How will Internet of Things,

mobile internet, data analytics

and cloud transform public
services by 2030?

techUK Public Services 2030 Conference

4 March 2015

Andrew Goodman, McKinsey & Company

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Governments will need to do more with less over the next decade

Governments must do more… … with less

Macroeconomic Unsustainable debt

vulnerability and burdens driven by
uncertainty healthcare, pension, and
economic stimulus
Demographic changes
mean public services are
evolving as populations age Pressure for public sector
Need for productivity improvement
transformative
Emerging global
innovation in
interconnectivity requires
government Winning the war for top
increased coordination
talent as the workforce
ages and the skilled labor
Increasing public sector market tightens
complexity from cross-
cutting issues
Increasing natural
Rapid technological resource constraints
innovation raises citizens’
expectations

SOURCE: McKinsey Center for Government McKinsey & Company | 1

Twelve potentially economically disruptive technologies

Mobile Internet Next-generation

genomics

Automation of Energy storage

knowledge work1

The Internet of 3D printing

Things

Cloud technology Advanced materials

Advanced robotics Advanced oil and

gas exploration and
recovery
Autonomous and Renewable energy
near-autonomous
vehicles
1 Includes Data Analytics

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 2

By 2025, these technologies could have economic impact in the trillions
$ trillion, annual by 2025 Range of sized potential economic impacts in each category
Impact from other
Low High potential applications
Mobile Internet 3.7–10.8

Cloud technology 1.7–6.2

IT and how we
use it
Internet of Things 2.7–6.2

Automation of
5.2–6.7
knowledge work1

Advanced robotics 1.7–4.5

Machines Autonomous and near-

0.2–1.9
working for us autonomous vehicles

3D printing 0.2–0.6

Energy storage 0.1–0.6

Rethinking Advanced oil and gas
energy comes 0.1–0.5
exploration and recovery
of age
Renewable energy 0.2–0.3
Next-generation
Changing the 0.7–1.6
genomics
building blocks What does this mean for
of everything Advanced materials 0.2–0.5 the public sector?

1 Includes Data Analytics

SOURCE: McKinsey Global Institute analysis McKinsey & Company | 3

AUTOMATION OF KNOWLEDGE WORK - DATA ANALYTICS

Big data has already helped transform several industries in the

private sector

Financial
Services

Regulators make data public at scale

Transaction data enables segmentation, evolution
of highly targeted products

Food /

Government and other players provide reporting
and prediction data and services
agriculture

Innovation (e.g., genetically modified seeds)
bends cost curve and changes playing field

Retail /
grocery

Granular POS data drives changes to
merchandising, marketing

Sophisticated machine-learning algorithms

predict future purchases

SOURCE: McKinsey analysis McKinsey & Company | 4

AUTOMATION OF KNOWLEDGE WORK - DATA ANALYTICS
The relevance of big data in the public sector will hinge on gaining access
to larger datasets in the private sector
Relative size of data processed or stored by
organizations

processes
~24 petabytes
daily

transfers ~19
petabytes over its
networks daily

adds ~12
terabytes daily
< 1 terabyte of
data stored, total

SOURCE: OECD; Twitter; AT&T; Google McKinsey & Company | 5

AUTOMATION OF KNOWLEDGE WORK - DATA ANALYTICS
Example
Application of data analytics in the public sector could Public Sector
help to significantly reduce rates of fraud and error Application

Selected analytical techniques Relevance in the public sector

▪ In 2013 the National Fraud Authority

Text mining estimated that the UK government
loses in excess of £15 billion a year
through tax fraud, and more than £7
billion in expenditure fraud and
Network analysis error through improper payments

▪ The US Government has identified

13 ‘high-error’ programs with annual
improper payments in excess of
Geospatial analysis $750m – some have improper
payments rates in excess of 20%

▪ Several advanced analytics

techniques have been used to
Machine Learning improve compliance and recovery
by insurers, payors and tax authorities

SOURCE: National Fraud Authority; PaymentAccuracy.gov McKinsey & Company | 6

INTERNET OF THINGS
More objects are becoming embedded with sensors and gaining the ability
to communicate – the physical world is becoming an information system
Projected growth in the Internet of Things Key concepts

Billions of connected end-points ▪ The Internet of Things is an ecosystem

includes data sources (sensors) and
other devices embedded in the physical
3.6 world connected by networks to data
visualization and analytic computing
2.9 resources

2.3
▪ Connected end-points in the IoT can
provide information on identity,
location, status, and instructions
1.8
1.3 ▪ In many industries (e.g. GE aircraft
1.0 engines), IoT concepts and devices
have been used for 20 years

▪ While consumer products (e.g.,

wearables) are a focus of media
attention, 70-80% of total value of the
2013 14 15 16 17 2018 IoT lies in enterprise applications

1 Personal computers, tablets, and smartphones excluded

SOURCE: MGI, Company Annual Reports, Capital IQ, Machina, Expert Interviews, Global Insight, Census McKinsey & Company | 7
INTERNET OF THINGS
RFID tagging has been widely used in the private sector,
but its use in public sector procurement remains limited
RFID tags
▪ Identifies one specific unit of product.
Like a Passport or Driver License, it is
unique
▪ Readiness exceeds sight range
(can be read through walls, ceilings, etc.)
▪ Multiple items read at a time
(hundreds in seconds)
▪ RFID tags can be reused as new
information can be over-written
SOURCE: McKinsey analysis
Example
Public Sector
Application
Relevance to the public sector
▪ RFID tagging has helped private
sector firms to increase the accuracy
of inventory tracking by 25%+
▪ Use of passive and active RFID tags
can help to reduce inventory loss
and enable data-driven supply chain
optimisation
▪ The US Department of Defense has
used RFID tags in its supply chain
since 2005 and now tags more than
15,000 cargo loads a week
▪ Despite pilots dating to the 1990s,
use of RFID in the government supply
chain is still limited compared to the
private sector
McKinsey & Company | 8
INTERNET OF THINGS
Example
San Francisco’s SFpark initiative optimizes parking spot Public Sector
utilization and reduces congestion through GIS sensors Application

SFPark is a parking system that:

▪ Collects real-time information about where parking is available
▪ Adjust prices of parking at different locations dynamically, according to demand
▪ Reduces traffic congestion by decreasing the number of drivers circling and double-
parking and ensures drivers willing to pay a premium are more likely to find
a convenient spot

▪ Embedded real-time sensors
identifies parking lots that are
available
▪ Drivers can easily visualize
parking availability and prices
online and via smartphones to
plan their journeys
▪ Central database monitors
parking occupancy, transport
officals analyses historical
parking occupancy and usage
patterns by location to make
data-driven pricing decisions
▪ Price revisions are readily
communicated to the public
▪ Rates are adjusted no more than
50 cents per hour down or 25
cents per hour up, and no more
often than once per month

SOURCE: San Francisco Municipal Transport Agency McKinsey & Company | 9

MOBILE INTERNET
Adoption of mobile devices is growing at double-digit rates – mobile
devices have become more ubiquitous than land lines
Consumers are increasingly demanding … and will have multiple connected device in
mobile devices… the near future

Global mobile device sales 2005 Internet devices per person

million units 2015E; units
2010
+25%
2020
66 North America 5.8
Laptops +15%
130
Japan 5.4
510
+35% Western Europe 4.4
Smartphones 54
+20%
230 Eastern Europe 2.2

1,460
Latin America 2.1

0
Tablets +25% Asia-Pacific 1.5
20

190 Middle East/Africa 0.9

SOURCE: Cisco Traffic forecast; SA; Interviews; Strategy analytics, WSJ press article, Team analysis McKinsey & Company | 10
MOBILE INTERNET
Example
Mobile devices could help to provide an integrated solution Public Sector
to citizen identification, authentication and verification Application

Estonia’s Mobiil-ID System Selected uses

▪ Estonia has one of the most advanced

and widely used e-government
systems in the world – almost 100% of
the population have an electronic ID

▪ Mobiil-ID can be used on any

smartphone or tablet and replaces a
traditional electronic ID card

▪ With Mobiil-ID, citizens can access

public e-services, authenticate their
identity, and provide digital signatures
for transactions, public service
registration and contracts

▪ The government has made Mobiil-ID’s

digidoc libraries available to
developers to catalyse private sector
uptake

SOURCE: Public sources; McKinsey analysis McKinsey & Company | 11

CLOUD

There has been a fundamental shift from a “build model” to a “consume

model” in Enterprise IT, giving rise to Cloud Service Providers
Cloud services are fundamentally changing IT …giving rise to the Cloud
consumption model … Service Provider segment …
Cloud

IaaS PaaS SaaS BPaaS

Private
Community
Hybrid
Public

Legacy … and creating risks & oppor-

Archi- tunities for traditional players
tecture
IT infra

Development platform

Software applications

Business processes

SOURCE: McKinsey Cloud Service Provider Initiative McKinsey & Company | 12

CLOUD
Example
Moving to a modern cloud-based environment could help Public Sector
government departments realise IT savings of up to 40% Application

Comparison of monthly per-desktop TCO for desktop environment

(% cost, normalized to benchmark of 100%)

188

Software / -42%
66
services

Hardware 15 109
100
42
User support 44
(L1 – L3 88
20
helpdesk) 14
32 27
Other 19 14 11

Government - prior to Government - cloud Gartner 2013

cloud transformation based environment TCO benchmark

Savings primarily driven through significantly reduced software/services and user support costs,
reflecting the centralised support and deployment of updates and apps in a cloud environment

SOURCE: Gartner; Mckinsey analysis McKinsey & Company | 13

Thank You

McKinsey & Company | 14