SaaS Up to Digital Democracy | H.E.R.O. Issue 6, 19 October 2020
"We want to play our role, helping to regain trust in Democracy through digitization. Enabling a new generation of strong, transparent, and efficient government institutions."
- Mr. K, Founder and CEO of Denmark's #1 cloud software in process transformation for the public sector
Denmark is ranked number one in the United Nations e-Government index, as well as in the EU's DESI index (Digital Economy and Society Index). Denmark did not achieve this position out of nowhere - a quiet SaaS (Software-as-a-Service) innovator has been a key enabler to the country's digital democracy by building standard software for government based on a deep understanding of the nature of both democracy and bureaucracy. The quiet innovator's growth plan is supported by a unique Danish national position within public digitization, where more than 50 government organizations and two-thirds, or 13 out of the 18, of all Danish ministries run their business on its software. And this innovator is also having growing breakthrough overseas market success in Germany, France, UK, the Emirates and the United States, and winning new private sector customers.
This week, we highlight one of our portfolio companies, Denmark's #1 cloud software in process transformation for the public sector, which is up +12.5% during the week (12 to 16 Oct 2020). This rising dividend-yielding highly-profitable and cashflow generative company has also compounded +345% in capital gains in the recent 1 year vs MSCI ACWI World index +10.7%.
The H.E.R.O. journey began when founder & CEO Mr. K and CTO Mr. J, who are also two of the driving forces behind the "Denmark 3.0" think tank, envisioned providing organizations with a new way of getting things done with a "Swiss Army for digitization" and stems from. the bureaucracy concept of the German economist and sociologist Max Weber (1864-1920). In close collaboration with the public administration and ministries, they developed a standard cloud software can be configured to run in any type of government organization to digitize all mission-critical workflows, knowledge processing, records management and communication, including social media, while supporting everybody from youngest employee to top executives including Permanent Secretary, Minister or CEO.
Importantly, the company's cloud software solutions offers a real and extremely attractive alternative to the legacy systems of major IT project-based companies. There are still many authorities who see themselves as very special and who have difficulty believing that it is possible to implement a digital transformation based on standard software, including supporting their business and individual work processes. Through more and more successful projects, the company has demonstrated that its cloud software makes it possible to deliver solutions faster, at a higher quality level and with the use of significantly fewer hours. This, of course, gives the company a significant exponential edge, which has created the basis for its success.
Notably, before the company's innovative cloud software system was increasingly widely adopted, the Danish public sector has been plagued for years by a series of major IT scandals, wasting billions on inept systems. One of the most well-known examples is the Danish Labour Market Authority's IT system, Amanda, which was scrapped in 2008 and cost about one billion kroner. The police case management system, Polsag, also went off the rails and was scrapped in 2012. Here the bill was about half a billion kroner. In 2014, the Danish Labour Injuries Authority had to de-kill a system that resulted in a total loss of more than DKK 280 million.
One of the most high profile fraud scandals in Danish history was that the Danish tax authority Skat has been swindled for more than DKK 9 billion over a period of several years during which the British Indian businessman Sanjay Shah is suspected of having used an advanced scam, in applying for dividend tax reimbursement without actually owning the shares for which he would have repaid tax, to extract billions over 2012-2015 from the Danish Treasury.
The many IT scandals in the public sector have led to the fact that the authorities have increasingly moved away from building special solutions from scratch themselves, instead buying into standard cloud software. Notably, the quiet innovator has provided the Danish Tax Agency a cloud software solution that handles case processing in connection with dividend reimbursement, and in a TV news broadcast, Skat stated that during the first year, requests for payment of dividend refunds had been processed for DKK 3.8 billion, of which DKK 2.1 billion had been rejected.
Last year, the company launched a major project around a digital support of the Danish Environmental Protection Agency's processes across areas such as grant administration, permits and control and supervision. This work, combined with the fact that the departments in both the Ministry of Climate and the Ministry of the Environment also use its software, positions the company well as a digital supplier in connection with climate and the environment.
In May 2020, the company announced that it has won a significant cloud software contract, the single largest to date in the company's history, with one of the major authorities in the German central administration which has branches in all German states. CEO Mr. K commented: "The strategy is to find a lighthouse customer, where we then start building around the customer. The customer in Germany has a size roughly equivalent to half of the Danish central administration, so it is a very large customer for us." This means that the company has a more protected competitive advantage because the company does not necessarily have to jump from one order to the next, CEO Mr. K explains. At the same time, through continued successful implementation of the cloud software, the company hopes to be able to be awarded additional orders with the authority.
This was followed by an announcement in July 2020 that the company had won its first public tender in France with a large Paris-based authority, as well as entering into the national framework agreement in France which has made it much easier and much faster for authorities in France to purchase the company's cloud software.
In August 2020, the company announced the winning of its first contract in the United States for USDA (Department of Agriculture), which is one of the very large national authorities in the US central administration. The U.S. market is difficult to enter, especially as a supplier focusing on the public sector. The U.S. public sector is the largest public purchaser of IT in the world, and as part of the company's long-term growth plan, it has been working for more than 4 years to enter this market. The company's software was used to help bring together data from multiple agencies to help America’s farmers. Through the use of technology and the support of several partners, USDA has been able to deliver a streamlined digitized approach to information key to a farmer’s work.
Founder and CEO Mr. K shared the company's Purpose Quotient (PQ): "Our mission is to help governments transform from being paper-based bureaucracies to digitised working environments and thereby contribute to creating efficient, accountable and transparent public institutions. This allows institutions to deliver quality citizen-centric services as work processes are defined with incorporated control mechanisms, all activities performed are accounted for, and responsibilities are clearly delegated. The transformation towards a digitised democracy is, thus, a core part of working towards the United Nations Sustainable Development Goals (SDGs), as it will help institutions take action towards meeting the goals effectively. We believe in a society based on democracy and digitization being the enabler for a new generation of strong, transparent, and efficient government institutions. We offer government institutions a fast track to transforming themselves into next-generation, highly efficient, transparent, responsive and trustworthy digitally government institutions. Today, more than 50 Danish authorities use our software, and in the spring, the UN again named Denmark as the leading country within E-government (United Nations E-government survey 2020). This gives our company a very strong international reference position."