Chapter 2: Competitive Government
In today’s climate of rapid technological change, the term “networking” usually evokes images of the internal and external electronic networks that allow modern organizations to communicate and engage in transactions with others throughout the world. Networking, however, carries another important meaning. A networked organization also revolves around a complex web of working relationships among customers, suppliers, contractors, shareholders, employees, and even competitors.
The most successful companies of the Internet Age avoid the expense and effort of creating large in-house capabilities in areas not central to their business goals. Instead, they form strategic partnerships with firms that can deliver the expertise they need.
In the past, state government managers have relied on large budgets and large staffs to run complex programs and services, but that scenario is changing. Today’s government managers are more likely to see their programs based on a networked model, which relies on collaboration with contractors and private providers to help provide products and services more efficiently.
The success of such ventures rests on the creation, nurturing and successful management of networks of strategic partners. Cooperation and collaboration are becoming the hallmarks of the Internet Age economy. These linkages are facilitated by the communications revolution. The Internet allows for high-speed, low-cost communications between organizations, while e-commerce applications allow them to seamlessly integrate their internal systems.
Stimulate Competition in State and Local Government
Many, if not most, of the services provided by the state are delivered by government monopolies that rarely have to compete with other service providers. Monopolies rarely produce the most cost-effective and efficient products or services. But before government monopolies can be opened up to competition on a large scale, policymakers first must know just what is being delivered in-house, what is already being contracted out and what competition opportunities exist. To jump-start state efforts to encourage competition, Texas should institutionalize Comptroller Rylander’s Yellow Pages Test—“Government should do no job if there is a business that can do that job better and at a lower cost.”
The federal government is conducting the largest analysis of this nature in the world. In 1998, Congress passed the Federal Activities Inventory Reform (FAIR) Act, which requires federal agencies to catalog services they provide that are commercial in nature and consider outsourcing them. Federal contracting experts say that the process of conducting the inventory itself has spurred agencies to ratchet up their competition efforts.
To jump-start state efforts to encourage competition, Texas should inventory state functions that potentially could be performed by the private sector. As an example of such opportunity, the Texas Workers Compensation Insurance Fund competes with many other providers of workers compensation insurance, and the state could consider selling all or part of this large asset while ensuring that employers are able to get coverage.
Use Information Technology to Reduce Costs and Facilitate Networks
Information technology applications, particularly e-commerce, can produce huge savings and improve productivity. Most of the state-of-the art technology and experience in e-commerce strategies, however, lie in the private sector. This means that to create a 21st century digital government, Texas’ state and local governments will have to rely on public-private partnerships and outsourcing agreements. When structured properly, outsourcing alliances and strategic partnerships can give the state access to cutting-edge technology without major upfront costs.
Texas could use technology to reduce costs by exploring opportunities to adopt the “seat management” concept for state agency desktop computing, which transfers complete responsibility for personal computers from the government to a private contractor, and reduces the cycle times involved in contracting for services.
Use Electronic Marketplaces to Cut the Costs of Services and Supplies
The Internet will allow government to create far more competitive markets in many areas now controlled by cumbersome and costly paper-based systems that can be dominated by insiders.
Business-to-business (B2B) marketplaces—Web sites where companies meet to buy and sell goods and services—are springing up daily. Deals that once took months can be conducted in minutes.
By improving the flow of information among buyers and sellers, online marketplaces and reverse auctions, in which sellers compete to offer the lowest prices on a given group of products, make markets more efficient, inducing more competition among suppliers and reducing the costs of doing business with buyers.
Texas should use reverse auctions and should transform state procurement practices by centralizing administration, aggregating purchasing power, and moving all procurement online.
Use Performance Incentives to Obtain Results
Traditionally, most governments focused on inputs, not outputs and outcomes, and long-term goals were rarely spelled out in contracts. As governments contract for an ever-increasing list of goods and services, they are turning to outcome-based contracts that contain clear performance standards, financial incentives and penalties, and advanced performance measurement techniques. Such strategies often are collectively called performance-based contracting. Texas should transition to performance-based contracting and use more innovative practices in the bid solicitation process.
Lastly, as Texas agencies rely more on private companies to deliver public services, monitoring and assessing these outside partnerships becomes vital to achieving an agency’s goals. While monitoring and measurement systems are becoming more refined, Texas government still has a long way to go in becoming a better purchaser and overseer of service delivery. Texas should create a statewide contract management policy.