfare capabilities. Such capabilities can also be developed by nations or so-called non-governmental organisations (NGOs) with limited financial and economic capacities (see: https://kubraconsult.blog/2017/06/11/the-digital-disruption-of-warfare/). Since high-calibre specialists in this field are very rare and expensive, the police, criminal investigation departments (both at federal and state level), the German Bundeswehr (incl. the Command Special Forces) and secret services in Germany should pool their resources in a joint „Cyber Security Competence Center (CSCC)“, which needs to be rather generously than adequately funded by the German Federal Government („think big“).

European initiatives for the rapid definition of standards and norms to ensure interoperability and security on the Internet of Things (e. g. protocols, interfaces, updateability) should be promoted, taking into account the specific strengths of European providers. Necessary legal bases for the use of innovative key technologies (e. g. autonomous driving) must be created quickly and proactively. The sluggishness of the EU bureaucracy is a considerable disadvantage, because speed is an important success factor in these dynamic markets of the future and Germany, as the leading economy within the EU, has to lose the most out of all EU member states.

At the same time, as many citizens as possible in Germany, irrespective of their social background, must be enabled to achieve the highest possible level of education. The development of skills in the use of key technologies must be systematically imparted in schools, universities and other educational institutions. In addition, high-quality offers for continuous on-the-job training should be made available, for which the German Federal Government must create adequate framework conditions.

Every German citizen should be given access to digital services via stationary and mobile devices (smartphones, notebooks, desktops). All administrative services should be offered online via a citizen portal – wherever possible as user-friendly eGovernment self-services, so that administrative procedures with hours of waiting time can be dispensed with.

For this purpose, efficient and user-friendly procedures for the secure identification and authentication of citizens (electronic identity card, health card) must be provided in connection with possibilities for the area-wide, secure, encrypted electronic communication between citizens and public authorities. The electronic ID card already exists, but it must be made much more user-friendly and established for all essential applications. The latter also applies to the POSTIDENT procedure using video chat (see: https://www.deutschepost.de/de/p/postident/identifizierungsverfahren/verfahren-videochat.html), which works wonderfully in practice, as I have already noticed on several occasions.

Processes within public authorities should be implemented exclusively via electronic workflows, so that paper files, paper documents and letter post become superfluous in the medium term. How can it be that German courts and authorities still work with paper files in the 21st century and that communication with these institutions via letter mail functions sometimes faster and more reliably than via electronic communication media?

In the medium term, vehicle registration, land registry or residents‘ register should be converted to Blockchain technology. Blockchain technology could also be used as a basis for providing secure eVoting services and a state-owned cryptocurrency as fallback solution for the faulty constructed Euro currency.

Information security and data protection, as well as environmental compatibility and sustainability, should not be barriers to innovation, but should serve as quality characteristics and quality marks for European companies, particularly in competition with companies from the USA and China.

In my blog „The socio-economic consequences of digitalization“ published on March 17, 2017 (see: https://kubraconsult.blog/2017/03/17/the-socio-economic-consequences-of-digitalization/) I had already stated that digitalization and automation also raise important social issues, in which the legislature must act as an innovative pioneer and create practicable and resilient legal bases at an early stage, such as e. g:

• „How can we provide workers whose jobs are taken over by intelligent robots with new, meaningful occupations?“
• „Where does the state get its tax revenues from when workers are replaced by intelligent robots (keyword: robot taxation)“?
• „In an increasingly digitalized world, how can one still distinguish between truth and untruth (keyword: Fake News)?
• „How will humanoid, intelligent robots affect interpersonal relationships (keyword: care robots)?

The following statistics chart shows the top 25 occupations of the 634 parliamentarians of the 18th German Bundestag (legislative period from 2013 to 2017). The top 25 occupations cover 471 out of 634 parliamentarians, which corresponds to about three quarters of the total (see: https://de.statista.com/statistik/daten/studie/36615/umfrage/berufe-der-bundestagsabgeordneten-16-wahlperiode/):

Among the top 25 occupations of the 634 parliamentarians in the 18th German Bundestag there are no computer scientists, just 6 mathematicians, 8 engineers and 19 natural scientists (chemists, physicists, biologists). On the other hand, there were 136 lawyers, 48 political scientists, 46 economists, 23 grammar school teachers, 21 administrative specialists and 20 social workers and social pedagogues.

In the new 19th German Bundestag, the average age of the meanwhile 709 parliamentarians is 49.4 years; the youngest fraction has the Liberal Party (FDP) with an average age of 45.8 years, the oldest the Alternative for Deutschland (AfD) with 50.7 years (see: https://www.merkur.de/politik/bundestagswahl-2017-groesser-maennlicher-rechter-zwoelf-fakten-zum-neuen-bundestag-zr-8799137.html).

Far be it from me to deny lawyers, political scientists, high school teachers or the baby boomers the ability to understand innovative developments or even the ability to think and act innovatively; I was born in 1964 and still work as a Digital Business Innovator and Interim Chief Technology Officer. That is precisely why I know, however, that digitalization competence does not fall from the sky, but must be systematically and meticulously developed. And so I wonder who makes sure that the members of the German Bundestag, the members of the Federal Government and the remaining approx. 488,825 employees working in the ministries are adequately trained and qualified for such future topics?

Conclusion

The public administration of the Federal Republic of Germany, with 489,460 employees, expenditures of €362.651 billion and revenues of €376.645 billion, has the size of a large corporation. The existing organizational logic with the Federal Chancellery, 14 ministries and 24 levels distributed over „higher“,“upper“,“middle“ and „simple“ service is to be simplified in the interest of greater agility, flexibility and speed, e. g. by focusing on target groups (citizens, other states) and differentiation between sovereign and infrastructural tasks. In particular, the responsibilities for Strategy&Country Development and Digitalization are clearly and unambiguously to be assigned in this new organisational logic.

In order to maintain the level of prosperity in Germany and to survive in global competition with other nations, German companies must maintain their ability to develop and produce high-quality high-tech investment goods and also play a leading role in the development of key technologies (e.g. digitalization (particularly digital platforms), automation, robotization, artificial intelligence, quantum computing, electro-mobility, Internet of Things, cybersecurity, blockchains, virtual and augmented reality, 3D printing), which will fundamentally change the country’s economy and society in the coming years and decades. In the digital platform economy, the field should not be left to companies from the US and Asia without a fight, but European digital platforms should be built that respect the privacy of citizens and the intellectual property of companies.

The German Federal Government must make use of the financial leeway created by high tax revenues and high interest savings on public debt in order to support the digital transformation of the German economy and society from mediocrity to world leadership. Above all, massive investments in infrastructure and education, the creation of practicable and resilient legal frameworks for the use and exploitation of innovative key technologies and the comprehensive digitalization of public administration (including citizen portals and eGovernment self-services) – including the comprehensive provision of procedures for identification and authentication as well as secure, encrypted electronic communication between citizens and public authorities – are necessary.

In addition, innovative technologies such as Blockchains should be used to convert vehicle registration, land registries or residents‘ registers to a modern technical basis and to provide secure eVoting services and a state-owned cryptocurrency. Business start-ups (startups) in the field of innovative key technologies – in particular start-ups with digital business models – are to be supported by generous funding programmes and the provision of risk capital.

The dependence on information and telecommunications technology from the USA and Asia is to be reduced and security and defence capabilities of the country were to be improved by pooling resources from the police, criminal investigation departments (both at federal and state level), the German Bundeswehr (incl. Command Special Forces) and secret services in Germany in a joint „Cyber Security Competence Center (CSCC)“.

In both the executive and legislative branches, the necessary digitalization competence must be built up so that the Federal Government, Parliament and employees of ministries can assume the role of innovative masterminds capable of anticipating and proactively shaping the socio-economic consequences of digitalization.

P.S.: This blog will hopefully make it clear that the digitalization strategy for a country is not only about digital infrastructure such as 5G or fibre optic cable networks, but also about the digialization competence of decision-makers and citizens, about research and development of key technologies, about internal and external security or about the legal framework conditions for the development and use of key technologies (e. g. autonomous driving, care robots).

In this respect, countries do not only need a „Digital Ministry“, but as well at least temporarily a cross-departmental digital transformation project with concrete goals and milestones and adequate resources, which is oriented towards the medium- to long-term goals for the development of the country and should be sensibly led by the Prime Minister’s Office from a department „Strategy & Country Development“.

P.P.S.: These comments on the digitalization strategy for Germany do not claim to be complete, but are intended to give an impression of possible or sensible fields of action. As always, I am grateful for constructive suggestions to add to and improve this blog in the form of comments or news.