On October 6, the Technology CEO Council released its report One Trillion Reasons: How Commercial Best Practices to Maximize Productivity Can Save Taxpayer Money and Enhance Government Services. The report identifes a set of recommendations aimed at reducing US government spending by one trillion dollars over the next decade. The Council believes that their recommendations are actionable, proven ways of reducing the deficit, which are based on real-world expertise, information technologies and organizational practices that are already being successfully applied in the private sector.
A number of the CEOs involved in this study also met with senior White House and Federal Reserve economic officials to discuss their recommendations, which emphasize both the need to reduce the nation’s growing deficit as well as laying a foundation for future innovation and growth.
To quote from the report: “Our government has an opportunity to dramatically reduce spending and cut the deficit, while also improving its level of service to citizens. By harnessing major technological shifts and adopting best business practices, we can not only make our government far more productive, but also foster greater innovation in areas ranging from healthcare to education and energy – innovation that will generate economic growth and job creation.
“We have seen this repeatedly over the past several decades in our own industry, and in the impact of new technology models across our economy and society. Again and again, new capabilities have simultaneously reduced costs and sparked innovation.”
But there are also many similarities. Large government institutions and large companies are both complex organizations employing many people, and providing services to many more - be they citizens or clients. Both operate in increasingly fast-changing environments, which are subject to more frequent, serious and unpredictable problems. Both have access to innovative technologies and management practices that can be of significant help in dealing with their complex operations. And, regardless of whether dealing with citizens or clients, both can significantly benefit from running more efficient, high quality, collaborative organizations. As the report points out:
“While businesses and governments are inherently different in many ways – different responsibilities, different objectives, different mandates – both employ millions of professionals to provide goods and services to hundreds of millions of customers and constituents. Not all private sector solutions are applicable or advisable in a government setting. But for both public and private, the more productive and efficient the operations, the more can be delivered at the lowest cost. Given the current fiscal outlook for governments at all levels, maximizing government productivity will be essential to maintaining the services citizens want at prices taxpayers can afford.”
The report offers seven specific recommendations based on the real-world experiences of the member companies of the Technology CEO Council, as well as those of their customers and partners.
1. Consolidate information technology infrastructures: “The government’s costs of operating information technology systems are higher than they need to be - in some cases by more than a factor of two. Significant savings can be realized if departments and agencies employ proven methods to reduce overall costs of IT ownership.”
2. Streamline government supply chains: “The Federal government buys approximately $550B worth of goods and services each year. These goods and services are procured largely within agencies and departments with independent procurement processes. In 2005, OMB announced the Federal Strategic Sourcing Initiative, with the intent of reducing procurement costs through the application of strategic sourcing initiatives. But the anticipated benefits have not been realized - primarily because budget and procurement processes have not been reformed. The effort also focused too intensively on commodity purchasing and not enough on supplier management.”
3. Reduce energy use: “In November 2009 the President issued Executive Order 13514, which mandated that Federal agencies cut their greenhouse gas emissions and energy / water use. One of the most effective means for reducing energy use is through facilities rationalization. Our experience in call center consolidation suggests that organizations can reduce IT-related energy costs by 25%.”
4. Move to shared services for mission-support activities: “Every dollar spent on support activities and overhead within Federal agencies is a dollar that could be spent on programming or returned to the taxpayer. Why should every agency have its own IT, finance, legal, human resources or procurement operations?”
5. Apply business analytics to reduce improper payments: “The Federal government issues nearly $3 trillion annually in payments in one form or another (e.g., Federal grants, food stamps, Medicare payments, tax refunds). GAO estimates that $72B was lost to improper payments in fiscal year 2008 alone. OMB estimates the number was $98B in 2009 ($54B in Medicaid and Medicare).”
6. Reduce field operations footprint and move to electronic self-service: “Most departments have citizen-facing operations that rely on manual, paper-based business processes. By moving as many touch points as possible to electronic platforms and at the same time rationalizing the government’s field operations footprint, the government can reduce costs and improve the citizen’s experience.”
7. Monetize the government’s assets: “The government has a large inventory of assets that could generate revenue. ‘Mining’ the balance sheet through concessions agreements and other opportunities may generate significant revenues. This could include selling surplus facilities and selling and leasing back others. OMB has found 14,000 excess buildings and 55,000 underutilized buildings in the Federal inventory. The Federal government has other assets – such as rights-of-way for energy transmission – that could be auctioned off.”
These kinds of recommendations are fairly straightforward, and well known to anyone involved in the management of large operations. While one can debate the priorities and the potential savings inherent in each recommendation, they are not controversial. They are also not ideological or political in nature, and, in my opinion, can be embraced by liberals and conservatives alike.
In The Case for Government Reform Now, a paper published in the June 2009 issue of McKinsey Quarterly, the authors made a similar case for a potential savings in the neighborhood of one trillions dollars over ten years through improvements in the efficiency of the Federal government. They observed: “The expanded role of governments means that taxpayers will pay more for public services - and will demand more in return. To meet these expectations, the public sector must transform itself.”
But even when the necessary transformations are clearly visible, it is often nearly impossible to make the required organizational changes. Organizational transformations are very difficult, even in the private sector where everyone is painfully aware of the potential consequences of ignoring the forces of creative destruction. I have seen quite a number of companies in the IT industry go out of business because of the inability of their management to make the necessary changes, even though they understood what had to be done.
In government, these changes are even more difficult. First, in the public sector you don’t quite have the discipline of the invisible hand as you do in the private sector, so government institutions can ignore inefficiencies and poor service that would put a private company out of business. And then there are the take-no-prisoners political squabbles, such as we are going through at present, where both sides of a debate will argue on principle and refuse to come to any kind of agreement, no matter how obvious and rational it may be. A business with such a dysfunctional culture could not survive for long.
In the end, driving organizational change requires leadership, but not quite the top-down leadership from the past. The kind of centralized, hierarchic, command and control organization that may have been adequate in a less global, less dynamic world, no longer works when employees, partners and clients are located all over the world.
Large, global companies have been increasingly embracing a more distributed style of leadership, as they feel the need to become more flexible in response to fast-changing market conditions. They are empowering individuals throughout the organization, including employees, partners and customers, to help address problems as they arise, as well as work together, self-organize into communities of interest, and collaborate in tackling tough problems.
Given the challenges of driving organizational change in government, I see no way other than embracing a more distributed, collaborative style of government that encourages and empowers all citizens to participate in driving change and demanding accountability. It is the only way to get beyond the tired ideological debates we have been going through. One way or another, we need to find the organizational models that will help us better address the critical issues we are facing.
As the One Trillion Reasons report points out, it is critical that government embrace “commercially proven best practices to maximize operational productivity . . . while enhancing the services it provides citizens and laying a foundation for future innovation and growth.”
“The key is leadership - and it must come from all sectors of society. If we can come together around these pragmatic, non-ideological, forward-looking actions, we will be drawing on the fundamental drivers of America’s growth and greatness. Our country still possesses the world’s greatest innovation engine – American society itself. Both business and government can and must be vital partners in making that engine fire on all cylinders.”