Posts Tagged ‘performance budgeting’

Government Reform: Market-Based Perspective

August 14, 2008
John Kamensky, Senior Fellow, IBM Center for The Business of Government

John Kamensky, Senior Fellow, IBM Center for The Business of Government

An advocate of the Market-Based perspective of government reform would see good public management as best done via a series of approaches that rely on competition, choice, incentives, and contracts, with an emphasis on performance measurement as an accountability tool. Adherents value the importance of achieving program outcomes over compliance with standardized administrative procedures.

According to academics, this perspective assumes that individuals are largely motivated by maximizing individual or organizational preferences, not necessarily serving the public good. They cite Madisons Federalist Paper 51, which describes the rationale behind the checks-and-balances provisions in the Constitution as supporting their view that individuals tend put their self-interests first.

Proponents also believe that the Executive Branch is, for practical purposes, not a unified system but more of a confederation of agencies, responsible jointly to both the President and the Congress. Governing a confederation, they believe, is best done through market-based approaches. Market-based adherents also believe that the act of governance is no longer solely the purview of government, that our worlds challenges have become so complex that they regularly reach across societal boundaries to other sectors for collaborative solutions.

Much like the traditionalists perspective, the Market-based perspective embraces a continuum that spans the ideological spectrum. At one end, privatization proponents support more external, private sector involvement by using approaches such as contracting out, competitive sourcing, and more top-down control over employee performance. At the other end, the reinvention proponents support the use of internal markets inside government, such as franchise funds, encourage employee empowerment to better serve customers, and support bottom-up entrepreneurial behaviors by employees to increase innovation.

The Privatization Perspective. In recent years, the privatization advocates in the U.S. have seen their end of the spectrum in the headlines. Proponents of the privatization perspective operate under the premise that government should not be the provider of any services that could be delivered commercially.

 “Privatization” for some is not defined as solely private sector ownership of a particular function but also private sector provision of services.  So this would include “outsourcing” of work to the private sector that could be, or has been, conducted by government workers. In this case, the decision to perform the work in the private sector has already been made and the only decision is:  which firm in the private sector can deliver the best services at the best price?

Privatization for some would also include “competitive sourcing” where functions that are commercial in nature that are currently being performed by civil servants would be competed between the public and private sectors. The work would then be awarded to whoever can perform the function at the least cost and best service.

The Reinvention Perspective. Advocates of the reinvention perspective promote adapting business practices to the public sector. In doing so, they make the following assumptions:

  • *Government works better if it is organized around baskets of “services and results” not the hierarchies of agencies and programs.
  • *Government services should be organized and sensitive to their customers.
  • *A results-orientation results in better management than the stewardship orientation reflected in traditional public administration.
  • *Accountability is largely driven via transparency and choice instead of hierarchy and inspection
  • *It attempts to break down operational stove-pipes in order to better focus on outcomes.

Likewise, the principal characteristics of a reinvention-oriented approach to good public management are:

  • * Set clear, central goals, policies, and oversight — then decentralize implementation.
  • * Pursue a customize response vs. one-size-fits-all; to do this requires pushing as much authority as practicable to the front line delivery agent, or reducing the distance between the center and the edge as much as possible.
  • * Use incentives in place of disincentives where possible (trust but verify)
  • * Place a greater reliance on risk management than on risk avoidance.
  • * Emphasize being performance-based rather than process-compliance focused in accountability and oversight.
  • * Separate policy and regulatory development from program implementation functions in order to increase the programmatic executive-level emphasis on implementation.

The tools or approaches used to manage in this perspective include:

  • * The use of principal-agent approaches, such as contracts between providers and service recipients, or between departments and agencies, or departmental secretaries and agency heads.
  • * The use of performance-based pay for employees, performance-based contracting for contractors, and performance-based budgets for resource allocation.
  • * The use of competition and choice in the delivery of services, especially services which can be delivered by more than one agency or by the private or non-profit sectors.
  • * The use of transparency as a way of encouraging the use of fact-based decisions and creating bottom-up rather than top-down accountability for performance. This would include the use of activity-based costing, performance budgeting, and performance reporting.

These approaches combine a mix of: disaggregating large bureaucracies into smaller, operational components; the use of competition both inside government and between public and private sectors to define efficiency; and the use of incentives to leverage action. For example, performance-based pay, performance-based contracting, and performance budgeting all attempt to leverage results-oriented actions through incentives, not compliance-based rules.

When applied within the government for its internal management, this set of approaches would be reflected in initiatives similar to those prevalent in the Clinton Administrations reinventing government initiative such as an emphasis on customer service, reducing bureaucratic layers and processes, the creation of franchise funds, and empowering employees to focus on performance and results. In the George W. Bush administration, initiatives included the expanded use of shared administrative services and performance-based pay for the Senior Executive Service.

Options the Next President Might Consider for Achieving Good Public Management from a Market-Based Perspective

A president who subscribes to a Market-Based perspective might adopt the following kinds of approaches to improve his or her institutional management capacity:

  • * Continue efforts to move toward a performance-based pay system for the civil service, based on lessons learned from recent pilots and the implementation of a similar system among Senior Executives.
  • * Expand efforts to move toward a performance-based contracting environment.
  • * Increase the use of performance-based budgeting, linking more tightly decisions on program funding to how well the programs perform, especially in relation to other programs providing similar services. This might include the increased use of the OMB Program Assessment Rating Tool when making budgeting decisions.
  • * Resurrect the use of Performance-Based Organizations as a way of focusing improved performance in specific governmental functions that are customer-service based and are not highly interdependent across other agencies for success.
  • * Institute government-wide business case assessments of all key functions, along the lines of the British governments value for money initiative in order to determine which functions provide value to their customers.
  • * Continue competitive sourcing efforts, or adapt the British governments competitive tendering initiative.

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