Experimenting with Digitalization: A Case Study of Japan’s Ministry of Economy, Trade, and Industry
Author: Sechi Kailasa, Master of Public Administration, 2022
In the early 2000s, Japan first announced its intention to take digital transformation seriously. However, it’s only now in autumn of 2021, nearly 20 years later, that the country commonly categorized as a paper bureaucracy is finally set to launch its central government’s digital agency. Like many countries that had sidelined investing in digital capability, during the pandemic, the Japanese government recognized that this could no longer continue. This article explores one aspect behind this launch: the story of digital transformation within Japan’s Ministry of Economy, Trade, and Industry. It’s based on the experience of Hiroki Yoshida, who was a leader in the digitalization of services for businesses in METI and is currently working as a director in the newly established central agency. Yoshida presented this case at the Harvard Kennedy School during the spring term in 2021 and at the annual Digital Services Convening in June 2021.
METI adopted a platform-first strategy
METI, the department in charge of coordinating industrial, economic, and trade policy, is perceived to be responsible for Japan’s considerable economic growth in the 1960s. While it isn’t a central ministry, it’s certainly a powerful one. Yoshida was based in the Commerce and Information Bureau (which oversaw industrial policy related to IT and digital government) as the deputy director for digital government. He says that his main motivation was to close the gap between the public and private sectors in Japan, “many private services are viewed as convenient because they utilize digital technology, in contrast many public services that the government is responsible for are still paper-based.”
In contrast to many digital teams around the world that focused on citizens, the METI team focused on their main customers — small- and medium-sized enterprises (SMEs) and corporations — and this strategy made them unique. It allowed them to build credibility with their most important stakeholder and to place issues such as privacy and security (more prevalent in the citizen-facing context) to the side, as generally there is less concern for giving unique identifiers to businesses, for example. Businesses are also a much smaller user base compared to citizens, which makes them easier to navigate when attempting digitalization for the first time.
In addition to focusing on the above, Yoshida built a vision that was realistic and scalable across government. He focused on his ministry because of the government’s siloed nature; it wouldn’t have been possible to build something across government with that as the headline goal. Instead, he made sure the components they were building within METI could, when the time was right and enough political capital had been collected, be scaled to other ministries and local governments.
METI’s technical stack was inspired by elements of other countries’ digitalization journey
The overall technical architecture that was developed by METI is referred to as “gBizStack” (government business stack). It includes several components, visualized below, and was inspired in part by digital transformation efforts in Singapore, Estonia, and India.
We can understand the stack by starting from the bottom and considering each layer:
● Digital ID layer: This is the first layer and consists of a uniform authentication system. The team ensured there were incentives for businesses to use this service; if the business wanted to get to the application layer where it could apply for grants, then it needed to use the authentication service to get there. In their first year, METI authenticated 400,000 businesses, which is about 10% of the addressable market. The service is not restricted to METI; other ministries can also use this platform. For example, the Ministry of Health, Labor, and Welfare started using it for social insurance applications. It is now used by around 32 systems.
● Application layer: METI initially focused on two flagship projects for SMEs (as 99% of Japanese businesses fall into this category): i) a uniform grants application platform and ii) a portal that provided SMEs with support. Many SMEs encountered problems when getting grants from the government, and hence the team wanted to focus on improving this in the first instance.
● Data exchange layer: As the data is accumulated from the application layer, this layer connects and exchanges the data. The team used APIs to connect the system with other systems. Before this, all the systems were premised on the idea that they couldn’t be connected.
● Data analysis layer: This layer enabled the use of the accumulated data to inform and improve other services.
● Open data and open source: The final layer of the stack concerned opening the data to the public; if businesses or others wanted to use government data, they could access this open data site with information about corporations.
The team used several levers to enable digital transformation
The team started as a very small team with around five people, and it gradually hired until there were around twenty members. While there was an existing IT team, Yoshida’s team was focused on digital, since there was a lack of government officers with a background in digitalization the team needed to hire from the private sector. In fact, his team created the custom for this, and other ministries soon followed its lead. It created a hybrid team consisting of private sector talent alongside eager and passionate professionals in government. Hiring from the private sector allowed the team to address the lack of capability within government, opened the potential to learn more about IT development, and, importantly, ensured the transfer of knowledge from the private to the public sector.
The team built a network of allies within the government — it attracted passionate, young professionals through its flagship projects. Additionally, the team actively asked other departments what their problems were and how it could help them, helping to build its rapport with them. Most importantly, Yoshida ensured that the METI team had the support of senior management — he did this via building a convincing vision that was both effective and reasonable. The budget director also sympathized with the team’s ideas for digitalization. Externally, the team built close connections with Code for Japan and other civic tech organizations, holding conferences about digitalizing government and government technology — these were mediums through which it could attract small vendors and others interested in their work. When the team first created the digital team in METI, it publicized the event and as a result, many citizens took notice of it alongside government officers in other ministries.
As noted briefly above, the team ensured there was traction with its digital transformation strategy by providing incentives for businesses to use the new services. That is, they made sure you could only get to the services if businesses went through the authentication process. The team also demonstrated that they actively cared for their main user by creating a central management office for SMEs to support and assist them.
The team’s main challenge was culture
The team faced several challenges, but their main one concerned the culture of their organization — many public servants didn’t understand the concept of agile or digital. The team tried to integrate the digital team with the existing IT team (which focused on hardware procurement, back-end systems), and together they founded the METI DX office, which integrated the front end (user-centric teams) with the back-end teams as they believed that to build an effective system, the service development side should be integrated with the infrastructure side. They found this to be a difficult undertaking because of the large culture gap that existed within the ministry, but they persisted, and were able to achieve the integration within three years.
A look forward
The new digital agency, which sits directly underneath the prime minister’s team, was launched in September 2021 and currently consists of around 400 government officials with 200 officials recruited from the private sector. Its launch and positioning demonstrate that the government understands the importance of digitalization as before there was very little recognition of this across and within ministries, and there were very few IT experts inside the government. METI’s success played a large role in showing an alternative vision for what digital government could look like.
The new agency faces challenges on several fronts. First, it is quite large, which could impact how quickly it can implement strategy. Second, it will need to manage the cultural gap that exists between government agencies and private sector talent. Finally, and perhaps most importantly, it must think carefully about the framework it adopts, as it will be the baseline and foundation for all future work going forward. While these are considerable tasks, it is exciting to see the Japanese government start this next phase of digitalization.
