Software has eaten virtually every sector and industry, so why not government?

To the uninitiated not familiar with this unusual anthropomorphism: in August 2011, entrepreneur and investor Marc Andreessen wrote his now-famous piece in the Wall Street Journal, arguing, “…software is eating the world… More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense.”

Today, in 2017, we continue to see this trend play out as seemingly every sector and industry digitizes and is assigned its own “tech” suffix—Fintech, Insurtech, Edtech, Healthtech. Included in this macro trend toward digital is government and its corresponding government technology (aka GovTech) movement.

What Makes GovTech?

So, is software eating government? Not yet, but it’s certainly trying. The number of established and startup firms in the GovTech space is growing. Take a look at data analytics firm CB Insights’ view on deal activity in the GovTech space. According to CB Insights, funding to GovTech startups grew 305% from 2012 to 2016.

Government has been a laggard when it comes to digital adoption. Industries like entertainment and retail led the early adopters as the stodgier industries like insurance and government lagged behind. For every Apple, Netflix, or Amazon there were scores of corresponding laggards in government and insurance. Think about the stereotypes of government and insurance—neither generally conjure thoughts of innovation.

The GovTech movement spans a range of digital products & services that fall into three major categories: Digital Government, Citizen Empowerment and Government Contracting. Effective government technology focuses on helping federal, state and local governments facilitate innovation and improve efficiency and customer experience. There’s also tech focused on empowering citizens. And then there’s tech focused on helping private companies win contracts in the nearly $2 trillion annual government contracting market, like Onvia and GovBizConnect provide.

Why Government Technology Matters

GovTech presents many opportunities for investors. But the real beneficiaries of GovTech are the companies selling to the government, public servants, and taxpayers who will benefit from the efficiencies created by this movement. This is a trend that all well-read business people should be aware of, the public sector is such a massive dimension of the U.S. economy and it’s finally joining the digital age.

Overcoming the Cultural Change Management Dimension

It’s quite likely that the GovTech movement has the capacity to usher in the same level of innovation and disruption we’ve seen in other industries. Why, after all, would government be immune to the digital forces that have re-made and upended virtually every sector and industry? One reason is the level of bureaucratic inertia that’s often found in government organizations. It’s a difficult task to transform any large organization and disrupting government agency operations is no exception. Without a profit incentive, the allure of delivering improved customer experiences, increased transparency and speedier service is simply a harder sell than it is in a for-profit enterprise. Even the greatest tech is rendered ineffective if the people charged with its implementation don’t fully buy in.

But there’s hope. As I wrote last year for Bloomberg Government, “…the ongoing demographic shift provides a rare, generational opportunity to transform the federal acquisition system for the better. As millennials enter civil service and Generation X assumes more senior roles, there will be an opportunity to drive large-scale, organizational change within the federal acquisition system throughout the contract lifecycle.” 10,000 baby boomers are retiring daily and many of them are leaving the federal workforce. With digital natives rapidly entering the government workforce, change will accelerate.

Implications for GovTech Companies

GovTech firms that think through—and develop plans—for breaking through the cultural barriers that enable their products and services to reach maximum market penetration will be the firms that win in the marketplace. Many will sell cool technologies, but the real differentiator will be those most attuned to driving organizational change within the government sector and how their products and services fit into that framework.

Building effective technology is only part of the equation to drive the desired business outcomes—whether it be customer experience, efficiency, transparency or anything else. Successful businesses in GovTech should make a point to understand how the tech will be employed, and the behaviors and attitudes of those charged with its adoption and utilization within the organization.