Making local government more workable through shared services

Posted on May 14, 2009


In this era of “permanent fiscal crisis,” local governments have no choice but to seek out new and better ways of providing the services citizen’s demand within the constraint of available resources. (1) This may explain why nearly twice as many (58 percent to 31 percent) local governments in 2002 as in 1992 contemplated alternative service delivery methods such as privatization. This article examines one particular method that has long been used by governments but receives much less public discourse than privatization–shared services.

Considering the extensive library of resources I have accumulated over the years regarding shared services in the public sector, it is interesting that the above excerpt from an article published in February 2006 would catch my attention.

This of course led me to think about a Procurement Insights post from October 2007 titled “Can present day PWGSC woes be traced back to a 1995 article on the General Services Administration in the U.S.?”  It was an interesting piece in that it touched on some of the very same problems we continue to face today, and are reflected in comments from individuals such as David Marshall who in 2007 said “that Tipple’s proposals were creating upheaval in the department among employees and unions who feared job losses.”

Certainly the recent economic climate that threatens to delay retirement for many has complicated the 2005 Alcock prognostication that said (job) losses will be “easily managed without layoffs because of the massive wave of baby boomers who will be retiring over the next five to seven years.”  Well here we are almost four years later and a March 26, 2009 article in the Financial Post reported that “The government has been on the biggest youth recruitment drive since the 1970s as it copes with waves of baby boomers retiring between now and 2012. It hired more than 4,000 graduates in 2007-08 and another 4,200 for 2008-09.”  Perhaps my math is a little rusty but weren’t the jobs being vacated by the retiring public sector workers the very same one’s that were targeted for replacement under a shared services strategy?  Yet according to the Financial Post, the government is in hiring mode.  In basic home finance, this is a situation where you can’t make both ends meet.

I wonder if this came up in the November 2005 Ottawa Shared Services Conference conducted by the Conference Board of Canada in partnership with Accenture?  I will have to review my notes.

That said I thought that I would once again share with you the following October 2007 Procurement Insights post.  I am not suggesting that privatization is on the near (or even far) horizon, at least not at this point.  However, I have learned that anything and everything is possible.  If only the Government hierarchy would talk to us more, and let us in on what they are really thinking.  Then again if they did, what would we write about?

Can present day PWGSC woes be traced back to a 1995 article on the General Services Administration in the US?” (REPRINT)

“Of all the agencies and departments that have been discussed for privatization this year, the GSA would be one of the easiest to privatize.  Its many services are available from the private sector, whose more successful firms offer a blueprint for how a privatized GSA could survive and thrive in a competitive environment.  Moreover, because of the routine and commercial nature of most of its operations, as well as the performance benchmarks provided by its private sector counterparts, GSA is amenable to forms of privatization that allows for substantial and active participation by the existing federal workforce.  Thus, besides saving a considerable sum for the taxpayer, privatization of the GSA could become a model for many of the other privatizations lawmakers and Administration officials say they intend to pursue.

Dr. Ronald D. Utt, Ph.D.

Privatize the General Services Administration through an Employee Buyout

May 26, 1995 – The Heritage Foundation

In my October 6th posting (NPM’s guiding principles for creating a “Slim” State: What Marshall, Tipple and Rotor should have known?) I indicated that David Marshall’s decision to look outside of the government for transformation leadership (a decision he later admitted was a mistake), was centered on “private sector bigotry.”

What is interesting about the Utt article (besides the fact that many of the challenges referenced in 1995 still apply to the GSA today), is that technically his observations surrounding the apparent shortfalls in public sector procurement practice have a high degree of merit.  However, his suggested methods for addressing said challenges are based on the perceived superiority of the private sector.  This of course is problematic, especially when a hybrid version of privatization principles are introduced into a public sector environment such as with the GoC shared services agenda.

For example, citing the principle behind the GSA’s creation in 1949 whereby the centralization of the buying mechanism could achieve significant savings through “specialization and economies of scale,” Utt maintained that “any cost advantages from the government’s vast buying power was more than offset by bureaucratic inefficiencies and rigidities.”

Utt’s position that the resulting problems are a characteristic of “any government monopoly,” that attempts to do “what is often done better and cheaper by leaner more flexible” organizations is a reasonable evolution in his thought process.  Unfortunately, it is his definition of a leaner and more flexible organization that is flawed, specifically Utt’s assertion that the ideal vehicle for addressing GSA inefficiencies is a “profit-making private company.”

In reality, I believe that the flexibility to which Utt had referred is better accomplished through a decentralized operational collaboration at the department or agency level within an existing bureaucratic framework.  (The key word being collaboration as it is imperative to understand the nature of the individual pieces before you can reliably bring them together under a cohesive and sustainable program.)

A fork in the road

Perhaps it is the very premise of private sector superiority that has led the GoC to continually “go to the well” of purported private sector expertise in an effort to define its current procurement practice.  Certainly, the Henry – Blank presentation on “The Role of Governance in Transformation” at last week’s GTEC conference would seem to indicate that this viewpoint is very much alive within the bureaucracy.

Ironically, it was the suggestion of privatization, either in practice or principle that was likely at the heart of David Marshall’s testimony that Tipple’s proposals were “creating upheaval in the department among employees and unions who feared job losses.”

The fallout from this atmosphere of fear is that the self-preservation instinct kicks in, and with it a shift in focus from improving operating efficiencies to one of position justification.  And it is this mindset that needs to be addressed and diffused before any meaningful progress can be made with procurement reform.

What is unfortunate about the entire “privatization” concept is that it doesn’t recognize the fact that there is a distinct and significant difference between public and private sector procurement practice.

In the summer of 2006, I chaired the Summit Roundtable that reviewed the critical elements of the Federal Government’s Way Forward initiative.  Based on the input that was received through a series of meetings in which representatives from both the public and private sectors were in attendance, I drafted a procurement blueprint.

An excerpt from that blueprint indicated that a general consensus was reached in terms of the purchasing guidelines that define public sector practice.  And I quote, “it is also generally agreed that government is not a corporation and therefore has different priorities and imperatives to meet when procuring goods and services.  This acknowledgment takes into account socioeconomic implications including the importance of developing key Canadian business sectors or industries.  Examples of key sectors or industries include the SME/minority-owned business community, or Canadian-based manufacturing sectors such as shipbuilding where job creation and community financial stability are taken into consideration.”

Dr. Utt’s 1995 article’s lack of understanding or recognition of this key tenet is where he misses the mark.  It is also through the introduction of an ersatz private sector mandate on the part of the GoC that has created what some have referred to as a rudderless PWGSC ship.

Inefficiency is not an issue to be conquered!

Many within the public sector ranks point to the “media’s exploitation of past anecdotes of alleged incompetent buying,” such as the U.S. Department of Defense paying $436 for a hammer, that is often behind the seemingly pervasive bureaucratic fear of ending up on the front page of the local newspaper.  Some even perceive this to be one of the key drivers of public sector procurement policy.

Fanning this fire are contentions such as the one expressed by Utt that the reason for GSA inefficiencies and high costs is that it “suffers from fundamental flaws in its operation, from the contradictory nature of its tasks, to the monopoly it enjoys over services provided to federal agencies.”  And while the General Accounting Office (GOA) was able to provide documented proof of these “flaws and excessive costs,” it only acts to highlight rather than address the problems.  As an advocate of Jim Collins’ “autopsies without blame” (please read Good to Great) criticism without the provision of a viable alternative is ultimately counter-productive.  And privatization or a privatization mentality is not a viable alternative.

Notwithstanding Ms. Blank’s “divide and conquer” reference in her 2004 presentation, inefficiencies within the bureaucratic process are not issues to be conquered.  Instead, they need to be understood and addressed through a collaborative effort involving key stakeholders both within and external to the government itself.

Until this critical fact is recognized and acted upon within the framework of the guiding principles that define public sector procurement, the bureaucracy and the taxpayers that fund it will continue to “twist in the wind” of uncertainty and disillusionment.

When a shared services strategy makes sense?

As I have always maintained, the broad application of any strategy, regardless of how effective it is in one area of a procurement practice does not mean that it is scalable on an enterprise-wide basis.

One example is the January 2007 joint press release by the Office of Personnel Management (OPM) and the GSA.  In the release both organizations announced that they had “established the technical specifications for private sector firms to be certified as private sector Human Resources Line of Business (HR LOB) Shared Services Centers.”

While I have not yet had the opportunity to review the new program in detail, the stakeholders claim that this move will “lower the operational cost of federal human resources offices.”   The point I would like to make is that there are circumstances or areas of operation that may be very well suited to a “privatized” shared services platform.

However, determining the true viability of this or any strategy will continue to be an illusive (and elusive) quest as long as a collaborative (not combative) element is absent from the present initiative.

PI Window on Business Special (For Want of a Nail: The Pandemic Effect)

Be sure to mark Tuesday, May 26th on your calendars so that you will remember to tune in to the first of four PI Window on Business 90-minute Specials.  In this initial Special titled “For Want of a Nail: The Pandemic Effect,” I will be joined by Nick Kelley, a researcher from the University of Minnesota’s Center for Infectious Disease Research and Policy, and the lead author of the November 2008 white paper “Pandemic Influenza, Electricity, and the Coal Supply Chain (Addressing Crucial Preparedness Gaps in the United States), to discuss the true nature of the latest swine flu crisis in terms of its potential impact on supply chains.  It is a show you will not want to miss!

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