Presentation of eG4M, Italy

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					Measuring the socio- economical returns
   e
of - Government: lessons from eGEP

       First LOG-IN Africa Methodology Workshop,
       8 –10 June 2006, Tangier Morocco



            Dr. Andrea Gumina, PhD
   Project Leader, eGov@luiss - Luiss Business School
                     CEO, NExTT
               a.gumina@methisgroup.it



                                                        1
Definition of e-Government
 eGovernment refers to a deep ICT-enabled transformation process,
 which could take place within the Public Sector and with reference to
 its relations with stakeholders. Such a process is the outcome of a
 correct mix among re-organisation, human capital empowerment and ICT
 solutions.
 The main goal of the eGovernment is to act on effectiveness and
 efficiency of Public Administrations, while an indirect objective is to
 transform the entire corpus of relationship within a Knowledge
 Society.To do so, a number of mechanism should be put in place, in
 order to assure the diffusion of the induced innovation and technical
 progress at all levels.
 It stems from this, that a number of activities should be put in place by
 Public Sector: some are regulatory, some others refers to policy issues.
 They should all purse to make progress generated within the Public
 Sector, real and lasting at a Society-level.
 As a result, eGovernment should act as a multiplier on productivity and
 growth, becoming a powerful driver for socio-economic development.


                                                                         2
Measuring the main aims
of LOG-IN Africa
 Three issues of LOG-IN Africa seem to imply a measurement effort:
    It will assess the current state and outcomes of e-local governance
    initiatives in Africa, and in particular how ICTs are being used to realize
    good local governance at four levels: a) the internal organizational processes
    of local governments; b) the provision of information and service delivery; c)
    the promotion of the principles of good governance; and d) public
    participation and consultation.
    It will generate modular “outcome assessment framework”, with specific
    indicators linked to a conceptual framing of the characteristics of “good
    governance”, will be developed.
    Finally, the Network will generate research findings contributing to more
    effective policy making and implementation in e-local governance in Africa.
 Main fields to measure refers to socio-economic impact of
 eGovernment, as well as to the investment returns of the investment
 made / to be made




                                                                                 3
A Socio-Economic View of e-Government
makes measurement mandatory

 Scarce financial resources, needs to be
 effective in policy making and to
 produce value for stakeholders, make
 measurement and monitoring activities
 mandatory.
 Furthermore, they are going to be
 considered as investments themselves,
 rather than as expenses.

                                           4
The eGEP Model: basic tenets
                                            Smith’s Effect
                                            Smith’s Effect
       Back-office
       Back-office                                                                      Ricardo’s
                                                                                        Ricardo’s
         Effect
         Effect                                                                          Effect
                                                                                          Effect

                                              Labour
                                            productivity
                                               (π )PS




        Take-up
        Take-up                                                                   Investment Led
                                                                                   Investment Led
         Effect
         Effect                                                                        Effect
                                                                                       Effect



   ∧            ∧       ∧             ∧
                                                           ∧          ∧
                                                                                          
  π PS ,t   = b Y PS + cW PS ,t − n − P egov ,t − n  + d  LPS ,t + ASCU t −1 + ASVU t  +
                                                    
                                                                                      
     ∧              ∧             ∧              ∧
                                                                     ∧     ∧   ∧
  + e E hw,t − jn + E sw,t − jn + E cp ,t − jn + E tp ,t − jn  + f (ht + rs + li )t
                                                              

                                                                                                    5
      Economic Model
                                  Tangible financial
                                        gains
                   Efficiency
                                 Measurable side of
                                 back-office effect

                                      Combined         Increase in     Increasein
                                      efficiency-       pub. sect.      pub. sect.
                                    effectiveness:     productivity   Share of GDP
   eGOV                           •Increased output
                 Effectiveness
investments                         •New Services                                      GDP
                                   •Increased User
                                         Value                                       GROWTH

                   Take up &
                  connectivity


              eGovernment leads to increased public sector labour productivity,
               which in turn, contributes to a number of intermediate outcomes
                   (better services, cost savings, etc), and to GDP growth
                                                                                       6
The “Smith’s Effect”
 In the private context, the “Smith effect” takes into
    account how the growth of market/specific sector
            influences the labour productivity.



 The adaptation to the Public Sector is based on the
    assumption that the introduction of eGovernment
 increases the supply capacity of the Public Sector and
 that all services produced are also demanded by users.



                                                         7
The “Ricardo’s Effect”
In the private context, the “Ricardo’s effect” shows how an
    increase in the spread between wages and the price of
technology (machines) pushes businesses to gain productivity,
    through a substitution process between technology and
                          employees



The adaptation to the public sector implies a reformulation:
 when the cost of innovation compared with that of personnel
   decreases, it can be efficient to partially substitute and
 partially integrate the latter with a wide implementation of
                     eGovernment services

                                                           8
The “Schumpeter’s Effect”

  The characteristic element of this component is the
      consideration of ICT investments and related
    aspects: consulting, training, hardware, software,
                            etc.


The impact of such innovations (as new innovations replace
   the older ones) generate an increases in productivity,
                      after a time lag




                                                         9
Other Effects
Back-office reorganisation effect is connected to the
    difference between the cost of delivering a given
 service and its perceived value. If this cost grows, it is
      necessary to modify the delivery organisation
           influencing by this way productivity


 Take-up effect : the more the social environment is
  “receptive” (e.g. because of a wide ICT diffusion, or
 because of a broad, deep- r              e ervices) the
                             ooted use of - s
 more eGovernment increases public sector productivity


                                                         10
 Model testing by macro variables
        Economic Model                               Variables                    Sources
ALP = Average Labour Productivity   output /full-time equivalent employees        Eurostat
PS = Public Sector Share            general government output as % GDP            Eurostat

“Smith’s Effect”
Y= Market Dimension                 general government output                     Eurostat

“Ricardo’s Effect”
W = Cost of staff                   general govt. employees compensation          Eurostat
K = Cost of capital equipment       price index of gen. govt. goods investments   Eurostat
“Schumpeter’s Effect”
H = Cost of hardware                            Estimated expenditure
S = Cost of software                            Estimated expenditure              eGEP
C = Cost of consulting                          Estimated expenditure
T = Cost of Training                            Estimated expenditure
“Investment Effect”
I= Investment                       gross fixed capital formation of gen. govt.   Eurostat



                                                                                       11
Two versions tested
   Two forms of our model: one based on growth
    rates (labelled “A”), and one based on absolute
                      values (“B”)




    A. ALP = a + bY + cW + dK+ eI+ fEGOV
    B. ALP = a + bY + cW + dK+ eI+ fEGOV


 Based on data for 20 countries: Austria, Belgium, Czech Republic, Denmark,
 Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands,
 Norway,Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, United Kingdom; data
 for the period 1999-2005

                                                                                    12
Results (sign of coefficients)
           Effects             Variabl         Equation         Equation “B”
                                 e               “A”
   Smith’s Effect                Y                +*                   +*
   Ricardo’s Effect
                                   W              ++*                 ++*
                                   K               -                   +
   Schumpeter’s
   Effect                         I                +*                  +*
                                eGOV               +*                  +*
   (*) Coefficient significantly different from 0 at 95% confidence level
   Note:
   a)   Constant prices variables (Y,I, eGOV) expressed in millions of Euro,
        baseline year 2000.
   b)   Equation “A” was fitted by a Fixed-Effects Panel model (68 observations),
        Equation “B” was estimated with the “Arellano-Bond” technique (68
        observations).
                                                                                    13
Model Projections
                  eGovernment
        Impact of eGovernement on Average Labour Productivity (ALP)
                2005               2006                2007       2008         2009          2010
“A”             0,69%
                1.93%              0,73%
                                   1.67%               0,80%
                                                       2.04%      0,35%
                                                                  0,00%        0,16%
                                                                               0,00%         0,07%
                                                                                             0,00%
“B”             1.44%
                0,76%              0,62%
                                   1.39%               1.70%
                                                       0,59%      0,09%
                                                                  0,31%        0,14%
                                                                               0,05%         0,03%
                                                                                             0,06%


                                 Graph 2.1 Projected GDP growth

1,00%

0,90%
                                                                         Cumulative
0,80%

0,70%
                                                                         contribution to
0,60%

0,50%
                                                                         EU-25 GDP growth
0,40%

0,30%
                                                                         within 2010
0,20%

0,10%
                                                                         “A”: 2,06%
0,00%
         2005   2006      2007         2008        2009   2010
                                                                         “B”: 1,36%
                 dGDP B                       dGDP A                     (with e-Procurement, without
                                                                         back-office and take-up effect)
                                                                                                           14
Main problems about data
relevation
 Measuring perfomance recquires fresh and
 adequate micro-data
 Data collecting should be easy and cheap for
 PAs, in order to be as frequent as possible
 Data should be collected and processed with a
 strong attention to the local level
 Processing methodology should be clear and
 agreed among Public Sector’s representatives.

                                             15
Main findings and policy reccomendations from
the eGEP methodology

   Increase both the efficiency and the
   effectiveness of eGovernment inside Public
   Administrations with reference to their main
   stakeholders (policies 1 to 4);
   Promote the dissemination of specific tools to
   measure performance, together with a favourable
   cultural background (policy no. 5);
   Set-up a number of complementary policies, in
   order to foster the “take-up” effect, and finally
   promote productivity and growth.


                                                   16
Policy no. 1:
To share eGovernment goals
 Focusing every eGovernment project on front-office as well as
 on back-office, paying much attention both to the deployment of
 easy-to-use services and to the setting up of productivity-
 sensitive policies, such as those for general and specific training
 or re-organisational issues.
 Promoting a favourable scenario, where social, economic,
 financial, legal and institutional issues play a major part in
 overall local growth when adequately oriented.
 Defining an operational measurement framework, which also
 favours the establishment of comparative benchmarking and
 prizing processes.




                                                                   17
Policy no. 2: To guide eGovernment towards
shared objectives.
 The promotion of a horizontal eGovernment.
 A review of eGovernment vertical policies.
 Specific principles, linked to technical features.
 The promotion of both a user-centred and a locally-aimed eGovernment. Due
 to budget constraints, eGovernment policies should not be oriented only to local
 growth, but should also take into account user needs. As a consequence, further
 implementation should be based upon a number of subjective and objective
 priorities, combining the need to satisfy user needs and the opportunity of
 realising programmes which refer to the true needs and potential of local areas,
 such as macroeconomic entities. This would lead to a progressive deployment of
 eGovernment projects, following different priorities in different areas, maybe
 not homogeneous, thus giving measurement, monitoring and fine tuning activities
 a sharper and more effective meaning, in the light of promoting sustainable and
 lasting local growth.
 The promotion of specialisation within the Public Sector. Horizontal and
 pervasive eGovernment should benefit from a higher degree of local
 specialisation within different branches of Public Administration (if accompanied
 by perfect interoperability), rather than from an indiscriminate upgrade of
 organisational issues within the entire Public Sector. However, in general, the
 size of single may find it more useful to identify and promote such economies
 internally, smaller administrations may find outsourcing to be a smarter and
 more suitable solution.

                                                                                18
Policy no. 3: To favour a performance-
friendly environment within the Public Sector

 Accelerating the shift from evaluation to performance rewarding.
 Together with a mandatory measurement approach, performance should
 be linked to a “prizes and penalties” mechanism. Public Administrations
 do not have strong incentives to set particularly ambitious objectives
 and to try to achieve them. This could lead to vicious circles: an adverse
 selection mechanism could take place, where establishing goals that are
 too ambitious could mean risking not reaching them. The only way to
 break these vicious circles is to ensure strong financial and career
 incentives linked to performance for both personnel and public
 managers.
 Working against motivational crowding out.
 Fostering the adoption of reforms that encourage performance
 measurement. Finally, such a framework requires regulatory and
 legislative ad hoc reform promotion: this refers, for instance, not only
 to the above-mentioned “prize and penalty” mechanism, but also to
 guaranteeing mandatory performance measurement, and linking
 legitimisation of policy makers’ decisions to e-democracy tools.


                                                                         19
Policy no.4: To create a friendly
financial framework for eGovernment

 Let Administrations invest, if useful.
 Reward the best Administrations and
 Organisational Units.
 Invest Cost Savings.




                                          20
Policy no. 5: To make performance
measurement mandatory
 Define a homogeneous road-map. The entire Public Sector will certainly not increase its
 eGovernment readiness unanimously; however, it is necessary to define a clear and
 homogeneous road-map for such a complex transformation, with precise features and goals.
 Otherwise, the general enhancement of the Public Sector will be poor and eGovernment
 could be jeopardized. Moreover, if performance measurement aims to affect the budget
 (negatively or positively), more attention should be paid to the definition of a general
 benchmark.
 Define a clear, homogeneous and simple measurement framework. Measurement tools
 should be easy to handle and use, but also as complete and effective as possible, in order to
 minimize any “coordination cost” that may arise. Furthermore, as more e-services gradually
 become ICT-enabled, the administrative burden to measure use, efficiency and satisfaction
 should decrease. In this case, even a limited “measurement effort”, in absolute value, could
 be considered a substitute for the introduction of a more advanced eGovernment.
 Local matters. We believe that eGovernment will spread its effects on growth and
 performance especially at local level, and that the measurement framework should take this
 feature into account: an adequate observation scale should be achieved (i.e., NUTS3 areas).
 Indeed, internal measures could be aggregated in order to allow a comparison with external
 effects: this is a must when a prize/penalty framework is to be set up.
 Measure the effort and the gap. History matters, especially if budgetary cuts or gains
 depend on performance measurement. In this light, it becomes compulsory not only to take
 into account the effort and the results, measuring the period-by-period differences, but
 also to bear in mind the remaining gap and the absolute values of such efforts. Otherwise,
 the observation of political and administrative commitment may be distorted.



                                                                                             21