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The Role of a Challenge-Based Approach in Digital Transformation: A Guide for CIOs in Government

Thought Leadership
 - 
October 14, 2020

Since 2013, City Innovate has been managing a program it calls STIR.  STIR is a successful cohort-based program that matches cities seeking innovative solutions with emerging technology companies.   Originally, STIR stood for “START UP IN RESIDENCE”.  Today, the program focuses on bigger governments and innovative technology companies regardless of size.A big part of the STIR program is evangelizing and coaching CIOs and their deputies around how to use a Challenge-Based Approach for digital transformation.  CIOs tell us that they aren’t in the procurement business.  At the same time, procurement represents a barrier to getting the real work of digital transformation done, so much so that many CIOs tell us that they have no choice but to prioritize ways to streamline and modernize procurement.

Digital Transformation defined

Digital transformation is one of those overused terms.  Based on our extensive work with thought leaders in the State of California, we define digital transformation in government as:  making it easier for members of the community to interact and transact with government using primarily digital means. Also, making it easier for government employees to do their jobs through the use of digital technology. 

This aligns with what thought leaders at McKinsey, Deloitte, and Accenture and elsewhere have written about digital transformation in government.  

Digitizing a government requires attention to two major considerations. The first is the core capabilities that governments use to engage citizens and businesses and carry out their work: the methods and tools they use to provide services, the processes they implement, their approach to making decisions, and their sharing and publishing of useful data. The other consideration is the organizational enablers that support governments in delivering these capabilities: strategy; governance and organization; leadership, talent, and culture; and technology.  -- Source: McKinsey & Company.

Digital transformation can be as simple as taking a paper-based form and making it available as a form that can be filled out from the applicant’s mobile phone or computer. Or as complex as taking a complex, multistep process that might normally entail visiting several different government offices face-to-face and figuring out how to make much of that process available to residents using a self-service model and their mobile phones or computers.

Digital Transformation in Action:  REAL ID

Take the new Federal ID standard: REAL ID.  To obtain a REAL ID requires that a person visit their state’s DMV and present multiple forms of identification:  a current drivers license, a passport, a social security card, two pieces of mail that prove the person lives at a particular address.  A skilled DMV employee then checks that and other information presented to make sure it is complete, accurate, and truthful and if so issues a REAL ID which in California (at least) shows up as a little STAR on one’s ID card.

This sounds like not a big deal - right?  Well the big deal in the age of COVID-19 is two things: this process seems like it can only be done face-to-face - something not desirable at all in the middle of a pandemic! - and also requires that workers at the DMV make copies of all the documents presented, which can be time consuming and fraught with frustration.  (Passports are tightly bound to prevent incidents of forgery, making them very hard to scan.)



Digital transformation in this context involves asking the question how can we streamline this process. A high percentage of people come to the DMV without all of the right documents or with documents that need to be updated - for example a social security card issued in the maiden name of an individual.  Thus, what was a process intended to be accomplished in a “one and done” manner now requires two visits with - in most states - very long wait times to get an appointment at the DMV.  (People love to visit the DMV by appointment ... to sidestep long lines).

Asking this question - how to implement REAL ID in an always “one and done” manner - is possible of course.  But a traditional RFI often takes a long time to put together as different subject matter experts and procurement authorities inside government weigh in on the questions they want answered. It’s a rare RFI that allows a vendor to parse through the questions and get to the heart of the matter: what is it that government is trying to solve for here? How can my firm’s technology and unique expertise be of help?  Also, with an RFI there’s little interaction between government and vendors, interaction that can be critical to shape the vendor(s) understanding of the problem to be solved. 

Ambiguity in REAL ID RFI

A prescriptive approach to an RFI often skips directly to the requirements you want the solution to have.  An example might be:  “a relational database that uses the <INSERT SECURE GOVT TRANSPORT STANDARD HERE> to verify data from the Federal government passport system”.  The problem with this is often only the biggest (and at times most expensive) vendors will have experience with that very specific transport standard that proves they meet the qualifications outlined in the RFI.  RFI’s outline requirements that vendors must meet to be qualified to answer an RFP, with the result that many vendors with great solutions end up not considered.  They are  - in the popular nomenclature - road kill.

A popular meme going around Silicon Valley these days is the hiring manager who requires 12 years of experience in Kubernetes before considering candidates to interview.  The problem with this is that Kubernetes as a technology has only been around for about 6 years!

So it is with vendors.  Many vendors have the experience to solve government’s problems - if only we’d stop over relying on hard-and-fast qualification criteria like years of experience selling to government or expertise working with a specific transport standard to instead ask the question: does this vendor truly understand my problem? Do they have the technology chops necessary to give me a solution that will have enduring value? 

Many CIOs tell us that they want to expand their pool of qualified vendors but don’t know how.  Taking a Challenge-Based Approach - either to market research (substituting for an RFI) or to a procurement (substituting for an RFP) is the single best way we know to expand your vendor pool beyond the “usual suspects”.

Challenge-Based Approach Defined

Over the last 6 years, City Innovate has found that a proven way to get better results is to format RFIs and RFPs differently - not prescriptively but as a problem statement that can be offered up  to the vendor community as a challenge to be solved.  Make the problem statement as tangible and action-oriented as possible.  

In a nutshell, that’s the beginning - but not the end - of a Challenge-Based Approach to procurement or market research.Formulate the government’s problem as a concrete and relatively precise problem to be solved. Invite the vendor community to submit their proposed solutions to the problem.  Converse (a bit) online.  Take forward a certain number of vendors for more in-depth conversations based on their answers to your challenge.  Then and only then issue a detailed solicitation that leverages the learning accumulated from these conversations and responses to the initial challenge.

Other elements that make a Challenge-Based Approach to market research - or procurement for that matter - unique is the fact the focus is on asking vendors to respond very quickly and to show government how they would solve the problem versus telling government about what they’ve done in the past and/or their generic capabilities.  The “tell” method favors bigger and more established vendors over smaller, more nimble, vendors with emergent technologies. 

A discipline around show vs. tell turns out to be critical in implementing a Challenge-Based Approach to procurement and market research.  Especially because so many challenges involve taking data the government has and transforming it into information and insight that government employees can use to streamline and/or improve their work.

Want to learn more about a Challenge-Based Approach to procurement and market research? If you are a CIO, click below to sign up for the webinar. Not available for the webinar? Click here to get on the wait list for our eBook on this topic ... coming soon.

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Proof of Concept (POC)

The insight that City Innovate (and others) arrived at regarding a show vs. tell approach is perfect for vendors that are apply to show what a potential solution could look like - through rapid prototyping - versus telling government about how a problem might be solved - led to an additional insight on the part of City Innovate.

Why not ask vendors to work with governments to develop a proof of concept that showcases how the vendor would solve the problem offered up in the challenge?  Of course, building a Proof of Concept takes time.  At first, through the STIR program, we made this period of time an arbitrary period of 16 weeks, but more recently, we’ve come to realize that many vendors have become adept at rapid prototyping and can move much faster than this.  So starting in 2020 the time period for the POC can vary as part of our STIR program.  

A proof of concept could be as (seemingly) simple as a database built with a user interface that allows social workers to see where they are in a complex workflow around adoption.  Or as complicated as building out a prototypical application that enables these same social workers to give up their spreadsheets and clipboards in favor of managing the entire process online.

To motivate vendors to invest the time and resources in making the POC happen, City Innovate does two things.  First, it strongly encourages all participants in its STIR program to go to contract with the vendor(s) who answered the challenge with a successful POC.  Some of these contracts were by necessity sole-source contracts; many jurisdictions allow sole-source contracts only if the dollar amount is under a certain threshold (say $50K) and if the vendor can prove they are uniquely qualified to meet the requirements.  Niche solutions like Binti’s - a specialized database/processing system for adoptions - often qualify for sole-source contracting.

The other incentive for vendors is piggyback-able contracts.  


Piggyback-able Contracts

A piggyback-able contract is one that - for example - Long Beach (CA) crafts between itself and a particular vendor as a result of their participation in STIR.  The terms of our membership contract for STIR explicitly state that members are part of a cooperative, meaning they can have access to contract details - including pricing and all terms. If you are the CIO for the (fictional) City of Gotham - for example - you can then go to contract very quickly with a vendor like without having to go through the entirety of the process from problem statement to proof of concept to contract.  Piggyback-able contracts are a proven way to save time, reduce risk, and in some instances can offer substantial cost savings.  Source:  NASPO on Cooperative Purchasing.

We have found that piggyback-able contracts work as intended; they incent vendors to participate in investing their time and energy in developing proof of concepts without any guarantee of future payment. Piggyback-able contracts are also a great idea for governments,  but in practice many jurisdictions have purchasing regulations that make it difficult or impossible for them to take advantage of these types of contracts.

More and more governments are recognizing that the misfire rate with technology acquisition is too high … and that government can and must do better at figuring out whether a particular vendor can solve the problem at hand with minimum risk.   Innovations in procurement that encourage a Proof of Concept are a way to derisk technology acquisition inside government.  That said, vendors need to know that if they are successful with the POC they have a reasonable shot at getting a contract, ideally without having to go through competitive bidding.  Without this, vendors are often unwilling to participate in the development of a POC which can be both expensive and time consuming.


Source:  Unqork.


To derisk technology acquisition projects, governments need to be more innovative in their thinking, to think about a Challenge-Based Approach to procurement and market research as a way of getting to better solutions to their problems.  

One of the first things that Governor Newsom did was to make this ‘better way’ available to more government agencies and departments in California under certain circumstances.



This notion - that certain procurements can proceed with lightning speed thanks to a Challenge-Based Approach to procurement and market research - doesn’t have to be disruptive.  We are finding more and more government agencies are relying on a Challenge-Based Approach, including the Department of Defense which calls its program AFWERX.

The AFWERX program run by the Department of Defense/U.S. Air Force is an outstanding example of a Challenge-Based Approach to procurement in action.  The program is tiered such that vendors can access government through a smaller project, prove out their capabilities, and then become eligible for larger projects.  The goal here is to enable vendors with less than 500 employees on staff to provide innovative solutions to the Air Force - while cutting through the red tape involved in a legacy procurement process.  

Procurement regulations exist to protect the taxpayer by making sure that dollars are not spent on frivolous activities, that vendors are selected in a fair and equitable manner, and that self dealing is minimized.

That said, too often legacy procurement is a barrier to getting the hard work of digital transformation done.  This is especially true today, when we - and other experts - are seeing the need to rethink how residents interact with government in dire times - be it the result of COVID-19, wildfires, hurricanes, or the rising tide of homelessness.  

Going forward, we see three pathways for government to take advantage of a Challenge-Based Approach to digital transformation … to reduce risk, decrease costs, and accelerate timetables.

Get on the Wait List for this eBook

To learn more about these three pathways, please attend our webinar (for CIOs only) to learn more about STIR or get on the wait list for our Ebook: Almost everything a CIO needs to know about a Challenge-Based Approach to procurement and market research.




Marcia Kadanoff
Chief Marketing Officer
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