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Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 1
Digital Transformation with Blockchain in
the Public Sector
Please cite as:
Treiblmaier, H. and Sillaber, C. (2019) "Digital Transformation with
Blockchain in the Public Sector", Pre-ICIS SIGPBS Workshop on
Blockchain and Smart Contract, December 15, Munich, Germany.
Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 1
Digital Transformation with Blockchain in
the Public Sector
Horst Treiblmaier
Modul University Vienna
Am Kahlenberg 1, A-1190 Vienna
horst.treiblmaier@modul.ac.at
Christian Sillaber
University of Innsbruck
Technikerstrasse 21a, A-6020
Innsbruck
christian.sillaber@acm.org
Abstract
Public administration has to cope with a steadily growing workload and limited
resources. The promises of blockchain and related technologies to alleviate this situation
are manifold, but a dearth of academic literature exists that documents existing use
cases and the lessons learned from them. In this case study we present the findings from
a public administration use case conducted by the state government of South Tyrol in
Northern Italy in cooperation with SAP. The project goal is to analyze the applicability
of blockchain in the public sector. We find that exploiting the full potential of blockchain
necessitates a complete rethinking of public management and bears the potential for a
leaner and more service-oriented administration that reestablishes citizen trust in
public institutions.
Keywords: Blockchain, Distributed Ledger Technology, Digital Transformation, Public Sector,
Public Administration, Governance, Transparency, Efficiency, Trust
Introduction
Lack of trust, excessive bureaucracy, and even cases of corruption have created a downward spiral of
citizen trust in public administration (Dubnick, 1996). As a result, in some countries supervision of public
officials has increased to an extent that renders many processes ineffective and personal liability has
become a pressing topic for state officials. The rise of blockchain technologies has created high
expectations regarding transformations in business and government. Previous authors have exemplified
its disruptive potential in industry sectors as diverse as tourism, energy, and finance (Treiblmaier & Beck,
2019a, 2019b) and some researchers have already highlighted its potential for governments (Antipova,
2018, Wang et al. 2017). In order to increase the overall efficiency and to be able to provide better services
to citizens, the state government of South Tyrol has decided to exploit the potential of blockchain with the
goals of increasing trust in public services, creating transparent and efficient applications, and
streamlining governance processes.
Methodology
Between June and December 2018 we conducted eight interviews with five key informants from the South
Tyrol Informatik AG (SIAG) and SAP to identify the practices and processes associated with blockchain-
based transformation. All of the informants played leading roles in the project. The interviews lasted
between 45 and 120 minutes respectively. Three follow-up interviews were conducted to clarify open
questions. The participants were interviewed in person or on the phone and all interviews were recorded
by the authors and subsequently transcribed. Furthermore, we also analyzed the existing project
Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 2
documentation, which helped us to better understand the processes and their implementations. The
interview questions focused on the participants’ roles in the project, the goals and the extent to which they
reached it, positive and negative effects of the blockchain solution and lessons learned. The transcribed
interviews and process documentation were processed in three stages following the common procedures
of qualitative research (Urquhart, 2012). First, we extracted artifacts, activities and requirements that
were mentioned during the transformation process. Second, we created groups of related statements and
identified relevant core topics and, third, we combined those topics in theoretical ideas at a higher level of
abstraction.
Public Administration and Blockchain Technology: The KIS project
The KIS project was carried out as a cooperation between SIAG and SAP. SIAG is the IT service provider
for the government and administrative bodies of the independent province Bolzano in northern Italy. It
provides numerous IT Services ranging from implementing a variety of IT applications (such as email and
web hosting) to processing workflows for approximately 4,500 employees and administrative workers.
Pending Problems
As is the case in many countries, public administration in Italy struggles to offer citizens high-quality
services within reasonable periods of time. A recent academic study showed that in spite of the reforms
driven by the New Public Management (NPM) approach, the public administration in Italy still follows a
bureaucratic model. Interestingly, public servants are highly motivated in spite of having to carry out
strongly standardized activities. Altogether, several public administrations are perceived by their
employees as being anarchistic (Tomo, 2019). Our interview partners indicated that other pending
problems include the strict supervision by auditors and the fact that even small errors may lead to
personal liabilities. Demand is increasing from both inside the SIAG as well as from politicians and
citizens to simplify processes, unify the underlying technologies and improve inter-agency efficiency.
Furthermore, due to several regulatory changes, demand for end-to-end workflows has considerably
increased in recent years.
Project Goals
In a first step SIAG and SAP conducted a proof-of-concept (PoC) with the goal to identify the key
questions pertaining to the overall potential of blockchain technology:
Q1: Is it possible to use Blockchain-as-a-Service (BaaS) in the cloud?
Hosting blockchain-based solutions in a cloud environment might open up new opportunities for service
providers to offer their customers cloud-based solutions to develop, host and use blockchain functions,
applications and smart contracts.
Q2: How can a public blockchain solution be integrated with legacy systems?
Regularly, public administration depends on complex legacy systems that have grown over years. It is
therefore crucial to carefully investigate to what extent these systems can be replaced by novel
technologies and which parts of the old system has to be incorporated into the new solution.
Q3: What kind of blockchain-related security aspects need to be taken into account?
Blockchain technology promises immutable and secure data records. The overall security of the system
therefore depends on the number of nodes that are responsible for validating data records and adding
transactions to the chain.
Q4: Can a blockchain-based solution improve the efficiency of workflows?
Workflows in the public administration follow specific rules that are determined by legislation.
Characteristics of blockchain that are especially promising to simplify existing processes include the
visibility of shared data among various stakeholders as well as the deployment of smart contracts to
facilitate decision automation .
Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 3
Results
Figure 1 shows SAP’s cloud hosted BaaS, consisting of three layers, namely the infrastructure -as-a-service
(IaaS) platform layer, the cloud platform foundry layer and the cloud platform environment. While the
former two represent the (largely) customer independent runtime environment for blockchain, the latter
implements the specific functionality to run and operate the customer’s blockchain. Two immediate
observations pertaining to Q1 (Is it possible to use BaaS in the cloud?) can be made. First, there is a
separation between the workflow-specific implementation of blockchain and second, while the workflow
is executed within the SAP environment, the critical data (i.e., sensitive documents) never enter the
blockchain. Only references are stored. Both factors enable a quick integration into the blockchain but
also make sure that both the environment (i.e., SAP’s infrastructure) as well as the technology used within
this infrastructure can be exchanged without too much friction. Similarly, legacy data is kept on premise
in SIAG systems and can be referenced from within the workflow engine (Q2). Aside from general security
and privacy considerations that have to be taken into account with any cloud based workflow solution, it
becomes clear from how the reference implementation is designed that none of the security properties
typically associated with blockchains currently manifests as both SAP and SIAG fully control the data and
workflows. However, SIAG reported that they intend to operate the node in their own data center and – in
addition to SAP’s node plan on operating a full node in the near future that might help identify data
manipulation (Q3). Performance wise, the layered approach of SAP’s centralized blockchain hosting
reportedly allows for a quick addition and removal of resources if performance becomes an issue (Q4).
Figure 1. Architecture Overview (Schmidt-Karaca et al., 2018, p. 9)
Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 4
Best Practices and Critical Evaluation
We identified five best practices for applying blockchain concepts to mission-critical public
administration services. These practices are especially relevant for public organizations that are in the
early stages of trying out blockchain solutions:
Practice 1: Invest in the purposeful evaluation of blockchain-based transformations
Blockchain technology is still in an early stage which made KIS a pioneering project in this area. Many of
the available frameworks that guide businesses toward blockchain technology start with a critical
evaluation of whether or not blockchain is the right solution in the first place. It is crucial for the industry
and software companies to gain valuable experience in that area. One SAP employee stated “We had for
the first time a client in the public sector who was actively seeking for an innovative blockchain
solution”. Just following the blockchain hype is not a feasible solution but what is needed is a careful
evaluation of blockchain’s potentials and how they can actually contribute value to the company. As a
senior manager puts it: “Simply implementing in a blockchain does more harm than good. We want to
pick the parts that fit our needs - even if some blockchain purists would not like that”.
Practice 2: Identify a critical workflow that can serve as an example to test both technical and legal
assumptions
Organizations need to identify workflows that are important for them but also possess the characteristics
to be deployed on the blockchain. In the case of KIS those were characteristics such as the visibility of the
process for citizens, time pressure and traceability which made it an ideal use case. On respondent
stated:“With every new technology, you need to know how to use it. So we selected a workflow that
required us to thoroughly think about technical, legal and performance requirements and whether they
can be met”. Splitting processes into parts is usually not a good idea and leads to extra effort. In KIS it
turned out that the delegation of authority had to change. A relatively simple procedure such as the
approval of cell towers was split between two entities which complicated the authorization process. It is
therefore necessary to consider the whole process and all stakeholders involved. One SIAG representative
put it straight: In the digital transformation you cannot digitalize sub-processes. You always need to
look at a process end-to-end.
Practice 3: Accommodate the goals of all internal and external stakeholders
The blockchain hype led to exaggerated expectations regarding what the technology actually can achieve.
Consequently, previous experience has also led to a more realistic assessment of the technology and its
capabilities which allows to critically evaluate to what extent it can solve stakeholders’ issues (Kietzmann
& Archer-Brown, 2019). An interview partner wrapped up the previous situation and how it has changed:
“There was quite some skepticism. In October 2016 when we started there was a very positive
momentum but also a lot of negative sentiment. By now the expectations are more reasonable”. One
project partner especially highlighted the important role of having clearly defined goals:“You need to
know what you are trying to accomplish with a blockchain […]You have to think beyond cost and the
hype and consider what your stakeholders really need”.
Practice 4: Leverage existing technology and ecosystems
In the case of KIS a complex legacy system existed, which needed to be incorporated into the new
structure. Similarly, the input and output of the main process were clearly defined. The technical lead
explained: “We went for the solution implementing [blockchain concepts] from the service provider[who
is] already providing a majority of services that we rely on. So we can use what we already have and
keep sensitive documents in the database we already use and only move critical parts to the blockchain”.
This led to the decision to adopt a private blockchain which integrates legacy systems. A major part of this
process included the analysis of how the integration can be done: “We had to figure out what is feasible,
what is legally allowed”. It turned out that permissioned blockchains were easier to implement in
comparison to permissionless solutions, which have numerous attack vectors. KIS was successful since
different contingency factors were considered simultaneously. Or, how a senior manager put it: “[The]
trinity of design thinking: Feasible from a technical point of view, viable from a business point of view
and it should have a great usability”.
Practice 5: Think about conflict resolution
Digital Transformation with Blockchain in the Public Sector
SIGBPS 2019 Workshop on Blockchain and Smart Contract, Munich 2019 5
Environmental changes, which also include technological change, often conflict with existing
organizational processes. In the case of KIS, for example, the application of smart contracts led to a power
shift in the organization due to the automatization of a previously manually conducted process. This is
mitigated by the fact that in the public sector commissions are only allowed to apply rules someone else
has come up with. However, as one senior manager briefly summarized what might be the most important
criterion for a successful blockchain implementation: “You need to have an organization that is ready for
change”.
Conclusion and Further Research
In this paper we investigate the application of blockchain technology to provide efficient and transparent
services for citizens. The findings from the initial PoC showed that a blockchain solution can be
outsourced into the cloud and integrated with a legacy system. By doing so, transparency for citizens was
increased. As far as the potential of blockchain in general is concerned, many important lessons were
learned along the way, which we summarize into five best practices. Although not being a silver bullet for
every organizational problem, the characteristics of blockchain technologies can help to overcome existing
organizational shortcomings. In order to be able to fully exploit its potentials, organizations need to
carefully evaluate the envisaged transformation, identify critical workflows, leverage existing technolo gies
and ecosystems, strive to achieve compliance continuously and consider conflict resolution and data
portability. This case study was conducted in a public administration environment based on specific
legislation and care has to be taken when generalizing the results across industries and geographical
boundaries. Future research is needed to generalize the findings to other use cases and also to the private
sector as well as to find measures to exactly quantify the benefits which blockchains can generate.
References
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Information Systems and Technologies (CISTI), Caceres, Spain, pp. 1-6.
Dubnick, M. J. (1996). “Challenges to American Public Administration: Complexity, Bureaucratization,
and the Culture of Distrust,” International Journal of Public Administration (19:9), pp. 1481–1508.
Kietzmann, J. and Archer-Brown, C. (2019). “From hype to reality: Blockchain grows up,” Business
Horizons (62:3), pp. 269–271.
Schmidt-Karaca, M., Srikumar, S., Lange, S., Tegno, P., Krompholz, A., Oberhofer, P., … Cicchetti, M.
(2018). Architecture Concept: End-to-end Workflow with Blockchain Logging, SAP, pp. 1–44.
Tomo, A. (2019). “Bureaucracy, Post-Bureaucracy, or Anarchy? Evidence from the Italian Public
Administration,” International Journal of Public Administration (42:6), pp. 482–496.
Treiblmaier, H. & Beck, R. (2019a). Business Transformation through Blockchain—Volume I, Cham,
Switzerland: Palgrave Macmillan.
Treiblmaier, H. & Beck, R. (2019b). Business Transformation through Blockchain—Volume II, Cham,
Switzerland: Palgrave Macmillan.
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Publications Ltd.
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