The Republicans recently trotted out their usual solution to all government inefficiencies by suggesting we privatize workers compensation and a number of other government agencies. The privatization argument fails on a couple of fronts, but there is another solution to the problem of government agencies that are effectively monopolies. The first issue is that workers compensation and other government programs are not hurt by being not-for-profit organizations; profit is not the issue, the real issue is competition. Competition provides an important check and balance to reduce waste, inefficiency, and improve customer service. If customers have the option of going somewhere else, they will get better pricing and service than without that choice. Profit is irrelevant; the reality is that all organizations need some sort of “profit.” Talk to any non-profit organization and you will find that their goal is to have a couple months of cash reserves in the bank for a rainy day, those reserves come through revenues that are higher than costs. What our state government wouldn’t give right now for excess reserves it could use to close the budget gap. Again, it comes through revenues that are higher than expenses. Competition is the key, not profits.
The second issue is that outsourcing never really works as planned. Intel outsourced lots of things thinking it would be the silver bullet to reduce costs, believing someone else could do it more efficiently. The reality is, it never quite worked out that way and costs were only minimally impacted once you accounted for the quality standards imposed by the business groups. Moving the monopoly from one group to another does not really solve the problem.
So the fundamental issue comes down to how to create enough competition so customers get the price and service benefits that comes with choice. When I worked at Intel I implemented an experiment called "intraprises." This was modeled on work done at the U.S. Forest Service a couple of years earlier. The concept of intraprises we implemented within Intel was to take internal operations that were monopolies and turn them into businesses that had to compete. This entailed taking a group like mechanical engineers or information technology, where we only had one group, and creating some internal competition, the kind that comes from having multiple groups that other business units could choose from. You could easily create two or three information technology groups and then give business units the option of which I.T. group they wanted to pay for support. These groups were still Intel employees with all of the benefits, but instead of being a monopoly with no choice, now there could be a couple of groups with at least some choice. The effect was to bring down costs and improve customer service. We gave our intraprises profit and loss statements and balance sheets so they could run like businesses, without actually being a separate business. There were no special systems or processes; to others it looked the same. But to the people who were now intraprises there was a big difference: the work was a lot more fun and the employees had more power over their work.
The first thought was that it created additional overhead, but that was not the case. There was only minimal overhead in each group to begin with, and the groups still used the same systems. Intel set the overall standards and regulations to make sure every group made the right decisions for Intel, but now choice existed for customers. The reduction in price and improved customer service more than offset any minimal increase in overhead. Based on our experience, you could easily save millions of dollars with this intraprise approach.
This same idea could easily be incorporated in our state or local governments. Simply take the workers compensation program and, instead of privatizing it, divide it into three groups and let customers chose which group they want to deal with. Each of the three groups would be forced to become more efficient and improve customer service in order to keep their customer base. The employees would remain state employees, nothing much would change for individual employees other than they no longer operated as a monopoly with no checks and balances to reduce cost. The state would still manage the overall program and set the standards for each of the groups, but each of the three groups would be forced to become more efficient, or lose work to another group. In the end, you get the best of both worlds: the competition the Republicans are asking for, while remaining a state program with state employees as the Democrats prefer. Obviously there are a lot of details that cannot be covered in a brief blog, but it has been successfully tried before and all the minor issues can be dealt with easily. This is the type of organizational innovation needed in government to fix the overall system without simply creating another set of problems, like most legislative proposals currently being discussed.
