Difficult economic times have government agencies searching for ways to be more efficient. One solution that’s always trotted out is the concept of outsourcing — turning to the private sector to fulfill functions previously performed by the public sector.

There are definitely times when this solution can be advantageous: When the expertise is too rare and too costly to develop, or when there simply isn’t enough capacity inside the agency to keep up. Good examples include using private collection agencies for outstanding fees and taxes, or employing private after-hours child-abuse investigation units.
In most cases, though, outsourcing isn’t being done to supplement the work of government employees. It’s done to replace them. The assumption behind most pushes for outsourcing is that the private sector can do it better. Many people hold this as a universal truth, that private sector employees are simply better and more efficient than public sector employees. (And after corporate America’s stellar performance in 2008, who could argue?)

But is this true? Are those of us in government defective in some way? Have all of the slow, inefficient, customer-hating people gravitated to one industry?

Take a moment and think of other industries that you believe struggle as much with customer satisfaction and responsiveness as government does. My workshop participants usually come up with a list that looks like the one below:

  • Industries that struggle:
    • Government
    • Health care
    • Utilities
    • Cable companies
    • Cell phone providers
    • Insurance
    • Education
    • Banks
    • Airlines

In today’s economy, you can probably think of dozens more. The point is, government is not alone in its struggles. There are plenty of other industries that struggle as much as we do. In fact, when you look at the list you will notice that these industries have a few things in common. First, they are all service companies. That is, they are not manufacturing “widgets.” This is a little scary considering that the future of our economy is supposed to be “service”. We simply haven’t learned how to manage service yet, a topic I will expand on in a future column.

The second common aspect of these industries is that there is great confusion about who the customer is. These industries often have multiple customers with competing interests. We are well aware of this conflict in government, especially if you work in a regulatory or compliance agency. But the conflict is not limited to government. For example, who is the customer in health care? Is it the patient? The doctors? The insurance companies? The federal government?

Who is the customer in education? Is it the student? The faculty? Employers? Society? (Or is it even broader? One professor once told me, “My customer is truth.”)

But the key thing these industries have in common? The reason they’re all struggling to improve? They’re all some form of a monopoly. That is, they have captive customers with little choice. Airlines, government, utilities, schools: They don’t have customers. They have hostages.

When customers have no choice, what incentive is there to improve? It’s not like they can go somewhere else. In government we have amazing customer loyalty.

And this is one of the primary arguments for outsourcing government services. The belief is that having the private sector provide the service would be better than a public-sector monopoly. The flaw in this logic is that a private-sector monopoly is no better than a public-sector monopoly. The problem is the monopoly itself — the lack of incentive to improve — not who is providing the service.

Private-sector monopolies brought us the beige telephone, the Detroit Lions and “We will install your cable between the hours of 9 AM and Wednesday.” Do you actually think corporate employees like their HR or IT Departments any more than you do? Lack of competition and little customer choice is the source of the dysfunction — not whether a service is provided for profit or not.

The Power of Choice

So what can we do about this? Many bold efforts have been undertaken to address customer choice in government. Some have been system-wide efforts to put the money in the hands of the customers and allow them to choose among competing providers. Whatever your opinion about school vouchers may be (and there are good arguments on both sides), they were an attempt to put the money and power in the hands of parents and students.

The same thing is happening nationwide with mental health providers. For years, these agencies provided monopoly care for patients and were criticized for the lack of quality and compassion that most monopolies share. Early reformers argued that the private sector could provide better, lower cost care then government agencies. This led to the explosive growth of community mental health providers. What we learned over time, however, was that while these providers have been valuable partners in the mental health system, a private-sector monopoly is little better than a public one. With little to no regional competition — and guaranteed contracted money from the government — the same complaints about care surfaced.

Only when the customers were truly given choice — when mental health money was given directly to families to choose what services they needed and from whom — did the system truly change. To survive and thrive, the providers focused on the needs of the families and patients, not the needs of government contract compliance monitors. This whole scenario had nothing to do with the quality of the employees, whether in the public or the private sector. It was about the natural inertia of a monopoly. Similar success stories have come from agencies that have removed the monopoly component of internal services like training, IT, design and construction and facilities.

Large reforms like those that the mental health industry is going through can be a lengthy and painful process. Short of disrupting your entire industry, what can you do to overcome the monopolistic inertia? How can you create competition and choice where there naturally is none? Fake it.

Let me explain. When I took up golf, I once asked a really skilled player how he became so good. I was sure he could show me something with my grip or tell me which clubs to buy. Instead, he said, “Fake it.” He said, “Act as if you already are a great golfer and do what they do. If you were a great golfer what things would you be doing?” I replied that I’d hit a lot of golf balls, practice putting, make sure my clubs fit well and get some expert coaching. “Exactly”, he said. Before long I stopped hitting all my balls into the trees.

Even though you may be a monopoly, there’s no reason you have to act like one. Instead, act as if your customers had a choice. Act as if your competition was relentless. This “acting as if” forces you to pursue excellence. The surrogate for competition is high expectations.

If your customers had a choice, what behaviors would that cause you to adopt? You’d probably spend time trying to figure out what they care about, improving your performance to meet their expectations and then seeking their feedback on how you are doing. Well, what’s stopping you from doing that now?

What if you faced relentless competition in the market? You’d probably benchmark your performance against your competitors, learn what the best ones are doing and adopt best practices. Well, what’s stopping you from doing that now?

You’d probably continue to look for ways to add value to your offering, to increase performance while lowering costs. You’d probably have to innovate, to look to the future and anticipate the next great thing in your industry that will propel you from follower to leader. Well…?

You get my point. Give it a try. Act as if your very survival were in doubt. Act as if every customer were a precious resource. Act as if every employee were a volunteer. See what a difference it makes. If that doesn’t work, you can always privatize. Surely the private sector couldn’t mess it up.

*Originally published as Free the Hostages, (Public Great @ Governing.com, February 5, 2009)

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