Taking the Chaos Out of Government Outsourcing | Article

A Systematic Approach to Outsourcing Can Make Governments Competitive

outsourcing buyer deciding on an outsourcing supplierFor government agencies across the United States, the ability to deliver services to their citizenry is being sorely taxed (no pun intended). Budgets are being strained beyond limit. Quality — and quantity — of services is deteriorating. And the varieties of the prevailing political climate can wreak havoc on long-range planning and consistent and coordinated operational systems. Add to this the fact that many government agencies’ entire existing infrastructure for delivering services is suffering from such maladies as outdated technology, a stagnant work force and the typical bureaucratic red tape that is government’s calling card, and you have a recipe for guaranteed underachievement.

When governments get to the crisis stage, they look to outsourcing, or the privatization of certain government functions, as their “out.” Typically, the crisis is of a financial nature and they are looking to cut costs by contracting with an outsourcing supplier to temporarily take over one of their non-core functions. According to Adrian Moore, director of the Reason Public Policy Institute, a California-based think tank, waiting till there is a crisis to outsource is one of the cardinal sins of government operational policy. “I’m a big advocate of governments actually sitting down and thinking, ‘Okay, let’s come up with a comprehensive approach to how we do outsourcing,'” says Moore. “Basically, governments tend to outsource–as a knee jerk reaction to some crisis, usually a fiscal crisis.” Moore says that because government outsourcing is usually reactionary, it is not well thought out, doesn’t have clear goals (except for short-term cost savings) and is not coordinated with any other outsourcing efforts. He advocates that governments, like business, should approach outsourcing in a systematic way, creating strategies and policies governing outsourcing and including it in their budgets. It is a way for them to stay competitive, just as it is in for-profit entities. But government doesn’t think that way,” Moore laments. “There’s an education process to get them thinking that way.”

A Planned Strategy

One government that is thinking that way is the Commonwealth of Virginia.† As a result of the Virginia Government Competition Act of 1995 and as an outgrowth of recommendations of Governor George Allen’s Commission on Government Reform, the Commonwealth Competition Council was established. This independent, 15-person Council was created to recommend better and less costly ways of providing government services.† Particular focus is placed on reducing the size and scope of government activity, most specifically in the areas where services or products of government can be best provided by private sector organizations.

Though the Council’s main goal is to recommend to the Governor and General Assembly of Virginia alternative ways of providing traditional government services — outsourcing, or privatization — it will also suggest ways to minimize any adverse impact of privatization upon state employees. This is usually accomplished by either allowing a government unit to compete–and possibly win the contract–with a private business for the right to perform the government function that is being outsourced or, if the bid is won by the private business, have them hire the government employees to perform the function. If it is not feasible to move the government employees into the private company’s work force, the state is required to train the displaced government employees (if it is necessary) and find gainful employment for them.

Reason’s Moore is bullish on Virginia’s Commonwealth Competition Council.† “They’ve been very entrepreneurial in looking for different ways government can better manage its assets, better deliver services and use outsourcing strategically. They sort of push the envelope and are willing even to experiment with new methods of outsourcing, Employee Stock Ownership Plans, and things like this.”

Overcoming Work Force Resistance

Like any well-run business, the two primary goals of government agencies are 1) provide the very best product and service possible and 2) to provide that product and service in the most cost-effective way possible. To be sure, in a for-profit business environment, the galvanizing of the work force to achieve these objectives is a lot less problematic than in a government agency environment. Consistent, planned, and strategic outsourcing is a departure from typical government policy and would meet stiff resistance among the work force. How do you overcome it? And how do you prevent an attempt to privatize a particular function in a department or agency from being sabotaged by those who see it as a threat to their jobs?

“Adopt a comprehensive approach,” is Moore’s answer to this dilemma. Instead of rolling out a pilot outsourcing project in one department or agency, allowing the opposition to kill it, you do it across several department or agencies. This accomplishes three things: First, it effectively thwarts the opposition’s efforts because they cannot focus all their efforts on any one department or agency. Second, it democratizes the process; no one unit feels that it is being singled out and picked on. Third, a ripple effect is created across the entire government. The in-house units that have not been subject to outsourcing begin coming up with cost-saving proposals in an attempt to stave off outsourcing. The real possibility of privatization creates a competitive environment that produces better productivity within government departments and agencies.

Moore is quick to add that all this doesn’t mean governments shouldn’t start outsourcing in those specific areas where it is most needed, the “easier, low-hanging fruit” as he calls it. But he does stress that governments should do it within the context of the comprehensive approach.

Lessons from the Outsourcing Primer

  • Government outsourcing should be approached through a systematic, comprehensive strategy instead of a knee jerk reaction to fiscal crises.
  • To overcome resistance to government outsourcing, it should be instituted as a broad initiative across a number of departments and agencies.
  • Outsourcing not only provides an opportunity for governments to cut costs and increase productivity, but it also creates a competitive environment that gives government an incentive to work better.


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