Using Competitive Sourcing (or Privatization?) to Improve Performance and Deliver Results Geoffrey Segal Director of Government Reform Reason Foundation

Definitions and Messaging: Change the Paradigm Privatization Privatization –Negative connotation –Not well understood – nor is it accurate –Stay away Competitive Sourcing Competitive Sourcing –Everyone understands competition at a basic level – easy to find real-world examples –Best choice

Competition Realities Competition is just a policy tool, it can be done well or poorly. –Enough studies find things either way on any dimension of success to make us certain it can go either way –Descriptively we see many examples of good and bad – Like all tools, success comes from how well you use it.

Benefits: Delivering Value, Results and Customer Satisfaction Initiatives are NOT just about costs Initiatives are NOT just about costs –Compete to meet specific needs or challenges –Buying Something Different –“Shop Around” and find the “Best Value” Quality and/or Customer Service Quality and/or Customer Service Flexibility and/or Speed Flexibility and/or Speed Access to Personnel or Skills Access to Personnel or Skills Innovation Innovation Small or Minority Business Participation Small or Minority Business Participation Costs are important – long-term avoidance is often overlooked Costs are important – long-term avoidance is often overlooked

Designing a Competitive Sourcing Agenda: Where Do You Start? What Can You Compete? What Can You Compete? –Perhaps a better question is what can’t you? –Jeb Bush’s Guiding Principles The Yellow Pages Test The Yellow Pages Test –Commercial Activities vs. Inherently Governmental –Core vs. Non-Core but Necessary and Non-Core The Media or Customer Service Test The Media or Customer Service Test –Problem Programs Look Elsewhere Look Elsewhere –Don’t Reinvent the Wheel

Examples of Opportunities  Information Technology  Solid Waste  Collection and Disposal  Education Support Services  Water and Wastewater Operations  Maintenance  Road and Highway  Vehicle and Building  Human Resource and Back Office Functions  Parks and Recreation  Golf Courses  Jails  Welfare Administration  Enterprise Data Center Operations  Library Management  EMS  Building Inspections  Lab Work  Design and Construction

Designing a Competitive Sourcing Agenda: How Do You Do It? Centralized Approach Centralized Approach Process is Critical Process is Critical –Borrow from the best A-76 Circular (Federal) A-76 Circular (Federal) GATE Management (Florida) GATE Management (Florida) COMPETE (Virginia) COMPETE (Virginia) Integrating Human Capital Management and Competitive Sourcing Integrating Human Capital Management and Competitive Sourcing

Competitive Sourcing: Historical Challenges Weak Understanding of Outsourcing vs. Competition Weak Understanding of Outsourcing vs. Competition Few Trained Insiders Few Trained Insiders No Performance Metrics or Measures for Success No Performance Metrics or Measures for Success No Centralized Approach to Competition No Centralized Approach to Competition No Consistency in Competition or Contracts No Consistency in Competition or Contracts Not Enough Transparency for Stakeholders Not Enough Transparency for Stakeholders

Sample Decision Tree No Yes No Yes No Yes No Is this activity a core policy function? Is this activity required? Abolish No Retain in-house with process efficiencies Yes Can you enhance the value proposition by bundling this activity with other similar services? Consider a DBFO arrangement Would the fee exceed the cost of the delivering the service? Can a fee be charged for the service? Consider user fee concession arrangement Outsource single service Is there a need for significant capital investment? Yes Consider shared service center Does this activity need to be carried out by State?

Competitive Sourcing: Human Capital Management Perfect for “Right Sizing” Perfect for “Right Sizing” –Know and understand the makeup of the workforce (e.g., core/non-core, ‘status’, future needs) To allow additional competition, flexibility needs to be built into management plan To allow additional competition, flexibility needs to be built into management plan HR infrastructure must support new flexibilities HR infrastructure must support new flexibilities Develop transition and support plans ahead of time Develop transition and support plans ahead of time Competitions should be designed to fill needs and demands, so that one of the solutions includes solving human capital challenges Competitions should be designed to fill needs and demands, so that one of the solutions includes solving human capital challenges

Success Factors for any Reform Initiative 1. Need for Political Champion Indiana OMBIndiana OMB 2. Adopt a Comprehensive Approach 3. Don’t Study (or Committee) it to Death 4. Create a High-level Unit to Manage the Process 5. Outline and Consider Desired Outcomes and Results 6. Design Public Employee Adjustment/Incentive Program

Resistance Where Where –Public Employees –Customers –General Public Why Why –Fear (Job Loss) –Lack of Understanding –“Change is Scary”

Overcoming Resistance Involve and Interact Involve and Interact Dedicate Portion of Savings to Training and Assistance Dedicate Portion of Savings to Training and Assistance –Not just for RIF Transparency Transparency Messaging Messaging –Explain why there is a need, and how things will get better Public Employees SHOULD Embrace Competition Public Employees SHOULD Embrace Competition –Provides an opportunity to prove their worthiness Limit RIFs Through the HR Process Limit RIFs Through the HR Process –Hiring freeze, attrition, find open slots

Call to Action Cannot Emphasize This Enough Cannot Emphasize This Enough –Start Now, Don’t Wait, Don’t Study, Don’t Establish a Task Force or Committee Leadership Leadership –Must start at the Top Ownership Ownership –Starts in this room

Contact Information Geoffrey Segal Director of Government Reform Reason Foundation