The recently published Performance Review of Digital Spend: Enabling Strategic Investment and Innovation highlights the need for the UK to adopt more effective funding approaches for digital transformation. While the UK government has implemented persistent, outcome-driven funding models in certain instances, such successes remain the exception rather than the norm.
For example, the GOV.UK Notify service was funded for continuous operation, allowing it to pivot quickly during the COVID-19 pandemic and send millions of notifications for various public sector organisations. This approach proved more cost-effective than the traditional project-based model, which would have required engaging a vendor to build an emergency alerts solution.
However, there is still much progress to be made in scaling such successes across the public sector. To learn from best practices, the UK can draw on international examples of innovative digital funding models that align financial mechanisms with agile, outcome-driven approaches.
New South Wales: Incremental Funding for Agile Transformation
New Jersey: Continuous Modernisation over All-or-Nothing Strategies
United States: Flexible Federal Funding Mechanisms
Estonia: Stage-Gated Funding for Value-Driven Digital Investment
Private Sector Best Practices: The Lloyds Banking Group Model
New South Wales: Incremental Funding for Agile Transformation
In Australia, the state of New South Wales (NSW) has undertaken a major overhaul of its digital funding model, addressing common shortcomings in financing public service transformation. The revised approach comprises three key elements:
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Incremental Funding: Instead of allocating large sums for multi-year projects, funding is now released in smaller increments, tied to progress toward defined outcomes. This minimises risk and fosters agility.
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Persistent Teams: The focus has shifted from financing specific projects to supporting teams that continuously deliver end-to-end customer journeys, ensuring sustained innovation.
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Outcome-Oriented Governance: Traditional governance models have been reformed to prioritise tangible results rather than rigid compliance measures.
Victor Dominello, NSW’s Minister for Customer Service, emphasised the necessity of these reforms: “Leading digital governments are thinking about funding in different ways and putting that at the centre of their political programmes. Good governments have to compete with the likes of Apple, Google, and Amazon. People are used to customer service and digital tools that work.”
New Jersey: Continuous Modernisation over All-or-Nothing Strategies
New Jersey has demonstrated the effectiveness of continuous IT modernisation. During and beyond the pandemic, the state’s unemployment insurance (UI) team improved digital services incrementally rather than relying on a large-scale overhaul.
Dave Cole, New Jersey’s Chief Innovation Officer, highlighted the pitfalls of traditional approaches: “Far too often, other states have spent hundreds of millions of dollars on monolithic UI technology overhauls, only for the resulting experience to remain confusing and frustrating.” Instead, New Jersey opted for an ongoing improvement model, delivering tangible benefits through small, frequent updates.
United States: Flexible Federal Funding Mechanisms
The U.S. federal government has adopted innovative funding models that prioritise flexibility and efficiency.
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Technology Modernisation Fund (TMF): This initiative provides government agencies with financial resources to modernise legacy IT systems. The TMF prioritises projects that enhance mission-critical services, encourage solution reuse, and generate long-term savings to repay the initial investment. This creates a self-sustaining cycle of innovation.
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Department of Defense (DoD) Reforms: The DoD has addressed traditional budgetary constraints, often referred to as the “colour of money” issue, by implementing flexible funding mechanisms. Notably, the U.S. Army now uses Research, Development, Test & Evaluation (RDT&E) funds for continuous software development, allowing seamless resource allocation across development, acquisition, and sustainment. A newly introduced Software Acquisition Pathway further supports agile methodologies, enhancing adaptability and efficiency.
Estonia: Stage-Gated Funding for Value-Driven Digital Investment
Estonia, a global leader in digital governance, has implemented a stage-gated funding model to optimise its digital investments. Initiated in 2022, this model releases financial support in phases, contingent on demonstrated value delivery. Key features include:
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A dedicated assurance team within the Central Digital Office, ensuring accountability and strategic oversight.
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Integration of operational expenditure planning with capital expenditure, estimating future maintenance at 20% of total CapEx over a system’s five-year lifecycle.
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A collaborative framework between the Ministry of Finance and the Central Digital Office, leveraging both financial and digital expertise.
By coupling strategic assurance with flexible funding, Estonia has created a sustainable mechanism for continuous digital service enhancement.
Private Sector Best Practices: The Lloyds Banking Group Model
While agile, outcome-driven funding remains rare in the public sector, the private sector has long embraced these principles. A prime example is Lloyds Banking Group, which transitioned from a fragmented, waterfall-style IT project model to an agile, value-stream-based approach.
Previously, Lloyds managed approximately 4,000 siloed projects per year, leading to inefficiencies and strategic misalignment. The transformation introduced:
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Customer Journey-Focused Value Streams: Funding teams rather than individual projects, ensuring alignment with strategic priorities.
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OKRs for Prioritisation and Transparency: Objective and Key Results (OKRs) provided a structured framework for decision-making.
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Faster Delivery & Cost Savings: The changes enabled Lloyds to become the UK’s largest digital bank, with 13 million active digital customers, improved customer satisfaction, and significant cost reductions.
The cases of New South Wales, New Jersey, the U.S. federal government, Estonia, and the private sector illustrate the transformative impact of flexible, outcome-driven funding models. Governments worldwide must embrace these principles to enhance digital services, reduce inefficiencies, and align investments with real-world needs.
For the UK, the challenge remains scaling successful experiments like GOV.UK Notify across the public sector. By adopting best practices from leading global examples, the UK can create a more agile, sustainable, and effective digital funding ecosystem.
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Evelyn Woodland
Experienced Senior Marketing Executive with a history of working in the events industry. Currently marketing lead for Govnet Justice portfolio. Marketing professional with a Bachelor of Arts (BA) in Communication from Simon Fraser University.
