Government Executive - Authors - William D. Eggers

Six strategies for transforming citizen service delivery

William D. Eggers — Wed, 20 Jul 2022 11:51:00 -0400

Organizing government services around life events has become increasingly popular worldwide. Late last year, President Joe Biden signed an executive order to bring life-event service delivery to citizens across the United States.

The president’s directive reorganizes the delivery of government services around five specific life events for citizens, including retirement, having children, leaving the military, surviving natural disasters and navigating financial shocks. It represents a transformational and highly impactful mindset shift for government agencies who provide critical services to Americans.

Today, accessing federal resources around any significant life event requires American citizens to navigate a time-consuming and complex obstacle course of bureaucracy. The president’s executive order aims to make it easier and more efficient to access critical government services by streamlining digital entry points, improving the quality of information about vital programs and investing meaningful resources in federal technology modernization. It can significantly strengthen the way that government agencies do business and enhance the citizen experience.

To achieve the goals outlined in the president’s directive, federal agencies will need to cooperate, share information and get their technology to better communicate – all while putting citizens, not agency convenience, at the center of their missions. Agencies can get there by embracing six key strategies:

Put users at the heart of service integration: The citizen must remain at the center of every design choice. Agency leaders should test each new digital service improvement by conducting interviews with citizens and identifying major pain points and sources of friction. Listening to feedback from everyday Americans will help agencies fine tune their services and enhance the citizen experience.
Design a governance model that’s right for each agency: A multi-agency project must assign accountability and determine authority. The ideal governance model for a life-event-centered service model will allow government leaders to give different agencies responsibility for different segments of the citizen experience.
Incentivize agencies to work together through shared funding: To overworked federal staff, a whole-of-government approach can feel like an added responsibility. As one worker put it, “We’re going to be measured on our own performance, and not on cross-agency performance.” Funding mechanisms for shared responsibilities should provide appropriate incentives and give agencies more flexibility.
Determine the right data-sharing and technology model: Sharing data makes it imperative for government computers to speak the same language. Shared Application Programming Interfaces (APIs) and shared data formats can help agencies collaborate.
Prioritize privacy and data security: Seamless API integration can make data sharing easy. It must also make data sharing secure. Offering citizens an opportunity manage their information on one central and secure platform can provide more security than requiring citizens to enter their personal information on a dozen different applications.
Prioritize user trust: Citizens won’t try new approaches unless they trust them. And secure data protections can help strengthen citizen trust in life-event service delivery.

Each of these six strategies is mutually reinforcing. Focusing on the individual user informs an effective governance model. An effective governance model can efficaciously and efficiently distribute interagency funding. A safe API and data-sharing model ensures citizen privacy and data security. Citizens with a secure experience accessing government services will have more trust in government. And with more trust in government, agencies can continue to successfully serve the American people and fulfill their missions.

The transformation to life-event service delivery won’t be easy. It requires behind-the-scenes wrangling – from getting different agency computer systems to better share data, to aligning funding models that incentivize collaboration. But these six strategies can help advance the shift.

William D. Eggers serves as the executive director of the Deloitte Center for Government Insights. A noted expert on government reform, he has authored numerous books, including: “Delivering on Digital,” “The Solution Revolution,” “If We Can Put a Man on the Moon” and “Governing by Network.” He recently testified before the Senate Committee on Homeland Security and Governmental Affairs on CX and life events-based service delivery.

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6 Strategies for Transforming Citizen Service Delivery

William D. Eggers — Tue, 19 Jul 2022 05:59:00 -0400

Put users at the heart of service integration: The citizen must remain at the center of every design choice. Agency leaders should test each new digital service improvement by conducting interviews with citizens and identifying major pain points and sources of friction. Listening to feedback from everyday Americans will help agencies fine tune their services and enhance the citizen experience.
Design a governance model that’s right for each agency: A multi-agency project must assign accountability and determine authority. The ideal governance model for a life-event-centered service model will allow government leaders to give different agencies responsibility for different segments of the citizen experience.
Incentivize agencies to work together through shared funding: To overworked federal staff, a whole-of-government approach can feel like an added responsibility. As one worker put it, “We’re going to be measured on our own performance, and not on cross-agency performance.” Funding mechanisms for shared responsibilities should provide appropriate incentives and give agencies more flexibility.
Determine the right data-sharing and technology model: Sharing data makes it imperative for government computers to speak the same language. Shared Application Programming Interfaces (APIs) and shared data formats can help agencies collaborate.
Prioritize privacy and data security: Seamless API integration can make data sharing easy. It must also make data sharing secure. Offering citizens an opportunity manage their information on one central and secure platform can provide more security than requiring citizens to enter their personal information on a dozen different applications.
Prioritize user trust: Citizens won’t try new approaches unless they trust them. And secure data protections can help strengthen citizen trust in life-event service delivery.

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10 Trends Reshaping Government in the Pandemic’s Wake

William D. Eggers — Mon, 04 Apr 2022 05:59:00 -0400

While the COVID-19 pandemic continues to challenge the federal government, battle-hardened agencies are seizing the opportunity to build for the future and prepare for the inevitable crises to come.

The obligation to become future-ready permeates government officials’ thinking and planning. Agencies are looking to build long-term resilience, overhaul and integrate systems for greater impact and make programs and services more equitable and inclusive – for everyone.

Looking ahead, Deloitte has identified 10 transformative trends driving public-sector operations:

Climate-resilient government

Climate resilience has risen to the top of the federal government’s agenda. More agencies now link climate action to their core missions and are looking to maximize data analytics to prepare for climate-related disruptions. Federal agencies are also increasingly investing in resilient infrastructure to withstand extreme weather events and better protect disadvantaged communities.

Reshoring and friendshoring supply chains

Long after the pandemic’s initial shock, supply chain challenges continue to create shortages for both suppliers and consumers. The federal government is working to reduce external dependencies and increase resilience. Where it’s impossible to reshore critical supply chains, efforts are underway to “friendshore” supply chains by creating networks of trusted suppliers.

Future-proofing the labor force

Even before the pandemic, the labor market experienced dramatic shifts. Technological advances widened the skills gap and increased the demand for specific jobs. To mitigate ongoing labor disruptions across many industries, the federal government is aiming to rebalance labor markets by investing in new policies, education, skills training, credentialing and employment frameworks.

Linked-up government

Silos within and between federal agencies administering government programs have long stymied efforts to tackle complicated and systemic challenges. In response to COVID-19 and rising public frustration with systems that don’t work well together, agencies are creating interagency structures that break silos and focus on responding to complex community needs.

Data-fueled government

The pandemic underlined the importance of making data readily available to federal agencies so that they can put it to good use. Many agencies are establishing or enhancing the role of the chief data officer to eliminate widespread data gaps and incompatibility issues, improve effective data-sharing efforts, enhance cloud infrastructure and implement advanced data management tools.

Government as catalyst for innovation

Federal agencies are catalyzing innovation by serving as an enabler, funder, convener and ecosystem integrator to accelerate solutions, link external capabilities and advance next-generation technologies.

Collaborating for public health preparedness

Aided by increasing digitization, federal agencies are increasing collaboration with international organizations to build early warning systems, accelerate scientific R&D and strengthen public health capabilities in low-income nations.

Digital access for all

The federal government is working to bridge the digital divide with more affordable and accessible broadband. Agencies are also redesigning digital platforms, ecosystems and infrastructure to help disadvantaged populations access critical services and social care.

Designing for richer community engagement

Without the ability to cut through the noise and deliver accurate, important messages to constituents, agencies can struggle to build trust and make programs function. That’s why the federal government is looking beyond traditional methods of communication and focusing on how to better engage marginalized communities and enhance public trust.

Reimagining social care

The crisis has compelled federal agencies to re-examine how to provide equitable, seamless, and effective social care services under shifting conditions. Social care leaders are increasingly integrating data across multiple sources to develop early interventions, adopting a human-centered mindset to design and deliver programs and providing more holistic “wraparound” support to help recipients.

William D. Eggers serves as the executive director of the Deloitte Center for Government Insights. A noted expert on government reform, he has authored nine books, including: “Delivering on Digital,” “The Solution Revolution,” “If We Can Put a Man on the Moon” and “Governing by Network.”

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The Regulator of Tomorrow

William D. Eggers and Avijeet Sinha — Wed, 27 Jan 2021 09:00:00 -0500

Technology is advancing at an exponential pace. Government will need to adapt. It’s not just a question of regulating new technologies like artificial intelligence and gene editing to prevent harm. Technology is changing the capabilities of regulators in ways that the founders of regulatory agencies would never have dreamed of when they first armed inspectors with clipboards.

Five major trends could underpin the future of regulation and enforcement:

1. Risk-based regulation: RBR focuses resources where data anticipates a need. Algorithms flag potential problems and prioritize likely offenders or hot spots. Enforcement budgets get relief and violations are more likely to be spotted.

Regulators have already built RBR with technology like data analytics and artificial intelligence. For example, food inspectors can use data collected about everything from temperature readings to reports of illness to target restaurants most likely to be violating safe food handling practices. Algorithmic red flags could also be used to identify potential tax fraud, money laundering, or exploitative supply chains.

2. Positive enforcement: Positive enforcement is a strategy of not just punishing bad behavior but rewarding progress beyond the bare minimum. Positive enforcement is still in its infancy in most jurisdictions. The most common form rewards a record of good compliance with greater trust. For example, a multi-site business that passes several in-person inspections could then be trusted with virtual inspections in the future.

3. Regulatory technology: Regulators now have tools to reinvent their own jobs. RegTech touches everything from compliance to policymaking. Autonomous drones with gas sensors and hyperspectral cameras can inspect miles of pipeline. Natural Language Processing and machine learning can sort and compare hundreds of thousands of patent applications. Robotic Process Automation can autofill data for businesses applying for permits. The Internet of Things can use sensors to save exponential amounts of time, like earthquake sensors on buildings in Wellington, New Zealand, that indicate which building experienced the most damage, and which are safe to return to.

4. Rules as code: When computers administer benefits or licenses, programmers can literally encode the rules in code. Some laws naturally end up translated to computer code. Take, for example, an online hunting license order. A well-designed state Fish and Wildlife website will simply make it impossible to purchase conflicting tags. This spares citizens a trip through the fine print. When the law itself is written as code, it spares the fine print for everyone. Similarly, updates to New Zealand’s Rates Rebate Act and Holiday Act are written in if-then statements that a computer can read as code to ensure computer systems distribute funds exactly as required. Judges needn’t argue over the meaning of the law—the intent is clear enough for a computer. Encoding laws for enforcement will become increasingly important when the laws underpin AI or when a proposed law could benefit from A/B testing.

5. Touchless compliance: When drivers cross the Golden Gate Bridge, they don’t have to stop for a tollbooth. Either a machine charges a pre-funded device in their cars, or a camera photographs a license plate and sends a bill to the address where the vehicle is registered. This is an early application of touchless compliance—a strategy for regulation that minimizes the hassle for users. Automated speeding tickets or red-light cameras are not only more fair and effective at cutting traffic accidents, they also reduce the need for human police enforcement, cutting costs and limiting situations that might escalate into a liability.

Ethical Application of Technology

These advances are not without ethical concerns. Technological changes can revolutionize government’s ability to equally enforce laws and better serve citizens, but they can also create ethical issues. Proper implementation of new technologies cannot become careless box-checking. It should protect privacy rights and avoid the pitfalls of algorithmic bias. For example, machine learning that examines potential illegal financial transactions can turn up evidence of money laundering. (Imagine it in your best digital assistant recommendation voice: “shell companies that registered at this address also do business with these foreign entities.”) Meanwhile, similar scrutiny of contacts and purchases would be unethical when directed at normal law-abiding civilians.

A future court battle could someday revolve around the substantive difference between indiscriminately collecting license plate data and indiscriminately collecting data about international money transfers. For now, regulators should continue to be mindful of citizen privacy, even while identifying corporate misbehavior.

The five future shifts noted above could revolutionize regulation. As the economy grows ever more complex, remote, and digital, a new realm of regulatory compliance could emerge from the seeds of change that agencies plant now.

William Daniel Eggers is the executive director of the Deloitte Center for Government Insights. His most recent publication is: “Creating the government of the future: Uncovering the building blocks of change to become more anticipatory, human-centered, and resilient.”

Avijeet Sinha is a principal in Deloitte Consulting LP. He leads the financial regulatory practice for Deloitte’s Government and Public Services industry.

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Three Capabilities Agencies Must Master to Succeed in Future Crises

William D. Eggers — Tue, 28 Jul 2020 14:34:26 -0400

In December 2019, a group of infectious disease experts at South Korea’s Center for Disease Control and Prevention (KCDC) tackled what was then a hypothetical scenario. In the scenario, a South Korean family contracts pneumonia after visiting China, where a new disease has begun to spread. After returning home, the family infects colleagues, family members and medical workers with the novel disease.

Just one month later, the testing and tracing protocols developed by the KCDC proved invaluable as the country grappled with a nearly identical scenario—the COVID-19 pandemic—and South Korea’s rapid and effective response garnered international praise.

These were government employees, not fortune tellers, but while the KCDC may not have had a crystal ball, they relied on something nearly as valuable: foresight, agility and resilience.

As outlined in our recent report, as new technology, demographic shifts, natural disasters and pandemics lead to an increasingly uncertain future, these three skills have become indispensable to government institutions.

Foresight, agility and resilience are similar but distinct. By mastering all three and deploying them synergistically, governments will be better prepared to weather most storms without the aid of clairvoyance.

Foresight

By developing foresight, governments can anticipate future developments that might disrupt their operations—or enhance them, as in the case of improved data analysis technologies or Artificial Intelligence.

While the coronavirus pandemic is an example of a sudden paradigm shift, many of the changes that catch agencies by surprise are actually the result of broader trends. By keeping abreast of emerging trends and new technologies, a keen organization can find itself ahead of the curve rather than behind it.

The United Kingdom, for instance, has a program dedicated to evaluating emerging trends in technology, societal attitudes, resource supply and demand and demographics. This program helps the government to better understand the potential impact of these factors on policy making.

Of course, trend and horizon scanning cannot prepare governments for every high-impact “black or white swan” event such as the coronavirus pandemic, but—as the KCDC team demonstrated—scenarios can help make such events less of a surprise in the future.

Scenarios come in various forms, with each serving a different purpose. For their pandemic scenario, the KCDC engaged in a tabletop exercise, exploring different courses of action for a short-term scenario. This type of scenario can also be useful to prepare leadership teams, foster collaboration or stress-test a new plan before it is put into practice.

Classic scenario planning and strategy can be useful for those with an eye on the long game, looking five to 10 years into the future at a broad variety of possible situations, while wargaming allows officials to play out potential responses with real-time feedback.

Ultimately, no amount of foresight will benefit an agency that is unwilling to adapt. It is therefore imperative that organizations embrace uncertainty and develop a bias toward action, rather than freezing in the face of change.

Agility

By cultivating agility, the ability to identify, act and learn as circumstances change, governments can recognize a crisis when it arises and act quickly to deploy the strategies they have developed through foresight.

Agility is an asset both during a crisis and in day-to-day operations, but the skill must be developed at an organizational level. An agency wed to the status quo is simply incapable of engaging in the type of fast, flexible decision and policymaking necessary in moments of disruption.

Take for example India’s Ministry of Health and Family Welfare, which adopted a series of “soft laws” in the wake of the coronavirus pandemic, allowing for medical providers to practice telemedicine. This swift regulatory action brought medical care directly into the homes of those in lockdown, while a less agile response might have forced them to forego routine care or risk spreading the virus to obtain it.

Resilience

While agility enables an organization to nimbly respond to disruptions as they occur, resilience prepares it to withstand future disruptions.

Over time, the storm-battered state of Florida has invested significantly in natural disaster preparedness, offering homeowners free hurricane mitigation inspections, conducting regular disaster preparedness drills and adopting a storm-ready building code.

Essentially, resilience is the practice of laying the groundwork now for future disasters by learning from current ones.

This is evident in current efforts the United States and United Kingdom are making to bolster their cybersecurity. The U.S. Cybersecurity and Infrastructure Security Agency has created a one-stop shop offering dedicated cybersecurity products to support telework policies. The United Kingdom is nurturing talent with an online school that teaches vital cybersecurity skills. While the efforts were prompted by rapid digitization amid the coronavirus pandemic, improved cybersecurity practices will prove vital long term, as the digital sphere continues to widen.

Foresight, agility and resilience are distinct, but when employed in tandem can produce superior results.

South Korea’s CDC could not have known a global pandemic was on the horizon, but they had the foresight to consider what was possible, the agility to adapt when that hypothetical became a reality and the resilience to quickly bounce back once the outbreak was contained.

Bill Eggers is the executive director of Deloitte’s Center for Government Insights where he is responsible for the firm’s public sector thought leadership.

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Government Workforce Management—Overdue for an Overhaul

William D. Eggers and John O'Leary — Mon, 22 Apr 2019 13:10:23 -0400

In 2017, it took the federal government an average of 106 days to hire a new employee. In that time, most private sector companies can hire, onboard and begin seeing meaningful contributions from new employees. At the state level, the number of job applicants plummeted 24 percent from 2013 through 2017, despite an 11 percent increase in job postings.

Today’s best companies are all about unleashing the talents of their employees. Government, on the other hand, is handicapped by outdated management rules.

Public sector leaders know better than anyone that changes are needed.

“It makes no sense to me whatsoever that we have to try to recruit, hire, retain, and pay people in a system that was designed in the 1940s,” Angela Bailey, Chief Human Capital Officer of the Department of Homeland Security told the Federal News Network.

The gap between the public sector and the private sector in modern workforce management policies is wide and appears to be getting wider. Successful organizations strive to make their employees successful, both as individuals and as part of a team. Too often, the public sector is locked into decades-old workforce policies, weighed down by rigid job classifications, inflexible pay, and a reliance on seniority as a substitute for capability. The result isn’t good for performance or employees.

This isn’t a worker problem. This is a system problem. High-performing talent wants the kind of meaningful, high-impact work that government has to offer. But agencies’ inflexible, rule-based approach to managing its workforces can make top talent wonder if government is the right place for them to shine.

That’s a shame, because government needs the very best talent to tackle today’s challenges.

To attract the best, government needs to modernize its approach to work. This likely includes greater investment in the skills of current employees.

That won’t be easy. Fundamentally redesigning government work would mean jettisoning bureaucratic controls built up over decades. It could mean investing in employees to help them gain skills they need to tackle the toughest problems. Here are five ideas to consider for such a reform effort.

Recognize the individual worker. Every employee is unique. Governments can adopt more flexible personnel systems, opening the door for higher pay, better use of contractors, and adjusted benefits packages. All-star tech talent commands a huge range of pay in the private market, especially when working for equity. A one-size-fits-all approach won’t meet the demands of today’s top performers.

Simplify job descriptions. When it comes to flexibility, job classifications might be a good place to start. California recently removed more than 700 job classifications. Tennessee reclassified its IT positions in 2013, restructuring the states’ IT organization chart to suit expected technology needs. Tennessee’s employees had to reapply for their old jobs. However, the system offered support for these employees—mapping a path from the jobs the state won’t need to the ones it will.

Reskill workers into new roles. Continuous reskilling can help prepare the workforce for inevitable changes. To prepare public workers for the digital revolution, the UK has created a digital skills “bootcamp,” in which government employees leave their department for a week to learn the tenets of skills like agile development or human-centered design. These employees are offered the necessary background to participate in new agile projects and the opportunity to learn on the job alongside experienced professionals.

Consider how upskilling could improve productivity. A study found that people who learn the most on the job are 47% less likely to be stressed at work. Relaxation leads to gains in focus, and productivity, and further down the road, reduced health care, insurance, and worker’s comp costs.

Use technology to amplify human capabilities. Where training is impractical, technology can supplement current skills. NASA has replaced fat paper instruction manuals for technicians with a 3D, virtual-reality tour of how spacecraft components fit together. Google recently released an augmented reality version of Google Maps, which overlays directions and points of interest on your camera screen. Such augmented reality could extend capabilities in other government jobs as well, for example, overlaying demographic or transit data over a city, or prompting questions during an interview.

The technological revolution reshaping our world demands a new approach to managing human talent. People are the most important resource public leaders have, but the systems in place to manage that workforce are overdue for an overhaul. Creative solutions, from more flexible rules to reskilling efforts, have the potential to help public organizations deliver on their mission and, at the same time, improve morale for employees.

William D. Eggers is the Executive Director of Deloitte’s Center for Government Insights and the author of nine books. John O’Leary is the State and Local Government Research Leader at the Center. Their latest study is The Future of Work in Government.

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How to Cut Government Spending Without a Hiring Freeze

William D. Eggers and Bruce Chew — Wed, 07 Nov 2018 14:04:06 -0500

Recently, the White House instructed Cabinet secretaries to cut 5 percent from their budget for next year.

“Time for another hiring freeze,” you may have thought to yourself.

Faced with pressures to substantially reduce spending, organizations often follow a familiar script: Impose hiring freezes. Stop payments to consultants. Delay expenditures such as training. Redraw organizational charts to save overhead.

These “solutions” may address the immediate challenge, but the underlying economics of the department remain largely unchanged. Which means you’ll probably have this challenge again. And again. And again.

With increasing budget deficits, the federal government could be wrestling with significant budget constraints for a long time to come.

In 2017, Deloitte’s first biennial global cost survey identified three generations of cost management approaches—next-generation, traditional and structural—that commercial enterprises have developed.

Can they be applied to government in a way that can help us rethink the very economic model of each agency? We think they can.

Next-generation Cost Management

Next-generation cost management is all about using emerging technologies to fundamentally reduce the costs of doing business. It includes the use of analytics (often supported by artificial intelligence) to increase effectiveness, robotics to automate and augment labor, cloud computing to lower IT costs and blockchain to facilitate transactions.

Human capital is generally the most critical resource an agency manages, often exceeding one-third of the total budget. Data analytics can help agencies optimize staff allocation. Pennsylvania’s Bureau of Child Support Enforcement uses analytics to create a “payment score calculator,” which advises about caseworker outreach to noncustodial parents. This is designed to free frontline employees to handle higher-value, more mission-focused tasks.

Meanwhile, cloud computing lets agencies convert large, upfront fixed investments (and subsequent maintenance costs) into lower operating costs that can flex capacity as demand requires. Cloud also enables new approaches to mission costs. For instance, the cloud provides a place to store and analyze the masses of data that agencies such as the Defense and Homeland Security departments and NASA collect from remote sensors—part of the rise of the Internet of Things (IoT).

Structural Cost Management

The structural cost management approach uses strategic choices and demand management to optimize an agency’s portfolio of activities. In other words, should your agency be doing the things you are doing? Some examples:

Think about shared services for mission-focused activities, not just back-office. You may find that another federal agency, a state agency, a nonprofit, or even a commercial enterprise can better handle some of those functions.

Evaluate your agency’s activities to determine which ones make effective use of resources. Then, apply evidence-based funding, which shifts funds to programs that yield better mission-related returns per dollar.

Consider “nudges” to get citizens to engage with government via the least-expensive channels. In the United Kingdom, for instance, nudges persuade citizens to go online to renew their permits for disability parking, rather than fill out costly paper forms.

Are there any policy constraints that bind your agency to expensive practices? For example, the law may require agencies to publish public notices in the newspaper, but does that costly tactic make sense in the internet age? A change in legislation or regulation may help.

Traditional Cost Management

Traditional cost management typically disaggregates the enterprise into discrete pieces—cost categories, processes, purchased commodities. It then applies proven methods to cut costs by improving productivity, leveraging scale, and eliminating waste.

Government agencies have often deployed traditional cost management in a tactical, narrow, localized manner: hiring freezes, cut back on expenditures like training, etc. Sound familiar?

When combined with next-generation and structural approaches, however, traditional cost tools can be transformative.

For instance, combining functions to discover economies of scale can eliminate wasteful redundancies and cut overhead costs. The next stage of shared services, however, is what we call service delivery transformation. This broad-scaled approach encourages integration of support services within and across agencies to achieve maximum economies of scale and other efficiencies while also expanding sourcing options to include alternative government and commercial providers and new models for service delivery and funding (including shared gains, for example).

As a way to streamline back-office service operations throughout the department’s 12 bureaus and the office of the secretary, the Commerce Department is expected to become the first cabinet-level department to adopt an enterprisewide combined service delivery model for all human resources, financial management, information technology (IT), and acquisition support systems.

Procurement is another traditional area of focus that offers new opportunities. For example, technology now enables centralized acquisitions systems for economies of scale, and decentralized purchasing for quick response. An agency may transform its fundamental acquisition model and mindset by using a technique such as agile software development, driving lower costs and more nimble development and implementation. An agency can use emerging technologies to integrate its supply chain, and enable a seamless flow of materials and information. The result is less waste and improved speed, agility, quality, cost, service and innovation.

New Solutions

Pressure to reduce costs is not new, and it’s likely not going away. Population growth, demographics, entitlement programs, new security threats and more continue to push the cost of government upward.

What is new, are the tools that government leaders have at their disposal.

Employing these three cost management approaches together can transform an agency’s economics, while improving mission delivery and services to citizens and businesses.

Bruce is a managing director with Deloitte Consulting LLP in the U.S. strategy service line Monitor Deloitte. William D. Eggers is the Executive Director of the Deloitte Center for Government Insights.

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Key Questions for Regulators in an Era of Fast Technological Change

William D. Eggers — Mon, 13 Aug 2018 14:48:31 -0400

If government regulators feel overwhelmed these days, you can hardly blame them. Advances such as artificial intelligence (AI), machine learning, big data analytics, distributed ledger technology, and the Internet of Things (IoT) are forcing regulators to re-examine the very foundations of their work. New technologies keep emerging and evolving, disrupting all manner of traditional business models. The speed and scale of this transformation pose dizzying challenges for regulatory agencies that strive to foster creativity while also protecting consumers and addressing the potential unintended consequences of disruption.

No longer can regulators craft rules slowly and deliberately, and then expect to keep the results in place, unchanged, for decades. New business models and services, such as ridesharing and initial coin offerings, challenge governments to create or modify regulations, enforce them, and communicate them to the public at a previously undreamed-of pace. And agencies must accomplish all that while working within legacy frameworks and trying to promote innovation.

As regulators wrestle with these new regulatory challenges, four foundational questions are critical to address:

1. What’s the current state of regulation? Before writing new rules, regulators should conduct a thorough review of pertinent existing regulations, looking for those that are applicable, those that might be blocking innovation, are outdated, or are duplicative.

Looking at the current state of regulations means the whole ecosystem of regulation that could apply: from vertical service or sector regulation (for example, for motor vehicles), to convergent regulation where multiple sectors are involved (e.g. telecommunications and transportation for self-driving cars), to lateral regulation such as employment or business licensing.

Often, such a review hasn’t been done in many years. A Deloitte analysis of the 2017 U.S. Code of Federal Regulations found that 68 percent of federal regulations have never been updated.

A retrospective review forces regulators to evaluate whether alternatives to regulation or adjustments to current rules could adequately address the perceived problem. In Denmark, for instance, Paolo Perotti, of the Ministry of Environment and Food, said officials there have used this process to cut the number of regulations in its portfolio by one-third.

2. What’s the right time to regulate? Regulators want to avoid the too slow or too fast problem, meaning regulating too quickly before the technologies and business models have matured. Or too slowly, which can create market uncertainty or potential harm to consumers. Some new regulatory strategies are starting to emerge that take an iterative, adaptive approach and encourage experimentation with new technologies. Regulatory sandboxes, for example, allow regulatory agencies to partner with private companies and entrepreneurs to experiment with relaxing requirements on new technologies in environments that foster innovation.

3. What’s the right regulatory approach? The spectrum of potential approaches ranges from heavy, precautionary regulation at one end, to little or no regulation on the other. For instance, when regulating unmanned aerial systems, or drones, some governments have opted for broad permissiveness, while others allow usage only within specified limits.

When answering the “what is the right approach” question, an important consideration is what regulation scholar Adam Thierer calls “global innovation arbitrage”: “Capital moves like quicksilver around the globe today as investors and entrepreneurs look for more hospitable tax and regulatory environments,” explains Thierer. “The same is increasingly true for innovation. Innovators can, and increasingly will, move to those countries and continents that provide a legal and regulatory environment more hospitable to entrepreneurial activity.” We’ve already seen this scenario play out with genetic testing, unmanned aerial systems, autonomous vehicles, and the sharing economy.

4. What has changed since regulations were first enacted? Considering the speed at which emerging technologies and business models evolve, it’s a good bet that to stay relevant, regulations applied today will need a second look in the next decade or so. There are many ways to institutionalize such automatic reviews. These range from regulatory sunsetting with periodic review to processes like the European Union’s Regulatory Fitness and Performance program, which conducts retrospective evaluations to look for laws that are obsolete or in need of revision.

As regulators move forward in their work, they should consider five basic principles to help them answer the “when to regulate” and “how to regulate” questions, and to set a foundation for rethinking regulation in an era of rapid technological change. These principles are: adaptive regulation, regulatory sandboxes, outcome-based regulation, risk-weighted regulation, and collaborative regulation. For a full discussion, see our recently published paper, “The Future of Regulation: Principles for regulating emerging technologies.”

William D. Eggers is the Executive Director of the Deloitte Center for Government Insights.

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Technology and Government’s Distributed Future

William D. Eggers and Janet Foutty — Tue, 14 Apr 2015 15:37:08 -0400

Technology innovations have long played a powerful role in how government operates and serves citizens. The advent of telephones, telegraphs and typewriters in the early 20^th century was an important factor behind the creation of large, centralized bureaucracies to manage the expanding increase in communications and information coming into government

The success of mass production techniques inspired progressives like Teddy Roosevelt and Woodrow Wilson to ask why similar approaches couldn’t be applied to government. Thus the government-as-machine metaphor was born.

A few decades later came mainframe computers, enabling everything from space exploration to quicker tax processing to new ways of going to war.

With these historical examples in mind, we’ve been studying how technology will transform government over the remainder of this decade. One big change afoot: Whereas previous technological developments often led to greater government centralization, the next wave of transformative technologies are more likely to herald a shift to a more distributed model of governance.

Digital

Digital technologies form the foundation for a distributed government future. The accessibility and affordability of social, mobile and cloud technologies allow groups of ordinary citizens to chip away at tough societal problems by the hundreds, thousands or even millions. This technology-enabled approach to problem-solving takes many forms, including micro-tasking and micro-volunteerism, hackathons, crowdsourcing, peer-to-peer models and prize challenges.

For example, citizens in cities like Boston now take photos of potholes, graffiti, and broken stoplights to help city governments quickly spot and repair sometimes dangerous situations. This also allows for ordinary citizens to hold governments accountable by seeing the status of the request and the response time of maintenance crews.

Digital government can be personalized and contextual—and thus a powerful tool that allows citizens, consumers, businesses and governments to interact on a local level. Citizens with highly specific interests will be able to band together, share experiences and insights, and both request and help create new government services. Using devices they rely on for their personal and professional lives—smartphones and tablets today, wearables, sensors and a wide range of intelligent devices tomorrow.

The Internet of Things

Sensors and the data they generate will also power the drive to greater decentralization. The big change in sensors is the shift from static, factory-based sensors to wireless, low-power sensors that communicate with each other. This “Internet of Things” will make it technically and economically possible to monitor nearly everything: biohazards, smells, material stresses, pathogens, level of corrosion, and even human health.

For example, microsensor implants in patients will be able to track the healing process for internal injuries, and will enable health care professionals to take remedial action based on continual data from the system.

As sensors proliferate, vast opportunities will emerge to manage our resources in a safer and more efficient manner. From severe storm prediction to workload management, governments will utilize data from the Internet of Things to spot problems earlier and solve them faster. Government has an opportunity to lead the charge into ambient computing—shifting the focus from individual objects and sensors, to services allowing orchestration, business rules, and analytics. This data will also play a critical role in policymaking to better predict what legislation may be needed to mitigate changing environments.

The principle behind such actions is both proven and simple. To use a basic example, small businesses such as swimming pool maintenance companies have long monitored owners’ pools remotely, and fixed problems before the owner was even aware of them. As the Internet of Things grows (exponentially) in numbers, this practice will have many new applications.

The exponential growth of the Internet of Things could also prove to be a regulatory headache, forcing governments to keep pace with this ever-changing technology. Every new connected device after all changes the way we do business, interact, and share information.

Geospatial Technology

What, and who, is where? Geospatial technology answers questions like these.

Location is an integral dimension of data, allowing information patterns and decisions to be viewed through the lens of place. Since nearly everything on Earth can be tagged by location, Geographic Information Systems find varied applications ranging from movement of weather patterns to traffic management in crowded cities to location-based services to forming the backbone for the Internet of Things. The use of geospatial analysis in the field of medicine and infrastructure planning will grow as governments open up their GIS databases for public use.

Location-based data can also be used to concentrate the energy of the crowd, empowering government and citizens to work together to respond quickly to local disasters or tackle national problems. For crisis response, 3-dimensional GPS devices—which are aware of building layouts—offer the hope that police and emergency management agencies will be better able to position tactical units in response to a developing crisis.

Robotics

Robots are now migrating from factories to the rest of the world. The list of possibilities and applications to the public sector is far longer than most people imagine.

At the smallest level, microbots will allow emergency responders to explore environments that are too small or too dangerous for humans or larger robots; allowing responders to better tailor response needs to the specific situation without entering harm’s way.

Telepresence robots will allow experts to be “present” in distant locations, saving both time and money as they share expertise where it is most needed. A government expert in Amsterdam, for example, will be able to lend her expertise in Cleveland, without ever getting on a plane, and world-class surgeons will be able to show new techniques in real time across the globe.

At the human level, exoskeletons allow users to augment their physical strength, helping those with physical disabilities to walk and climb. Similarly, this technology could be used in military and public safety roles.

None of these technologies are standing still—in fact they’re largely improving at exponential rates—and will provide the ability to transform everything from how businesses are regulated to how governments respond to crises. But first our thinking will need to catch up to our tools.

Janet Foutty is a principal with Deloitte Consulting LLP and leads the Federal Government Services practice. William D.Eggers is the public sector research director for Deloitte Services LP. To explore these and other trends affecting the future role of governments, visit Deloitte’s Gov2020 site.

(Image via Samran wonglakorn/Shutterstock.com)

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Customer Centricity and the Future of Human Services

William D. Eggers and Tiffany Dovey Fishman — Fri, 30 Jan 2015 10:00:00 -0500

Everyone may be equal in the eyes of government, but that does not mean everyone is the same. One of the great weaknesses in human services over the past century is that they have operated with a mass-production, one-size-fits-all approach. In many circumstances that is no longer necessary or appropriate.

This recognition is giving rise to a new wave of experimentation across human services programs rooted in the premise that customized program design and delivery, based on a deeper understanding of the customers being served, will lead to better outcomes.

Forward-thinking government leaders are adapting practices from the commercial world—from customer segmentation and geospatial mapping to advanced customer analytics—to customize the design and delivery of human services.

Tailoring programs and services: Innovative government officials are redesigning social programs to take into account the diverse spectrum of customers they serve, delivering tailored services that better meet the needs of different customer segments. The overarching goal is to get more individuals and families out of the system—not by redefining eligibility or cutting services but by applying the right mix of services and benefits to help them become self-sufficient.

Washington, D.C.’s redesign of its Temporary Assistance for Needy Families program provides one example of this approach. Many of D.C.’s TANF participants languished on the rolls for years. In addressing that issue, “we were trying to get an understanding of what would be engaging and worth a customer’s time not only in terms of engaging in work activity but in terms of having the motivation to gain work,” said Deborah Carroll, administrator of the city’s Department of Human Services’ Income Maintenance Administration.

TANF officials engaged with their customers through focus groups to better understand the services they needed, then redesigned the program to customize service delivery based on an assessment of the specific needs of individuals and families. This assessment includes an analysis of strengths and weaknesses, considering everything from family and work histories and individual interests to problems such as substance abuse or mental health issues. An evaluation of the pilot showed a tenfold increase in work activity among TANF recipients.

Viewing customers through the lens of place. Most big problems aren’t pervasive; they’re deep rather than wide. Learning to think geospatially can offer huge benefits to human services providers. Health care pioneers are among those putting the power of geospatial analysis to good use.

Medical “hot spotting,” for example, has revealed that a relatively small number of patients, often in the same geographic locations, account for a disproportionate share of health care spending: In Camden, N.J., residents in just two buildings accounted for nearly $30 million in services. By better coordinating their health care and addressing their social circumstances, the Camden Coalition of Healthcare Providers was able to cut those costs in half.

The concept is gaining steam elsewhere in the human services field. Andrew Barclay’s organization, Fostering Court Improvement, uses state and local data to map hot spots of child abuse and neglect—neighborhoods where instances of child mistreatment are especially common. This allows child welfare workers, judges and others to ask meaningful questions about factors that may be driving higher rates of abuse and focus their resources on the neighborhoods—or even particular housing developments—where they’re needed most.

Using customer analytics. Businesses routinely mine troves of customer data to understand buying patterns and predict consumer needs. The public sector, too, gathers and retains enormous volumes of data, but because data is spread across siloed systems agencies are largely unable to get a 360-degree view of their customers. But what if human services agencies could know more about the people they serve and gauge the potential impact of their services on customers’ lives and future?

That’s what Washington state’s Department of Social and Health Services is attempting to do through its integrated client database. The database provides a comprehensive view of the life experiences of residents and families who come into contact with the state’s social services system.

The ICDB is allowing Washington state to redefine its business model for social services. The department’s role is no longer limited to processing applications as they come in and tracking how quickly and accurately it executes transactions. Instead, DSHS now can use its data to understand which early interventions make the most difference and which mix of services can help each client. This, in turn, allows case workers to adjust their approach as circumstances warrant, making the safety net more responsive to the needs of its customers.

The truth is, it’s not possible for human services to operate the way they have in the past and still meet the high standards that all human beings deserve. That’s why a more customized approach has so much potential to improve the system, even as it lowers costs.

The transformation to a customer-centric organization doesn’t happen overnight. Human services agencies must cultivate the culture, skill sets and infrastructure needed to support a customer-focused organization. So much the better for agencies that start down this path sooner than later.

To learn about more about the future of human services, explore our trends on human services.

William D. Eggers leads Deloitte’s public sector research and is the author of eight books, including The Solution Revolution. Tiffany Dovey Fishman is a senior manager with Deloitte Services LP, where she is responsible for research and thought leadership for Deloitte’s public sector industry practice.

(Image via solarseven/Shutterstock.com)

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NASA’s Ticket to Ride

William D. Eggers and Paul Macmillan — Tue, 01 Oct 2013 00:00:00 -0400

Much to the chagrin of any kids who grow up idolizing astronauts, the start of the 21st century has marked an era of cutbacks for NASA. The space shuttle program shut down in 2011. A year later, Congress trimmed NASA’s overall budget appropriation by $648 million. Now that the Constellation

program has lost its funding, prospects look bleak for sending astronauts back to the moon. In 1980, the United States had 100 percent of the global rocket launch capability. That share dropped to zero several years ago, but is
now inching back up, thanks to private space flight.

The dismal outlook is a far cry from the heady days of the 1960s. It was then, just three years after NASA was created in 1958, that President John F. Kennedy issued his famous directive declaring that by the end of the decade the United States would send a man to the moon and bring him home safely.

NASA has radically scaled back, but space travel survives. How? In the face of fiscal constraints, the agency has changed its role. For the United States, space exploration is evolving from a
government-led venture to a rich collaboration with the private sector.

As NASA has reduced its commitments, a dynamic private sector space ecosystem has sprung up vigorously into the void, and with the agency’s strong support. Richard Branson’s Virgin Galactic,
for example, is developing a spacecraft to launch tourists into orbit and facilitate at least $4.5 million in NASA research contracts, prompting New Mexico to build a $209 million spaceport. Blue Origin, led by Amazon.com founder and chief executive Jeff Bezos, is developing space vehicles designed to launch and land on retractable legs. A startup called NanoRacks helps scientists who need zero-gravity environments transport their experiments to the International Space Station.

Many other companies, including Orbital Sciences, XCOR Aerospace, and Boeing, are testing vehicles for space travel. NASA is helping Moon Express Inc. develop robots to search the moon for precious metals. XCOR Aerospace is developing a two-seater Lynx vehicle to shuttle passengers to space for $95,000 a trip. Space Adventures has already sent seven people to the International Space Station from a Soviet-era launch facility in Kazakhstan.

One of the most interesting players in the new space ecosystem is SpaceX, of Hawthorne, Calif. SpaceX has more than $3 billion in contracts for more than 30 launches, including $1.6 billion from NASA. Its unmanned Dragon capsule docked on the space station in May 2012, in what was likely one of many supply runs to come.

Launched in 2002 by Elon Musk, the co-founder of PayPal and Tesla Motors, SpaceX intends to vastly reduce the cost of space ventures. “Today it costs over a billion dollars for a space shuttle flight,” Musk says. “The cost . . . is fundamentally what’s holding us back from becoming a space traveling civilization and ultimately a multiplanet species.”

Surprisingly, NASA feels no sense of rivalry with these emerging space entrepreneurs. “We have an enlightened self-interest in seeing the industry players do well,” explains Joe
Parrish, NASA’s deputy chief technologist. Not only has the agency welcomed the new players in space, but it has also radically reengineered its own business model to take advantage of outside innovation. This approach sets NASA apart from most other government agencies

“Partnering with U.S. companies such as SpaceX to provide cargo and eventually crew service to the International Space Station is a cornerstone of the president’s plan for maintaining America’s leadership in space,” says John P. Holdren, assistant to the president for science and technology. “This expanded role for the private sector will free up more of NASA’s resources to do what NASA does best—tackle the most demanding technological challenges in space, including those of human space flight beyond low Earth orbit.”

NASA shows how an organization can nimbly adapt to resource constraints, offering the following lessons for agencies shifting roles within their fields:

n Instead of seeing new entrants as a threat, consider potential win-win scenarios that also yield public value.

n Support the development of platforms and exchanges that enable different providers to work together toward solving the big problems that affect everyone. You can’t begin to think about ways to combine capabilities with partners unless you know who they are and their specialties, a process that platforms can simplify.

n Get creative about the resources you can bring to the emerging ecosystem and that will provide a springboard for solutions. Perhaps it is funding, or convening a multidisciplinary team of wavemakers or something as simple as physical space for early-stage innovators to experiment side by side.

Pooling these disparate resources will reinforce that there’s more support available for problem-solving than one solitary approach. This awareness boosts not only your organization’s morale, but also the chance of reaching a solution.

William D. Eggers, leader of public sector research at Deloitte, and Paul Macmillan, the global public sector leader for Deloitte Touche Tohmatsu, are the authors of The Solution Revolution: How Business, Government, and Social Enterprises are Teaming up to Solve Society’s Toughest Problems (Harvard Business Press, 2013).

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The Silent Leader

William D. Eggers and John O'Leary — Thu, 01 Apr 2010 00:00:00 -0400

The legacy of Dwight Ink shows the force behind making policy work.

It was Good Friday 1964, and Dwight Ink was sitting on his couch at home watching televised images of a massive earthquake that had hit Alaska. "It looked like utter chaos," recalls Ink. "I remember feeling sorry for whoever was going to have to put things back together." A few days later, President Lyndon Johnson informed Ink that he was going to be that guy.

History tends to adore the person at the helm, the president who calls the shots from the Oval Office. Overlooked are the bureaucrats who actually carry out the commands. Out of the limelight, Ink served seven consecutive presidents, from Dwight Eisenhower to Ronald Reagan. Now retired, this unassuming bureaucrat was often the one doing the heavy lifting.

Ink went to Alaska. Every engineer he met agreed that rebuilding could not be completed during the state's short construction season. Alaskans would have to abandon the state if Ink couldn't rebuild before a deep freeze halted progress.

"It was a dismal first night," Ink recalls, "I got no sleep at all."

During that sleepless night he had an epiphany. Ink had to think in reverse of the typical approach to managing public construction projects, beginning with the results needed to enable families to stay in Alaska: "We had to figure out, no matter how impossible it might seem, what had to be done by the time the construction season ended, then work backwards," he says.

In a story that reads like the antithesis of Hurricane Katrina, Ink led a swift and efficient reconstruction effort. The 1964 Alaskan Earthquake is largely forgotten today because of Ink's leadership.

After returning from Alaska, he helped Johnson launch the War on Poverty and create the Housing and Urban Development Department. He was in charge of the New Federalism for President Richard Nixon, and led President Jimmy Carter's civil service reform. Ink's knack for delivering results garnered him the nickname "Mr. Implementation."

He also worked at the Atomic Energy Commission. With Cold War tensions at their height, reaching a nuclear treaty with the Soviets was critical. Ink believed the United States' best strategy was to pursue a limited ban on nuclear testing, forbidding atmospheric experiments but allowing for underground testing.

After John F. Kennedy took office in 1961, Ink had to make his case anew. Noted Harvard historian and key Kennedy aide Arthur Schlesinger strongly disagreed with Ink's approach, and in a meeting the two locked horns. As a rule, a bureaucrat tends to tread lightly with political appointees, particularly famous ones close to the president. Nonetheless, Ink passionately made the case for the limited ban, refusing to back down.

During one heated exchange, Ink saw something that made his career flash before his eyes. "I was aghast to suddenly realize that sitting in a chair along the wall behind Arthur was [Attorney General] Bobby Kennedy," Ink says. "Apparently, Arthur had reported my unseemly behavior, and Bobby had come to see for himself." Ink thought he would be fired.

That didn't happen. Robert Kennedy evidently appreciated Ink's candor. "To my complete surprise, [they] kept me in that role, and at the next meeting Schlesinger was absent and never attended another one," says Ink. Some months later, President Kennedy signed the Limited Test Ban Treaty, a key step in reducing nuclear tensions during the Cold War.

Ink's entire career was marked by such courage. One of his last assignments was to reduce drug traffic from South America for President Reagan in the 1980s. Rather than stay behind his desk in Washington, Ink ventured to the source of the drugs, only to find himself captured by Colombian drug lords. After a nerve-racking day he was released.

Ink, who had retired in 1976, returned to government twice before his final farewell in 1989.

In today's hyper-cynical Washington, the notion of a good bureaucrat is almost unheard of. Too often, politicians rely on their loyal campaign staffers to manage the bureaucracy-with disastrous results.

Ink believes the political-bureaucratic divide has grown worse in recent years.

"The career service is the only vehicle through which a president can govern. Yet we continue to see instance after instance of White House staff and agency leaders not only failing to reach out to the men and women on whom their political success will largely rest, but also quickly alienating them," he says.

A person doesn't have to be president to be a leader. A good bureaucrat can be a great leader. To reclaim a reputation for competency, government will need more Dwight Inks. It requires a political culture that values and honors capable managers, as well as public servants with the courage to tell the unpleasant truths to their political masters. These days, the word "bureaucrat" is used as an insult. But government relies on career officials who can implement policy initiatives legislated by politicians from both sides of the aisle.

William D. Eggers, global director of Deloitte's public sector research program, and John O'Leary, a research fellow at the Ash Center of the Harvard Kennedy School, wrote If We Can Put a Man on the Moon: Getting Big Things Done in Government (Harvard Business Press, 2009).

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The Silent Leader

William D. Eggers and John O'Leary — Wed, 13 Jan 2010 00:00:00 -0500

A few days later, President Lyndon Johnson informed Ink that he was going to be that guy.

Ink went to Alaska. Every engineer he met agreed that rebuilding could not be completed during the state's short construction season. Without water and sewer systems, Anchorage and other harbor communities couldn't function. Alaskans would have to abandon the state if Ink couldn't rebuild before a deep freeze halted progress.

"It was a dismal first night," Ink recalls, "I got no sleep at all."

He also worked at the Atomic Energy Commission under Eisenhower. With Cold War tensions at their height, reaching a nuclear treaty with the Soviets was critical. Ink came to believe that the United States' best strategy was to pursue a limited ban on nuclear testing, forbidding atmospheric experiments but allowing for underground testing.

During one heated exchange, Ink saw something that made his career flash before his eyes. One of the president's closest advisers, Attorney General Robert Kennedy, was sitting nearby. "I was aghast to suddenly realize that sitting in a chair along the wall behind Arthur was Bobby Kennedy," Ink says. "Apparently, Arthur had reported my unseemly behavior, and Bobby had come to see for himself." Ink thought he would be fired.

Ink, who had retired in 1976, returned to government twice before his final farewell in 1989.

Ink believes the political-bureaucratic divide has grown worse in recent years. "The career service is the only vehicle through which a president can govern. Yet we continue to see instance after instance of White House staff and agency leaders not only failing to reach out to the men and women on whom their political success will largely rest, but also quickly alienating them," he says.

A person doesn't have to be president to be a leader. A good bureaucrat can be a great leader.

To reclaim a reputation for competency, government will need more Dwight Inks. It requires a political culture that values and honors capable managers, as well as public servants with the courage to tell the unpleasant truths to their political masters. These days, the word "bureaucrat" is used as an insult. But government relies on those career officials who actually can implement the policy initiatives legislated by politicians from both sides of the aisle.

William D. Eggers is the global director of Deloitte's public sector research program. John O'Leary is a research fellow at the Ash Center of the Harvard Kennedy School. Their new book is If We Can Put a Man on the Moon: Getting Big Things Done in Government (Harvard Business Press, 2009).

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Blueprint for Disaster

William D. Eggers and John O'Leary — Wed, 11 Nov 2009 00:00:00 -0500

As Washington considers an overhaul of the nation's health care system affecting roughly one-seventh of our economy, a critical question arises: How effective are we at crafting legislation that can be implemented? To answer this question, we partnered with Government Executive in 2008 to survey members of the Senior Executive Service. Less than one-third of respondents believed Congress was effective at designing public policy that worked in the real world. We also surveyed members of the National Academy of Public Administration, with similarly grim results. Fully one-third told us Washington was downright poor at policy design.

It turns out if you want to get federal executives angry, ask them what they think of the legislative design process. Their responses can be scathing: "Policy design at the federal level is pathetic." "Policy design too often is done without consideration of implementation challenges." The consequences of poor design can be severe. Like an architectural rendering that looks good on paper but collapses once built, poorly designed legislation can be a blueprint for disaster.

Just ask California. In 1996, Democrats and Republicans in the California legislature worked together to pass a major redesign of the state's electricity markets. The reforms were intended to introduce competition, spur innovation and lower the cost of electricity by 15 percent-maybe more. That was the intent, anyway. But by 2000, California's electricity system was in shambles. The new law caused soaring prices, rolling blackouts, and the election recall of Gov. Gray Davis. A government reform launched with high hopes had turned into a total disaster. What went wrong?

The short answer is energy companies like Enron exploited design flaws in the legislation, racking up profits and ripping off consumers. What looked good on paper turned into a fiasco when it was implemented.

It is a pattern that occurs frequently in large public ventures. After reviewing more than 75 significant government reforms since the end of World War II, the findings suggest that the root of many failures actually lies with faulty design. The temptation is to blame legislators, an easy target. But lawmakers and their staffs are in an impossible position. The complexity of even a single program area is often beyond the grasp of all but a handful of experts, and legislators are asked to pass laws under politically driven deadlines.

The problem is the process-a system in which design takes place in a vacuum, largely disconnected from implementation. At the best private companies, the concept of "design for execution" is second nature, and designers work closely with manufacturing to avoid drawing up something that can't be built.

As one federal executive said, "There is a gap in communication and understanding between a committee drafting legislation and the federal or state agency responsible for the implementation."

Can the design phase be improved? Yes, but only with a serious commitment from political leaders. These four principles can begin the process of closing the dangerous gulf between those who design public policy and those who implement it.

Think Design, Not Legislation

A bill is really a blueprint for the bureaucracy. "We should be worried about how a bill will work 18 months from now, not just today, but too often we aren't," explains former Rep. Tom Davis.

Involve Implementers

Good implementation cannot save a poor design. Policy implementers who are handed a flawed design face an uphill battle. For example, the Medicare Part D law included an unrealistic timeline, leading to massive problems during the launch. Bringing implementers into the design process could help avoid these sorts of breakdowns.

Evaluate Workability

The Congressional Budget Office provides an objective assessment of the cost of proposed legislation. Why not have an independent review board assess the implementability of a new policy? Just as a building department reviews the design of a house before deciding whether to issue a permit, lawmakers might uncover at least some of the design flaws if they had to submit complex initiatives to the scrutiny of a feasibility analysis conducted by implementation-savvy experts. Design review makes sense at the building department, and it makes sense in Congress.

Probe for Weaknesses

Assign someone to shoot holes in the design at an early stage. If someone isn't looking for the weaknesses during the design phase, rest assured people will be finding weaknesses in the policy after it is launched-with far more serious consequences.

Some readers might find these recommendations hard to take seriously. As one said, "It seems to me that when the two clash, politics is always going to trump design." Perhaps. But the stakes are high, and the current approach to legislative design isn't working. These ideas, if taken seriously, could help improve a process badly in need of reform.

William D. Eggers is the global director of Deloitte's public sector research program. John O'Leary is a research fellow at the Ash Institute of the Harvard Kennedy School. Their new book is If We Can Put a Man on the Moon: Getting Big Things Done in Government (Harvard Business Press, 2009).

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Blueprint for Disaster

William D. Eggers and John O'Leary — Sun, 01 Nov 2009 00:00:00 -0400

When Washington designs policies that can't work, the results are grim.

As Washington considers an overhaul of the nation's health care system affecting roughly one-seventh of our economy, a critical question arises: How effective are we at crafting legislation that can be implemented? To answer this question, we partnered with Government Executive in 2008 to survey members of the Senior Executive Service. Less than one-third of respondents believed Congress was effective at designing public policy that worked in the real world. We also surveyed members of the National Academy of Public Administration, with similarly grim results. Fully one-third told us Washington was downright poor at policy design.

As one federal executive said, "There is a gap in communication and understanding between a committee drafting legislation and the federal or state agency responsible for the implementation."

Think Design, Not Legislation

A bill is really a blueprint for the bureaucracy. "We should be worried about how a bill will work 18 months from now, not just today, but too often we aren't," explains former Rep. Tom Davis.

Involve Implementers

Evaluate Workability

Probe for Weaknesses

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Networked Government

William D. Eggers and Stephen Goldsmith — Sun, 15 Jun 2003 00:00:00 -0400

It's not about outsourcing vs. bureaucracy. It's about managing diverse webs of relationships to deliver value.

or a century, the predominant organizational model used to deliver public services and fulfill public policy goals has been hierarchical government bureaucracy. A complex society is forcing this model to change. Although the traditional model isn't dead yet, it's steadily giving way to a fundamentally different approach in which government executives redefine their core responsibilities from managing people to coordinating resources for producing public value.

To be sure, the delineation of authority between different levels of government and among the public, private and nonprofit sectors never has been totally clear, but this century's challenges and the means of addressing them have become more numerous and complex than ever before. Nearly all the major public policy issues of the day-reviving urban communities, providing a better education for children, protecting the nation from terrorists, responding to disasters-require activating, nurturing and managing networks of federal, state and local governments, and private businesses, contractors and nonprofit institutions. In these activities, government's role is not necessarily reduced, but rather transformed. Government agencies, bureaus, divisions, units and offices become less important as direct service providers and more important as levers of public value inside the web of multiorganizational, multigovernmental and multisectoral relationships that now constitute modern government.

This "government by network" has become a fixture at every level of government. In Iraq,the U.S. military relied on thousands of contractors to do everything from maintaining computer systems to setting up base camps. In Kansas, a network of nonprofit and for-profit providers delivers all foster care and adoption services. Private contractors, not public employees, now run all the welfare-to-work programs in Milwaukee and soon will operate the entire information technology and communications infrastructure for the Navy. In New Zealand, the country's entire highway infrastructure is designed, built and repaired by private firms.

Third-party government is nothing new. What has changed is the breadth and scale of the trend. Service contracting at the federal level over the past 10 years, for example, has grown by 33 percent at civilian agencies and 14 percent at the Defense Department-even taking into account the huge Defense cutbacks after the Cold War ended.

There's one big problem: the federal government's organizational, management and personnel systems are designed for a hierarchical, not a networked, model of government. Many of the highly publicized federal contracting failures of years past are a direct consequence of trying to use traditional hierarchical controls to manage a more horizontal government. But instead of talking about how to improve government's capacity to manage networked and outsourcing relationships, we spend all our time endlessly debating whether agencies should be doing more contracting or less. Although important in a political sense, this essentially is a side issue to the more fundamental question of what kinds of systems, organizational structures and skill sets are needed to operate a government that increasingly focuses-rather than owns-resources, and purchases-rather than provides-services.

THE 'WHAT' QUESTION

Sometimes networked government fails not because of how a particular venture is managed, but because of what was delegated to the private sector in the first place. All too often, precious little thought is given to what policy goals an agency is trying to accomplish and how they relate to what is contracted out. Instead, agency officials pick up their organizational chart, look for something they're not doing very well, and then get the private sector to do it for them.

But before federal executives think about how they should do something, they need to figure out what they're trying to do in the first place. "The biggest challenge in contracting out in government is determining what it is we want to accomplish," says Deidre Lee, the Defense Department's acquisition chief. "What is our mission? What do we need to accomplish the mission? Oftentimes, government is not clear about all this when we go out to bid."

The government executive, hamstrung by precedent and reinforced by well-intentioned bureaucratic practices, often will find it difficult to step into the larger, more important and more exciting role of conceptualizing new models and solutions. The critical point of departure is the problem definition stage. A government agency shouldn't let its historical processes, organizational chart or existing capabilities-or even the private sector's capabilities, for that matter-dictate what it should contract out. Traditional outsourcing models-inside a narrow procurement box and based mostly on what's not working well-just shift your problems to someone else, rather than using outsourcing as a lever to create a new solution and transform existing operations.

"In the private sector there's the notion of 'design space,' which refers to the space needed to design to an outcome, rather than a preconceived notion of what it should look like," explains Stan Soloway, President of the Professional Services Council. "When I was at DoD, we spent a day at Federal Express. The key point hammered into us was that the key to success is recognizing that before you outsource, you need to completely reassess everything you're doing today, do a process map, and then get rid of anything you're now doing that doesn't plug into your new model."

This was the approach the Coast Guard used when it went out to bid several years ago for the modernization of its fleet of aircraft and ships that patrol at least 50 miles from shore. The fleet, including 90 ships and 200 aircraft, was old, falling apart and unsuited to present conditions. The standard way of replacing the $10 billion fleet would have been to purchase each plane, boat and piece of technology separately as they wore out and only later figure out how to put them all together. The inevitable result would have been higher prices than would have been paid through bulk purchasing, and multiple solutions and platforms that weren't integrated.

Determined to avoid these problems, the Coast Guard tried a much different model: In a project called Deepwater, it contracted to replace its entire inventory as an integrated package over a multiyear time frame. The agency challenged bidders to help increase mission effectiveness through better and newer technologies and new ways of operating. The Coast Guard assigned internal teams made up of specialists from various areas to each of the three final bidders to help them understand exactly what the agency wanted to achieve. The request for proposals spelled out the agency's desired outcomes and the capabilities it needed-search and rescue, identifying someone adrift in the ocean, providing surge capacity to meet national security and disaster response requirements. Then the Coast Guard left it up to the vendors to design systems of boats, ships, aircraft, satellites, information technology and unmanned aerial vehicles that met the criteria. The ultimate goal: to revolutionize the way every man and woman in the Coast Guard does his or her job.

The Coast Guard spent several years coming up with this approach. The lesson is clear: The success or failure of a networked government model can often be traced back to how it was originally designed.

LOGIC AND VALUE

The Coast Guard Deepwater project, along with the Navy-Marine Corps Intranet (NMCI) and the National Security Agency's Groundbreaker-two huge IT outsourcing projects-all reflect the recognition that sometimes the reason for going out to the market is that the government concludes that the private sector can integrate and manage a set of service delivery and infrastructure components better than an agency can itself.

Particularly in cases where the government is trying to move away from a narrow, stovepiped model of service delivery, there is often an inescapable logic-if not an imperative-to integrate services under large contracts. Proper integration may even involve meshing the activities of a large number of entities-some of them other agencies and other levels of government. In these and other cases, breaking up the pieces into smaller contracts could cause serious-if not disastrous-operational problems down the road.

The State of Kansas found this out when it privatized its child welfare system in 1996. The Kansas Department of Social and Rehabilitative Services (DSRS) divided the state into five regions and then put out bids for family preservation and foster care separately in each region (the adoption process was bid out in one statewide contract). "We divided it the way we did by region and service because we wanted homegrown Kansas providers, rather than the 'big, bad managed care providers from the East' to provide the services," explains Teresa Markowitz, the former DSRS commissioner who spearheaded the privatization effort. This political goal was achieved, but the flip side was that a single child might be shuffled from one provider network to another several times, depending on where her case was classified at any one time along the child welfare continuum. Continuity of care was wholly dependent on tight coordination among different providers working across contracts and across service areas. Not surprisingly, such collaboration was more the exception than the norm. The end result: The state's effort to "unbundle" the contracts inadvertently undermined one of its main policy goals: integrated service delivery.

All of this is not to say that purchasing an integrated solution is always the right way to go, or that small businesses' objections to bundling service contracts should be ignored. However, it's important to understand that today's complex problems often require carefully integrated solutions. In certain instances government can act as its own general contactor, but that role requires the federal executive to think creatively across product lines and agencies, build an intergovernmental network before the procurement process starts, and find internal management talent that can creatively configure the best possible solution. When the capacity to do this is absent, executives must recognize that the ability of the private sector to properly integrate the parties into a solution might, in fact, be the most important asset to be procured.

FLEXIBILITY AND ACCOUNTABILITY

Executives who craft and manage such contracts are pinned between conflicting challenges. On the one hand, they want to prevent a contractor from bidding low only to modify the contract terms later to increase profits. At the same time, the most valuable relationships are dynamic, learning relationships. With a good vendor and government manager, the goals and outcomes of the contract will stay sharply in focus, but the inputs and processes will change as required. Strict adherence to the contract terms is a sure way to leave value on the table. Managing in a dynamic way while protecting the taxpayers-and staying out of the crosshairs of the inspector general, GAO and Congress-might be the ultimate challenge of networked government.

The dilemma is to retain as much flexibility as possible in the relationship, but to do so in a way that keeps the vendor honest with consistent standards and outcomes. Balancing this tension between accountability and flexibility requires "both parties to understand at the conceptual level the goal that has to be reached," says Rear Adm. Charles Munns, the director of the $8 billion NMCI program, the largest government outsourcing project in the world. "Once you have that shared understanding, you can recognize some of the weaknesses and ambiguities in the contract, put each one on the table and talk through it."

Munns and his team have come up with a novel way to get NMCI's prime contractor, EDS, to increase performance and make substantial modifications in service without changing a single line of the contract. Clauses in the contract provide EDS with a generous performance bonus for achieving a high level of customer satisfaction, giving the Navy and the Marine Corps the leverage they need to suggest changes they believe will help boost customer satisfaction numbers. EDS, in turn, has a strong financial incentive to fix the problems. "We understand the Navy, they understand service delivery and the network infrastructure," says Munns. "Together we try to figure out how to boost the customer satisfaction numbers without ever having to get the lawyers involved."

The Coast Guard Deepwater project was the brainchild of its former leader, Adm. James Loy, and is now led by Patrick Stillman, a two-star admiral. Such senior-level leadership of a contract relationship has become standard in the private sector, where responsibility for managing and nurturing alliance partnerships, joint ventures and outsourcing relationships often rests at the top. However, it's rare in the federal government, where executive attention typically is more focused on political issues, public affairs and putting out fires, leaving little time for supervising and fostering partnership arrangements.

"In government, the people doing the work managing the contractors are not the people that really have the skin in the game," says Jack Brock, managing director of sourcing and acquisition issues at GAO. "It's been pushed down the organization and doesn't get the attention it deserves." Even at agencies such as Energy and NASA, both of which have become de facto contract management agencies because they outsource so much of their work, there's a disconnect between senior agency leaders and the contract administrators, says Brock.

For years, the Internal Revenue Service was no different, with one failed multimillion-dollar contract after another. But then in 1997, the IRS got its wake-up call in the form of highly publicized congressional hearings taking the agency to task for a host of problems, including dreadful customer service and archaic information systems. Meeting many of the new goals set by Congress was dependent on the success of its multibillion-dollar modernization project, managed by a consortium with Computer Services Corp. (CSC) at the helm. Failure would mean another round of nasty hearings and a total loss of confidence in the agency. This wasn't a relationship that could be relegated to the procurement shop.

"Driving a multiyear, business transformation outsourcing relationship across a complex organization requires senior-level commitment," says IRS Deputy Commissioner Dave Mader. The agency set up a management structure in which IRS executives are lined up with CSC executives in joint integrated process teams for all of the agency's modernization projects. This approach reaches up to the highest levels of the agency. Fred Forman, the deputy commissioner who leads the modernization effort, has a full-time counterpart at CSC whose office is adjacent to his own.

MASSIVE TRANSFORMATION

Leadership at the highest levels allows agencies to solve legal and functional issues more quickly. Also, it serves to bring together the many lower-level program officers who possess important skills and information, but who individually can't easily collaborate across impermeable boundaries. For these middle managers, the day-to-day business of working in networks is infinitely more complex and more difficult than managing a traditional bureaucracy. It requires a whole different set of skills. In addition to knowing about planning, budgeting, staffing and other traditional government duties, networked management requires proficiency in a host of new tasks, such as business process reengineering, negotiation, mediation and network design.

Unfortunately, such skills aren't exactly plentiful in the federal government, nor are they typically recognized or rewarded. The way to get ahead in the federal government has been to be an adviser on policy issues or demonstrate a solid ability to manage government employees, not to show proficiency in negotiating deals and managing third-party service providers. As a result, some agencies don't even have effective contract management capabilities, much less the capacity to handle the vastly more sophisticated requirements of network management. "When you look at sourcing issues, government's need for access to services has grown faster than its management capacity to control that they're getting what they want," explains GAO's Brock.

Building such a capacity requires not only far-reaching training and recruitment strategies, but also a full-blown cultural transformation. What is required is nothing less than changing the definition of what it means to be a public employee. Contracting and relationship skills can no longer be just the province of acquisition employees. People with these skills-skills that currently are not highly valued in government-need to be recruited, rewarded and promoted.

One model is in Great Britain, where the central government created an organization called Partnerships UK as part of a broader effort to improve its public-private partnerships capacity. Partnerships UK helps agencies become smarter purchasers of services by standardizing contracts, providing help desk support, highlighting best practices, and rotating employees in and out of agencies for up to six months at a time. Employees of Partnerships UK come from a variety of backgrounds, including investment banking, law, management consulting and engineering. They all have commercial experience in managing projects. This fills a major void in the central government. "The civil service career strategy doesn't lend itself to developing commercial deal capabilities," says Helen Dell of Partnerships UK.

The workforce also needs to update its skills. Traditionally, the most important thing was to know the rules and then to follow them."The old days of the stereotypical . . . acquisition worker are at an end," says Joseph Johnson, director for administration and services at the Defense Acquisition University. "The worker of the future cannot be just rule-bound. Acquisition is no longer about managing supplies; it's about managing suppliers."

As defense acquisition experts are learning, the government landscape has changed. Many of the traditional assumptions about outsourcing and public-private partnerships no longer hold sway. Unfortunately, you wouldn't know this from observing the contemporary debate inside the Beltway. The reflexive opposition on the political left to all things outsourced, and the failure of those on the right to acknowledge that far too many contracting endeavors fail to measure up to expectations, are symptomatic of a stale debate that's still stuck in a 1980s ideological box. To succeed in an age of networked government, we not only need to update our approach to government, but also our thinking.

William D. Eggers is the global director for Deloitte Research-Public Sector, the research arm of Deloitte Consulting, and a senior fellow at the Manhattan Institute for Policy Research. Stephen Goldsmith is a professor at the John F. Kennedy School of Government, where he chairs the Innovations in American Government program, and a senior vice president of Affiliated Computer Services Inc. Goldsmith and Eggers advised George W. Bush on federal management issues during his presidential campaign.

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The Wonder Down Under

William D. Eggers — Sat, 01 Mar 1997 00:00:00 -0500

ith more than 12,000 employees, New Zealand's Ministry of Public Works used to be one of the country's largest departments. The 125-year-old ministry built most of the island nation's infrastructure-its airports, bridges, power stations, roads, canals, dams and railways. Functions ranging from maintaining military bases to land use planning were also under the ministry's auspices.

Now it no longer exists.

In 1990, the ministry was split up. All policy advice functions were transferred to other departments. Commercially oriented agencies-property services, computer services, architectural and engineering consulting, construction and maintenance and road sign production-were converted into state-owned enterprises (SOEs) and reorganized along business lines. Each was required to pay taxes, raise capital on the market (with no government backing-explicit or implicit) and operate according to commercial principles. At the same time, the SOEs were freed from civil service, procurement and financial management regulations.

Over time, each of the new SOEs were sold to the private sector. New Zealand no longer has any government in-house capability to design, build or repair infrastructure. When these services are needed, they are purchased on the open market.

Dramatic changes like these have occurred across New Zealand's state sector during the previous dozen years, rendering New Zealand's present government unrecognizable from what it was only a decade ago. To be sure, revolutionizing government in a country that has only 3.5 million people, a unicameral legislature and a parliamentary system is much easier than in the United States, where we have considerably more checks and balances-not to mention people. Nevertheless, the fact that cutting-edge public sector reforms of the New Zealand variety have also been undertaken to various degrees in Australia, Canada and Great Britain means that they are likely to soon reach American shores.

Far-Reaching Reform

New Zealand's public sector reforms are considered more comprehensive and far-reaching than have occurred anywhere in the world for decades.

Since 1988, more than two dozen state enterprises have been sold off, including railroads, ports, telecommunications operations, banks, public works and even commercial forests. More than $14 billion (in New Zealand dollars) in revenue-about 26 percent of New Zealand's GDP-was achieved through the sales. An equivalent asset sale program in the United States would realize more than $1 trillion.

In addition, more than a dozen key enterprises-including the postal service, air traffic control and weather service-have been transformed into SOEs and now are considered among the best-run in the world in their sectors.

New Zealand reformers have also revolutionized the systems and structures of government. Through the introduction of cutting-edge management and organizational reforms-purchaser/provider separation, output-based budgeting, performance contracts, purchase agreements and increased managerial flexibility-what's left of the New Zealand state sector costs less and delivers better services.

It is no surprise, then, that New Zealand has acquired a growing reputation for representing the vanguard of public sector reform. In David Osborne's new book, Banishing Bureaucracy (Addison Wesley), New Zealand gets its own, glowing chapter. Allen Schick of the Brookings Institution in Washington, an expert on comparative political systems, has said that New Zealand alone "has transformed the public sector so boldly and comprehensively."

But not only academics and policy wonks are paying attention to New Zealand. So many governments have sent delegations to the country that it is said that government reform is the country's best tourism draw.

Congressman Scott Klug, R-Wis., the GOP's point man on federal privatization, led one of these delegations last summer. After suffering political setbacks on federal privatization in the last session of Congress, Klug (along with Dana Rohrabacher, R-Calif., and Bill Orton, D-Utah) journeyed to New Zealand to learn how the Kiwis were able to privatize so much, so quickly. "Anyone who looks at privatization and government reform trends around the world tends to look first at New Zealand," says Klug. "No one has done a better job than them."

New Zealand's state-owned enterprise model is being studied by Republicans-and some Democrats-who are searching for a transitional structure for federal enterprises being prepared for privatization. "We're trying to come up with a uniform process for the transition to privatization so we don't have to go through the fighting each time," explains Mark Brasher, a staffer on the House Government Reform and Oversight Subcommittee on Government Management, Information and Technology.

There is also interest at the National Performance Review. "They have done a remarkable job," says John Kamensky, the NPR's deputy project director. "Our goal is to manage for results. There clearly are aspects of the New Zealand model that can help us to get to where we want to be."

Given such enthusiastic bipartisan interest, the reforms merit a closer look.

The SOE Model

One of New Zealand's first reforms was to separate out all of the government's commercial activities from line ministries and convert them into free-standing state-owned enterprises.

A private sector board of directors was recruited for each of the new SOEs-more than 200 private businessmen and women were recruited to serve on the boards. They were charged with ensuring that the enterprises operate in accordance with commercial principles.

One of the new SOEs was established by drawing a clear distinction between natural forests and commercial forests. A Department of Conservation was created and charged with protecting the natural forests, while the remaining commercial forests formed the core of the new Forestry Corp. The commercial forests were renamed "wood plantations." The Forestry Corp.'s purpose was to earn a profit by farming wood as a crop.

This separation clarified the government's previously muddled objectives in managing forests. "We got away from mixed use objectives and the problems associated with that," says Ken Shirley, one of Forestry's board members. "We figured out that it was only through intensive wood farming that we could offer protection to our remaining natural forests."

The chairman of the Forestry Corp.'s board was Alan Gibbs, a wealthy and aggressive Kiwi businessman. Gibbs quickly set about making the Forestry Corp. a profitable company. Generous severance packages helped reduce the agency's bloated workforce dramatically, from 7,000 to 1,150 employees. Gibbs then signed up most of the remaining employees on individual employment contracts.

As has been the case with many of New Zealand's SOEs, the Forestry Corp. was subsequently privatized. "After the separation, the logic for government to own and manage the commercial forests wasn't there," says Shirley. "Government doesn't run dairy farms or kiwi fruit farms, so why should it run wood farms?" The sale occurred in three stages over a 10-year period ending in August of last year. It brought in $1.2 billion.

The Forestry Corp. sale did not occur without opposition. Opponents were appalled that the government would sell off state-owned forests-regardless of whether they were commercial or not. The environmental community has organized an active signature drive and lobbying campaign to buy back the forests.

Privatizing Public Works

The same day in August 1996 that the New Zealand Herald announced the sale of the final part of the Forestry Corp., it reported the sale of two other Kiwi SOEs: Works Consultancy Services, which provides design and engineering services, and Works Civil Construction, the country's largest infrastructure builder. The SOEs constituted the last vestiges of New Zealand's once massive Ministry of Public Works. The sales yielded another $99 million.

John Rutledge, the chief executive of Works Consultancy, took over the enterprise in 1988, soon after it was split apart from Works Civil and transformed into a free-standing SOE. "At the time, splitting the design and construction was quite controversial," says Rutledge. "There was lots of debate whether to keep them together or split them."

The deciding vote came from Transit New Zealand, the government's "purchaser" of infrastructure services. Transit New Zealand didn't want Works Consultancy and Works Civil to stay together on the grounds the combined group would represent unfair competition with private competitors. "[Transit New Zealand] wanted us to behave exactly the same as any other consultant in New Zealand," says Rutledge.

Eighteen months before Works Consultancy was incorporated, all its work was opened up to competitive bids from private firms. Transit New Zealand quickly became a very discriminating consumer, showing no reluctance about choosing private companies over Works Civil and Works Consultancy. "At the time, private firms thought we would be so inefficient that we would fall over in two years," remembers Rutledge.

This didn't happen. Competition forced Works Consultancy to go to great pains to retain and expand its client base-including foregoing any loyalty they had to their former colleagues at Works Civil. "We looked at who we thought we were most likely to win the job with," says Rutledge. "Often we put in bids with Works Civil Construction's biggest competitors."

Once the New Zealand government could obtain engineering and construction services by purchasing them on the market, the case for actually owning Works Consulting and Works Civil was no longer there. Both were prepared for sale. By this time Works Consultancy had been operating successfully in the marketplace for several years without subsidy. This softened internal resistance to the sale. "The staff had built up considerable confidence in our ability to perform in the market so we weren't as concerned as we would have been five years ago, before we tested our feet in the market," says Rutledge.

Purchaser/Provider Split

The key reform turning New Zealand's government from a provider of engineering and construction services into a purchaser of these services is the "purchaser/provider split." Across the public sector, New Zealand has separated policy advice, service delivery and regulatory activities.

The rationale for this uncoupling is to prevent "agency capture," a term used to describe the situation when an agency's policy advice is "captured" by the service delivery department for the purposes of recommending itself as service provider and biasing policy advice toward increased spending. As was demonstrated by Transit New Zealand's willingness to purchase services from private companies instead of state enterprises, separating the purchaser and the provider provides powerful incentives for policy agencies to be more independent and demanding purchasers.

The separation is also meant to reduce the conflicting objectives that arise when the same agency is involved in service delivery and regulation. For example, in the United States, the Federal Aviation Administration regulates airline safety at the same time it is charged with promoting low-price airline travel. In New Zealand, agencies regulating transportation industries-airlines, railroads, trucking and road safety-have been split off from the Transport Ministry into separate independent entities and put under private sector boards of directors. Regulatory outputs are now "purchased" from each agency by the country's Transport Minister.

The purchaser/provider split works best when there is real competition between suppliers and the government has no incentive to give preference to public entities.

One split that hasn't worked so well occurred in New Zealand's Defense Department. In the early 1990s, defense policy was separated out from military operations to break the military's monopoly on defense policy advice.

In practice, however, the separation achieved neither a reduction in military influence on defense policy nor any real competition in policy advice, argues Jonathon Boston, a professor at Victoria University in Wellington, New Zealand. Instead, the result was duplication of functions and more tension in the defense policy community. "Decoupling appears to have worked better in some areas than others," says Boston. "In the defense area, it has been of questionable merit." Boston says foreign affairs, intelligence and policing are other areas where decoupling may be inappropriate.

Freedom to Manage

In the United States, many a hard-driving executive has plunged bravely into battle to dramatically streamline a government agency and . . . retreated. Frustrated by a wall of civil service and legislative restrictions that stymie their ability to manage, they raise the white flag, either by leaving the public sector or staying and resigning themselves to the status quo.

John Lumsden, the chief executive of MetService, New Zealand's weather forecasting SOE, had a different experience when he was hired away from Labatt's Breweries in Canada in 1992 to turn around the weather organization, which had overspent its budget by $2 million. "I wouldn't have taken the job if I had to abide by all the silly rules and bureaucracy that used to exist here in the public sector," explains Lumsden from his hilltop office in Wellington with a view of the city's picturesque bay.

No other government meteorological service had ever been incorporated, so Lumsden was without a model. Undaunted, he went about restructuring the organization as if it were a private company. Poor performers were asked to find new work. Lower skilled jobs were cleaned out. Staffing was reduced from a peak of 360 in 1988 to 160. (Many of these employees were transferred to a science research institute.)

But MetService's turnaround was more than just an exercise in cost-cutting. While payroll costs fell, individual remuneration went up. MetService's highest skilled meteorologists received pay raises so they wouldn't jump ship to the private sector. Most of the employees were put on performance contracts.

Lumsden also initiated profit-sharing. The notion that the pursuit of profit was now central to MetService's mission required a major culture change in an organization where many of the employees had never even worked in the private sector. "I had to do a lot of work convincing people that profitability was a good way to judge our success," recalls Lumsden. "They tried to change our mission statement to being 'successful,' but I hung tough. I would not let go of the notion that profitability was what we were about."

Lumsden's persistence paid off. In 1992, MetService supplied no forecasts to local newspapers; it now has 75 percent of New Zealand's newspaper market. Moreover, it has also broken into Australia's market, supplying Sydney's Daily Telegraph Mirror (which has a circulation of 1.3 million) and three other Aussie papers.

Last year, for the first time ever, MetService earned a profit. Each employee took home an extra $3,000, thanks to Lumsden's profit-sharing plan.

Extending Reforms

The dramatic successes that emerged from the creation of SOEs prompted the New Zealand government to extend the notion of managerial flexibility and accountability to the core public sector.

In 1988, chief executives in every state agency now have the power to hire, fire, pay, promote, reduce (or eliminate) job classifications and negotiate collective bargaining contracts. Control over procurement and financial management have also been devolved down to the agencies.

The bargaining relationship, which used to be based almost exclusively on collective bargaining, now blends individual and collective employment contracts and private contractors and consultants. In some agencies-the Treasury Department and the State Services Commission, to name two-nearly all the employees have opted for individual, performance-based contracts.

These reforms were critical. "Control over human resources was the key," says Rob Laking, the former chief executive of the country's Housing Policy Unit. "You're not walking the talk unless you have charge over your people."

George Hikton, an executive from Honda Motors, found this out when he was hired to overhaul the Income Support Services division of New Zealand's Department of Social Welfare. The agency, which determines an applicant's eligibility for welfare payments, had a well-deserved reputation for incompetence and poor service.

With Hikton at the helm, the agency's walls came down-both figuratively and literally. In every field office, the walls separating the case managers from the clients were torn down. Several layers of management were eliminated. Managers were placed on individual performance-based contracts. And drawing on models developed by the retail clothing industry, competition between district offices was encouraged through the daily ranking of offices on quality and efficiency. Soon the time to process an application had fallen from 24 days to overnight.

Now, the Wellington district office of Income Support Services is headed by Nigel Bickle, a young man with a carefully groomed goatee and a diamond earring. He is 26. And he is an exceptional manager.

Prior to the reforms, it would have taken at least a decade for someone like Bickle to rise to a district manager's job. Chances are, frustrated with the painfully slow uphill climb, he would have left for greener pastures in the private sector.

"Initially there was quite a lot of talk along the lines of 'whose butt have you been kissing?' and 'You haven't been here for 10 years,' " recalls Bickle. "But things were changing quickly. Structures were becoming flatter. There was an environment of recognizing people that did perform."

Of course, not everyone has come out a winner in the reform process. Devolving industrial relations to chief executives, in combination with the purchaser/provider split-which created smaller, more numerous and more independent agencies-has made life more difficult for unions. New Zealand's principal public employees' union now negotiates more than 300 separate collective contracts, compared to only a handful before the reforms.

"The reforms took the ground out from under their [the unions'] feet," says one former chief executive. "They had to fight on more fronts." Public employee membership has fallen by 13 percent since 1991, at the same time it has risen in most other western industrialized countries.

Despite the adverse consequences for public unions, there has been remarkably little industrial strife in New Zealand. One explanation: The government moved so fast that the unions never knew what hit them. "The public unions didn't feature in a big way in blocking the reforms," recalls one former Treasury official. "They didn't seem to realize what was going on."

Making Managers Accountable

There is more to reform than transferring power away from central agencies and unions to agency managers.

It is typically much easier for central agencies to give up control than to enforce strict accountability for department managers. New Zealand alone, say experts like Brookings' Allen Schick, has established a rigorous regime that holds managers accountable for their agency's performance.

New Zealand's chief accountability tool is the contract. Written contracts between ministers and chief executives are relied upon for allocating resources, maintaining accountability, specifying organizational responsibilities and delivering services. The goal is to replicate the arms-length relationship between buyers and sellers found in competitive markets.

The contract approach is also designed to force state bureaucracies to respond to political direction. Before the reforms, one minister likened trying to get the bureaucracies to do something to "pulling on a lever not attached to anything."

One of the contracts is the fixed-term, performance-based agreement worked out between each chief executive and the minister who oversees his or her operation. The agreement contains a list of items the minister and the executive believe are the agency's most important goals for the year. Typically, at least 10 percent to15 percent of each executive's salary is at risk, depending on performance. Bonuses of up to 20 percent can be earned for superior performance. "Having clarity of performance expectations is key to a good accountability system," says a senior Treasury official, adding that the agreements focus executives on exactly what is expected of them.

Chief executives, in turn, typically require performance agreements from their senior managers, who do the same for those working under them. "You can take the performance agreements and cascade them through the organization," explains Roger Blakely, chief executive of the Ministry of Internal Affairs.

The End of Pork Barreling

Coupled with the performance agreements are purchase agreements. These specify the quality, quantity, price and delivery deadline of each output the chief executive is to supply to the government. This allows ministers to decide which outputs to purchase for the year and, when possible, to select the best supplier on a competitive model.

The outputs are priced in a manner similar to market transactions: Ministers negotiate a price for outputs based on the goods and services supplied-in theory irrespective of input costs. For example: the Minister of Justice might negotiate with the Correctional Services Agency to house a certain number of prisoners at a certain price and with the police for an amount on crime prevention programs.

The system works best when ministers are active, interested purchasers of services. One former Finance Minister would literally rip out pages of budget requests when she didn't want to "buy" the recommended outputs. Gone were all the inputs that went into delivering those outputs.

Lobbyists use to line up outside New Zealand Cabinet meetings to wait for their opportunity to ply ministers for special privileges. This doesn't happen anymore. Purchase agreements and output-based budgeting have done away with pork barrel spending. Because the chief executives have complete control over the mix of inputs they use to produce outputs, from road construction to science spending, the mix of projects funded is determined solely on a cost-benefit analysis by the relevant agencies. "With our system, there is no political interference on where the money goes for roads," says Stuart Milne, the chief executive of the Ministry of Transport.

"I couldn't imagine having people coming through this office all day lobbying for special favors," says Simon Upton, a member of Parliament. "Our new system is a good security against corruption in politics."

Undoubtedly there are some real costs to New Zealand's contract model of governance. Writing, monitoring, evaluating and enforcing the performance agreements, purchase agreements and other contracts entails substantial transaction costs. Separating policy and service delivery can make policy coordination trickier. And lastly, elected officials have less direct influence on internal agency operations.

The end result, say some critics, is the loss of the trust, flexibility and accountability required to run government in a democracy. "The more we fragment the structure of government by replacing command hierarchies with networks of contracts, the more we call in question the nature of responsible government by attenuating the responsibility of elected representatives," writes Victoria University professor John Martin in a critique of the contract model.

But most academics and senior New Zealand government executives argue that the costs of the New Zealand model are well worth the substantial gains in efficiency and accountability. "Any relationship is informed by being specific about some things," says a Treasury official. "If anything, our system is not nearly detailed enough; it isn't even close to that which exists in the private sector."

'You Guys Are Crazy'

Much of the Clinton Administration's second-term government reform efforts will center on pushing the concept of performance-based organizations (PBOs). While modeled after Britain's Next Steps program, the PBO model is very similar to New Zealand's business units. Run by chief executives on fixed-term performance contracts, PBOs would be given flexibility in procurement and greater control over personnel and financial management.

When legislation for the first PBO candidate, the Patent and Trademark Office, was sent to Congress, it aroused a debate between the administration and Rep. Carlos Moorhead, R-Calif., then chair of the House Judiciary subcommittee on courts and intellectual property, regarding the relative merits of the PBO model versus a corporation or SOE model. This debate is likely to be replayed for future PBO candidates.

In this regard, the New Zealand experience is instructive. Agencies such as Income Support Services have been converted into the equivalent of PBOs, with chief executives who have broad managerial freedoms. Improvements have occurred, but in a much less dramatic fashion than in the SOEs. "Measured against the cultural upheaval in the state-owned enterprises, change in most departments has been significant but not revolutionary," writes Allen Schick in a study of New Zealand's reforms.

Two major factors explain the difference in performance. First, politicians have generally kept their hands out of the operation of the SOEs, giving chief executives the freedom to manage the enterprises. Second, the requirement that the SOEs pay taxes and raise capital on the market provides strong financial discipline of the enterprises.

Nevertheless, the NPR's Kamensky doesn't see much likelihood of extensive use of the SOE model in the United States. "Our PBO model is considered very radical," he explains. "If we tried to jump to the SOE model, they would say 'You guys are crazy.' "

A major political roadblock to the SOE model is also its strength: It removes political interference from enterprise operation. "PBOs have been selected on the basis that they're government functions that shouldn't be privatized," says John Koskinen, deputy director for management at the Office of Management and Budget. "Spinning them off into SOEs would only create more problems with accountability and control."

Kamensky sees better short-term prospects for replicating New Zealand's use of contracts to hold departments accountable for results. "A performance-based, contractual approach is something we will be clearly moving towards, dangling the prospect of more freedom for managers with holding them contractually accountable for outcomes," says Kamensky.

Though encouraged by such statements, Wisconsin Rep. Scott Klug is decidedly underwhelmed by the PBO concept. "We're not going to balance the budget by tinkering with organizational flow charts," says Klug. "We need to ask the more fundamental questions of what is the federal government doing now that it shouldn't be doing, and how can we get the government out of those areas?"

Klug believes that once politicians realize that balancing the budget could require unpopular measures such as cutting student loans, then selling federal labs or privatizing the Energy Department's Power Marketing administrations will become more politically palatable. "My most memorable moment in New Zealand was visiting the Postal Corporation and reading a sign that said 'If you're not living on the edge, you're taking up too much room,' " recalls Klug. "The real goal should be to privatize or eliminate programs that we've been doing for 40 to 60 years that we don't need to do anymore."

While U.S. politicians and administration officials may debate the feasibility and desirability of the finer points of some of New Zealand's reforms, few Kiwi government executives seem to want to go back to the old way of doing business. In fact, some express a desire to go even further.

MetService's John Lumsden wants to expand into new markets overseas and offer new real-time information products. But he feels restrained by his owner, the New Zealand government. "As we get more and more successful in overseas markets, we get further and further away from our core mission," says Lumsden. "This understandably creates discomfort for the government in its role as owner."

"I hope [we] will be sold," says Lumsden. "It would give us more flexibility for international developments and provide the capital we need to pursue new products and markets."

In the United States, it is hard to imagine a federal agency head agitating for the government to sell his or her agency. But, just maybe-if the New Zealand experience is any guide-a couple years operating as a government enterprise in the marketplace could cause some to change their tune.

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Turning a Profit

William D. Eggers — Sat, 01 Mar 1997 00:00:00 -0500

Before New Zealand's weather forecasting agency was turned into a state-owned enterprise, it had overspent its budget by $2 million. The organization made a profit for the first time last year, and thanks to the profit-sharing plan, each employee took home $3,000.

	Before	After
Profits	-$2 million	$400,000
Number of employees	360	160
Individual employment contracts	0	60% of employees
Pay	Automatic cost of living	Performance pay, profit sharing
Forecast contracts with newspapers	0	75% of the market

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