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16 December 2019
Evgeny Borisov

The Digitalization of the Regions: If not by Stick, then by Carrot

The digital transformation of the economy is one of the key topics covered in the recently published programme for the Russian Investment Forum. In his article, Development Director of the Internet Initiatives Development Fund Evgeny Borisov looks at the current state of affairs regarding digitalization in the regions, and examines why it is needed at all.

The digitalization of the regions is a topic of keen discussion; however, interpretations of the term vary from one person to the next. The most straightforward definition I have come across is removing people from an organization’s business processes. The most complex is the comprehensive change of one or other structure (not necessarily belonging to just one organization, but potentially to a set of organizations). This involves the application of digital technology to change approaches to working with external and internal customers, in-house processes, products, business models, the partner ecosystem, and IT infrastructure.

In the latter instance one can discern a kind of hope amongst people for change in society — a change encompassing a national idea, and the creation of a new, great Russia. This is, incidentally, a big topic — one which warrants separate discussion. One way or another though, even the complex definition ultimately boils down to the removal of people from processes. Nevertheless, it enables us to effectively address organizational matters pertaining to a particular area or department, and to assess the efficiency of its employees.

What are we digitalizing?

Regardless of whether we take the simple or complex definition as our starting point, we are looking at changes in all organizations in a region — private companies, state corporations, government bodies, educational institutions, and medical facilities. Can digitalization be said to have been implemented if all the vicinity’s schools have internet connection, or if a state services web portal is launched? Or, for example, if a regional government moves its paperwork online using predominantly Russian-developed software, and a high-tech startup incubator is established? We could go on, but the answer would still be the same — no. These things alone are insufficient.

From my point of view, digitalization has to encompass a comprehensive transformation of all institutions. Profound changes need to be made, including steps to foster a culture of innovation, the introduction of an incentive system, and a clear understanding of why it’s important to pull out all the stops. In traversing the long path involved in digital transformation, a region attains invaluable experience which will prove beneficial in the future. To understand what comprehensive digital transformation is, the reader is advised to study the topic under Nikolay Verkhovsky at the Moscow School of Management SKOLKOVO. That or wait for my next article.

The incentives are there

The regions have numerous incentives to undertake digitalization. These take the forms of assorted carrots and sticks. The most obvious and enticing of these is the idea that people will soon be able to use their smartphones to order any service or product without getting up from their sofas. There is already no need to run to the bus station to buy a ticket (unless a return ticket is required, that is). If you need a doctor’s appointment, you don’t have to drag yourself all the way to the clinic. The same is true for registering at a school. And while this is currently only the case in Moscow, the capital is rapidly growing into its surrounding areas. It recently emerged that the city of Kaluga will become part of Moscow Region by 2030. And so, if the regions don’t take these steps themselves, Moscow will make them. I’m joking, but every joke contains a grain of truth.

Another positive incentive is the government support on offer. This support is not merely made up of words. The Digital Economy programme has been developed and adopted, and implementation of it has begun. The programme’s KPIs are less about the economy than they are about infrastructure. The country has set itself three goals — a threefold increase in expenditure on developing the digital economy, the creation of a durable telecommunications infrastructure, and the use of predominantly Russian-developed software. Will this have an economic effect? In a roundabout way, of course it will. However, it will not be direct, or proportional to the RUB 1.6 trillion earmarked for the programme to 2024.

There is one other factor which, although less apparent, is still important — pressure from the market. Of course, one could decide not to touch education, for example, thereby consigning it to the superannuated analogue era. However, the subtle issue and major risk associated with that way of thinking is that the sector will not attract forward-thinking and motivated teachers who have developed a taste for all things digital. What’s more, potential students who have voraciously read materials online will compare such a school, university, or MBA programme with others. They may look abroad. And once they graduate, they will prefer to work in an environment that they are both used to, and which will offer the requisite development opportunities.

Personally, I find it easier to study online. You can work at your own pace, earn the same qualification, and learn from anywhere in the world.

We’re going to need your bicycle

Two fundamental approaches to digitalization can be singled out. It can be done through internal innovations, or external ones (also known as open innovations). In the immediate future, it is unlikely that government bodies will choose the route of developing their own innovations, although examples of this do exist in the world. In Russia, digitalization is mainly achieved through external innovations.

My long-held motto is that there is no need to reinvent the bicycle. Of course, regional governments can create startups from scratch, spend not inconsiderable sums, and attempt to come up with a monetization model. However, the statistics are foreboding, with just 3% of startups taking off. Put another way, there is a 97% chance that they will fail. But there is a solution. You need to look around you for successful projects by your neighbours which have already benefitted from investment. It is crucial that these digital platforms or services offer a monetization model, and meet a real need, as tested over time. And this is exactly what smart regions do — they take ready-made solutions, scale them up, and exhibit strong results across all KPIs. This model also works well for the startups. By expanding their audience, they experience exponential growth, as well as the ability to further develop their platform or service, making everyone happy.

Time to churn out the solution bases!

Various solution bases for the regions are currently emerging across the country, albeit not with any goal of consolidation in mind. These do not just encompass software, but best practices. Ones that I am aware of include the Agency for Strategic Initiatives’ Smarteka library of practices, case studies at the non-commercial organization Data Economy, smart city solutions by the Ministry of Construction, and VEB’s Pilot Project Factory. Indeed, even the Internet Initiatives Development Fund has its own solution base built upon the accumulated experience of 430 previously funded startups. These libraries and bases are mushrooming, counting on funding from the regions as they do so. Or, to put it more accurately, they aim to provide regions with the opportunity to reap economic benefits. However, this economic boost for each region must be accompanied with a synergistic effect running through the entire country. After all, it is important that any effect is not spread thinly across various regions, but is rather concentrated, thereby creating opportunities for an economic miracle to take place. The human factor is vital here, as it is in all areas. Unfortunately, any economic miracle can collapse as individuals look to make a quick profit. What should we do about it? I don’t know.

I am not a big believer in databases, but if they can be effectively leveraged with a personal sales manager, then a project has a chance of becoming successful. The aim should be to constantly renew and promote them. Best of all would be to promote the product directly to senior figures, who typically speak out in favour of innovation and development.

SPIEF is an excellent example of a promotion platform. In 2017, a small band of revolutionaries, of which I considered myself a member, put forward the idea of a stand for entrepreneurs at SPIEF. In 2018, a small collective stand entitled Innovation Space first appeared, and featured around 10 startups. Incidentally, the same year saw the recently appointed Minister of Digital Development, Communications and Mass Media of Russia Nikolay Noskov speak for the first time at a roundtable event on startups. It was a resounding success, and the 2019 forum featured a large stand at the heart of the venue with its own rich business programme, and dozens of startups. Thank you, Roscongress, for supporting the idea and helping it to flourish! We look forward to seeing the Russian Technological House open soon in Davos — if not in 2020, then at least in 2021. It will provide a place to showcase solutions by Russian tech companies to the world, and to boost tech exports.

Why bother with services, when you can have superservices?

Moving onto state services, I would like to spend a little time on the trendy topic of superservices. Superservices are defined as the next step in the development of e-services, in which the state takes care of documents while people go about their lives. Say you want to study at an educational institution, for example. You go to the state services portal — gosuslugi.ru — tick the boxes next to the institutions you like the look of, and voila — you’re a student! There’s no need to go anywhere, fill in any forms, or write anything. Convenient? Incredibly. This superservice will appear in 2021. But what if you can’t wait that long? Can something be done? Yes, easily.

There are startups which have gone just as far, and even further, and which have identified a monetization model. All that needs to be done is integrate the product into the portal, and everyone wins. Students get to use the service today, parents are saved headaches, the state saves money (and could even earn money through a revenue share model), the startup generates more revenue, and the country gets new unicorns.

In terms of services, why shouldn’t officials create something new themselves? Intrapreneurship is an excellent way to help small businesses in the world grow. And one more thing — we need standards. Not long ago, me and my daughter went to renew our passports. We both registered through the state services portal. The allotted time came, we took our photos, and signed the applications. My daughter’s new passport came through in two weeks. I, on the other hand, was asked to wait three months. Hmm, some digital economy...

Digitalization — a product of the hive mind

Any image of the perfect form of digitalization for the regions should be taken with a very large pinch of salt. Do we need the internet for this digitalization? Of course we do, despite the presence of enthusiasts who have no qualms about doing without the internet in every school. Does there need to be a threefold increase in spending? In theory, yes, although that alone guarantees nothing. Should there be a focus on domestically-made software and hardware? Undoubtedly, but this will not necessarily give the desired result. For me, the key to realizing these ideas lies in the word «economy». Not in the sense that the economy must be economical, but in the sense that the economy must generate a flow of money into the country. It will be impossible to achieve this through implementing the aforementioned procedures or developing superservices alone.

In order to give business — and better still high-tech business — a boost, an entire ecosystem needs to be in place. At the end of this ecosystem are manufacturers who export their goods. Together, they form a kind of cannon, taking aim at the global market. In our case, this refers to a company with exports accounting for 80% of its sales. This company enthusiastically acquires rounds of ammunition — new technologies, products, services, forward-thinking personnel — everything that enables it to compete on the global market. They are aided in their ongoing and systemic quest for ammunition by private investors, funds, development institutions, and the state, which, as I speak, are doing everything within their abilities. However, this is only with a focus and concentration of efforts on the beneficiary and KPIs, on increasing revenue from exports.

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