Wednesday, September 22, 2004

Pyramid Schemes: Reorganizing California's Government

So far we've counted three major flaws in California's State Performance Review:

The authors of the Performance Review appear to be fastened to a rigid mindset that views the whole world as an organization chart. Like 19th century Prussians, they truely believe in the abstract idea of "the State":

"The State is absolutely rational inasmuch as it is the actuality of the substantial will which it possesses in the particular self-consciousness once that consciousness has been raised to consciousness of its universality... The march of God in the world, that is what the State is. The basis of the State is the power of reason actualising itself as will." (And no, it does not make more sense in the original German.)

This realization -- that the Reviewers are moved as much by faith as by cost savings -- helps us understand the motive for Recommendation #GG 09, a proposal to fold all existing department call centers into one single central state information center, using one single toll free number and one single web portal. Monotheism demands no less. The worship of the ideal "State" also explains why the Reviewers so dislike the diverse, untidy patchwork of bureaus, agencies and offices that together in practice make up the government of this huge, diverse region we call "California". The Reviewers seek reform so as to purify the State, to "prioritize" from the top down, to "co-ordinate and consolidate", to achieve "logical efficiencies" and eliminate redundant information. Over 100 boards and commissions with members representing the public are to be liquidated because they are "inefficient" -- a sign that citizen involvement in public administration does not rank high on the Reviewers' performance metric.

Government must be reorganized, we are told, in order to make it "accountable". The Review positively buzzes with "accountability". In a business corporation, where ultimately only profit matters, accountability means assigning a task to someone in the organization, giving them reasonable resources to accomplish it, measuring the results, and then rewarding success or punishing failure. The Review team sees it a bit differently, tho: "Accountability assumes clearly defined lines of leadership, responsibility and authority."

"Leader. Authority. Responsible."

This sounds a bit military. Have we ever heard that "clearly defined lines of leadership" stuff before?

"Jawohl, Mein Fuehrer! ... Sorry, Mr. President."

The new State Organization Plan resembles the futuristic vision of Los Angeles in 2019 AD that opened the movie Blade Runner.

The machinery of government will reside in eleven giant pyramids that dominate the landscape -- pyramids resembling Mayan Temples as designed by Albert Speer. A Secretary (a/k/a "High Priest") will stand at the apex of each new Ministry, and Gov. Narcissus will float serenely above them all, tethered by a line on the organization chart that also connects an enhanced "Office of Management and Budget" (a/k/a "Power Behind the Throne".) None of the other state elected officials have lines connecting them to any of the pyramids, so sooner or later they will presumably just float away, off the charts on their way to the Outer Worlds.

Q: What's wrong with this picture? A: Just about everything. For instance:

California happened to be a fairly early adopter (as states go) of data systems back in the mainframe computer era of the 1960's and 1970's. Just as the IRS now struggles with master files written in an extinct computer language, we're now paying a price for that early start -- many of these systems are now "becoming obsolete due to deferred maintainance". 8 of 14 agencies surveyed had core financial management systems over 20 years old. The civil service lifers who keep the systems functioning are reaching retirement age and are not being replaced when they depart. Almost all state departments interviewed "have significant concerns with maintaining the existing systems", as well as a litany of other problems. The state has no plan in place to address the issue, and "the biggest obstacle to strategic planning is a lack of resources."

It looks like California is going to have to spend more and more just to keep things running as they are. As for modernizing the systems, ask your friends in Sacramento about the state's success rate with software mega-projects. (Hint: search on "+DMV +software +failure".) Then tell your friends about Recommendation SO #25, to replace whatever financial software applications are now used by some 200 different state agencies with "One Global Statewide Centralized Enterprise Application which interfaces with California's enterprise asset management and enterprise procurement tools." Your friends know how state government works, so tell them that the OGSCEA will have to be developed from scratch, that it will represent the "vision" of an interagency task force (i.e. be designed by a committee), and that all agencies will be ordered to freeze work on any new software that doesn't conform to the plan. (Do you really believe there is some magic new software out there that will replace every single program you've got on your PC? "One application to rule them all...")And then mention that the OGSCEA must be completely implemented by July 1, 2007, even tho we don't know what it will cost, there's no money for it in the current budget and the Reviewers don't understand that hidden expenses -- modifying standard procedures, retraining users, and maintaining a system -- typically dwarf the initial cost of writing the code. SO #25 concludes on a cheerful note: "The savings resulting from this recommendation cannot be estimated at this time." Do you suppose your friends are going to laugh? Or cry?

So -- the Reviewers want the state to undertake a major functional reorganization at the same time as the core data systems for a number of agencies are starting to fall apart, and the fix they propose isn't a plan, but a fantasy. Should make for quite a Night to Remember.

"Women and Governors first."

Thursday, September 16, 2004

The Producers:

Part One

State Performance Recommendation SO #71 for Performance-Based Contracting

At first, it just doesn’t seem to make sense. Every place you look in California’s State Performance Review the impressive claims are backed by falsified evidence. The recommendations would give der Gövernor lots more power, but they plainly won't produce the money that's needed to lift the state out of its fiscal swamp. It’s as tho der Gövernor and his hench-gröupies *wanted* this project to fail. Could it be that they stand to gain from having government reform turn out to be a FLOP instead of a HIT?

Consider, for example Recommendation SO #71, which says California can save $970 million over the next five years by adopting Performance Based Contracting ("PBC") so as to "specify outputs rather than inputs". In order to accomplish this, Der Gövernor is supposed to order state agencies "to promote the use of performance-based contracting where applicable", to place P-B contract samples on the Internet, and "to convert at least 10 percent of new and renewal service-related contracts to performance-based contracts by Year 1; 20 percent by Year 2; 40 percent by Year 3; and 50 percent by Year 4."

Is this Four Year Plan for PBC really a Great Leap Forward in public administration? Or is it just another management fad, rich in new buzzwords, but otherwise worthless? And where does that $970 million figure come from?

"Significant savings ranging from 15 percent to over 18 percent are possible using performance based contracting.[12] The number of contracts and projects that use this approach will be relatively small at inception, but will grow as the policies and processes are developed to fully implement this program. Estimated first full-year savings could range from $45.2 million and $91.2 million based on $7.6 billion of annual state purchases of goods and services. Savings over a five-year period could range from $684 million to nearly $1.36 billion. The table below assumes total spending on goods and services of $7.6 billion with an estimated 11 percent savings per year."

Damn! More footnotes! It looks like Arnold Schwarzenegger wasn’t kidding when he said "My favorite fiction writers are studio accountants." I suppose we'll have to see what Footnote 12 really says:

"Office of the Under Secretary of Defense, ‘Performance Based Service Acquisitions’, by Michael W. Wynne (Washington, D.C., August 19, 2003), http://www.acq.osd.mil/dpap/Docs/Performance%20Based%20Service%20Acquisitions.pdf (last visited June 10, 2004)."

A click takes us to the Pentagon, to this memo from the Acting Under Secretary of Defense for Acquisition, Technology and Logistics. The memo asks Senior Acquisition Executives to increase the use of "Performance Based Service Agreements" in service contract awards and to schedule training for those who prepare the contracts. It also gives the military brass what they want most -- room to maneuver. Contracts with low PSBA opportunities - the memo mentions research and development, environmental cleanups, ship repairs, medical and educational services, purchases and rentals of structures and facilities, etc. -- will be excluded from performance calculations and won’t show up in the progress reports.

But -- Wait a minute. Where’s that bit about "saving 15% or 18% or more"? It’s not there! It's not in the memo! It’s not there at all! It appears that some printer’s devil or ventriloquist’s demon saw the words "15% savings" and "18% higher satisfaction" on a different page of the Performance Review (Chap. 7, p. 1761 referring to a test PBC pilot project back in 1994-96.) That mischievous sprite must have lifted the words off the page, jumbled them up, and planted them next to footnote [12] to make it seem like the Pentagon recently endorsed the claims of substantial savings from PBC. But it just isn’t so.

The Pentagon memo was a follow up on the recommendations from a high-level Federal review of PBC. The procurement experts in the Office of Management and Budget (the folks with their thumb on the government’s cash) had set up a working group representing the major service contracting agencies. In its July 2003 report, the group recommended that performance-based contracting methods be tightened up, and that they not be used for certain types of contracts (R&D, etc.) Although OMB had waxed enthusiastic about PBC back in 1998, in a "Best Practices Guide" showcasing pilot project results, the working group report called for scrapping the Guide and improving the level of practical assistance. The new report concluded that performance-based contracting can improve the quality of results and customer satisfaction when properly done, but it specifically dispelled any notion that there are pots full of gold at the end of the PBC rainbow:

"The working group thinks that the acquisition community should work together to re-shape the expectation that PBSA will save money. While it may be possible to save money on non-professional types of services, or by the use of share-in-savings techniques, the government spends most of its service contracting dollars where contractors are chosen by "best value" techniques, not low price. There is little current data to support monetary savings, and if such data did exist, it would be extremely difficult to isolate the exact reasons the savings occurred. The working group does agree that we are seeing improved quality of performance and improved customer satisfaction."(p. 13)

Anyone reading the Pentagon memo would surely have noticed the reference to the working group report. PBC is useful, but it’s not a magic wand. Yet the State Performance Review offers Californians an illusory billion dollar savings from recycling failed bureaucratic magic. And since Billy ("Yoda") Hamilton and the other Reviewers are veterans of management fads, they must know that the projected savings are bogus. Why are they doing this? Why do they propose to reform state government in a way they know is bound to fail?

In Hollywood, they still talk of Joe E. Levine -- The Guy Who Produced Mel Brooks’ Film "The Producers"

After agreeing to finance the film, Embassy Pictures chief Joseph E. Levine met with director Mel Brooks. "Levine was a child of the Depression," assistant director Michael Hertzberg recalled, "and in his office he kept a bowl of apples. So when Mel goes up to see him, Joe says, 'Mel, my job is to get the money for you to make the movie. Your job is to make the movie. My job is to steal the money from you. And your job is to find out how I do it. Here, have an apple.'"

Friday, September 10, 2004

Blowing Up the Boxes

So that’s what Arnöld meant! He’s not going to explode the dull little organization chart boxes that house California’s state bureaucrats. He’s going to inflate them, to puff them up full of warm air. "OK now ... vun, two, zhree ... Inhale! und blooooooww. Inhale! und blooooooww."

How else can we understand the reorganization plan that has emerged from der Gövernor’s Performance Review? That plan basically takes the messy tangle of the state organization chart, draws eleven gigantic new boxes (with nice, rounded edges) and dumps all the old boxes into one or the other of the new boxes. See the results for yourself:

Ugly Old Chart ....vs..... Nice New Chart

Just think of the opportunities for chaos, power grabbing and executive infighting that this shuffle will create!

The proposal is embellished with the usual inspirational platitudes:

But beneath the cosmetic clichés, the Review expresses only the blinkered ideology of the corporate wing of the Republican party -- as tho some Dr. Frankenstein had transplanted Pete Wilson’s brain into Arnold Schwarzenegger’s body.*

The Review evaluates State government as tho it were a profit-seeking business ripe for takeover or leveraged buyout.

"Governor Schwarzenegger called for a line-by-line audit of the state’s fiscal operation... CPR created an audit team to perform such a review in accordance with Generally Accepted Government Audit Standards (GAGAS) [ed. GAGA - how appropriate!]. California’s condition, for this audit, was viewed as if it were a business entity being acquired."

Naturally the Review finds government inefficient. It makes no profit, so fails the test of the bottom line. But this is a false comparison. Although governments share some characteristics with business corporations -- both are bureaucracies:

"an organizational structure characterized by regularized procedure, division of responsibility, hierarchy, and impersonal relationships"

that co-ordinate internally through commands and procedures, rather than markets -- there are crucial differences. Government agencies do not sell, but tax and regulate. We expect officials to be fair, not captives of the highest bidder. And while bankruptcy is the fate of failed corporations, no one with any sense at all would advocate a Chapter Seven liquidation for civil society.

In his eponymous study Bureaucracy (1989), Harvard Professor James Q. Wilson categorized government agencies based on whether outputs (what the workers do day to day) and the outcomes (the results produced by the outputs) can or cannot be directly observed. In "production" agencies, like the DMV, both outputs and outcomes can be measured. In "procedural" agencies, like mental hospitals, the managers may know what the workers are doing, but it's not easy to tell what difference it makes. "Craft" agencies (eg. the Forest Service, or perhaps CalTrans) achieve measurable results from technical specialists who operate independently, and in "coping" agencies (police, schools, prisons, etc.) the workers can’t be monitored all the time and the results resist measurement. Different types of agencies have different organizational cultures, and require different approaches to management.

The Review folks understand none of this. They seem to think that all state workers are window cashiers at the DMV. Fortunately, at least one questioner in the current round of hearings on the Performance Review knows the score. Here's what Joe Jelincic, who works for PERS and is President of the State Employees' labor union, asked at the San Jose hearing on August 27th:

"And how do you calculate a performance measurement for something like teaching prisoners, who are not going to be out of prison for ten years, and so we won't see the outcomes for ten years, and how do you incorporate those?"(p. 60)

In response, Performance Review Team Leader Denzil Verado just babbled:
"The idea of focusing on a performance management system is that you are focusing on the result and the outcome. Whether it's the prison system, and they do have an outcome. Once the core programs are identified, measurement systems are set up, and then the outcomes and results of those programs can be effectively looked at and the dialogue should be around that. Not necessarily numbers of people incarcerated, but what is the job of the prison and how accurately are they doing it."

"Performance budget systems are focusing on the results, not just the number of output, but what is the customer satisfaction? What is the administration's satisfaction with it? What are the surveys showing? Those results and the end results are the critical piece of the performance management system, not sheer output."

How can anyone know how "accurately" a jailer does his job? What does a jailer learn from a survey of prisoner satisfaction? Professor Tax offers 10 points extra credit to anyone who can find a coherent answer lurking in Dr. Verado's testimony

Mr. Jelincic was unrelenting. He also asked (p. 94)

"For a performance measurement to work, you have to have an agreement on what it is you're measuring. And how do you develop performance measurements for outcomes, not just outputs?"

The response from Mr. Hinton of the "California Council for Excellence" (a non-profit outfit that sells quality award motivational training plus golf tournaments at pleasant coastside resorts) was to dodge the question and talk about customer lines at the DMV -- the classic production agency. But over half of all state employees work in colleges or prisons. They don't "produce". They cope. How do you measure and quantify "learning to be a citizen in a democracy"? Or even "learning how to talk nice to a probation officer"? Ask yourself whether a high number of arrests means that a police agency is doing a good job of catching criminals, or a poor job of deterring crime? Who are the "customers" of the California Highway Patrol? Of the California Supreme Court? As a Brookings Institute report on the early mistakes of the Federal "reinventing government" movement noted (p. 28)

"It is the job of many government agencies to get citizens to do what they may not want to do, from obeying the speed limit to complying with customs regulations. The lack of choice about the buyer-seller relationship, coupled with the regulatory and sometimes punitive nature of the relationship, strains the customer model to the breaking point."

The Performance Review seems to have been written by folks so rigid in their ideology that they cannot learn from experience. As a result, they urge Californians to make the same mistakes that the Federal Government made a decade earlier when "reinventing government" was in vogue. That same Brookings report summarizes what went wrong back then (pp. 11-12):

"Private-sector advice, however, often proved counter productive: the public sector has tended to embrace private-sector reforms just as they have been proven unworkable in private companies. Following the lead of private-sector firms that sought to improve productivity by downsizing, the NPR sought to downsize the federal government as well. However, private "reengineers" quickly discovered that radical surgery and downsizing rarely proved the right fix. Management reform, rather, requires good managers to manage well."

"Elected officials, pressed everywhere for magical answers to tough resource problems, have cast a wide net for magic cures. Management gurus have often been ready to provide quick answers, allegedly tested in the heat of private-sector markets and ready to solve public puzzles. As Micklethwait and Wooldridge note, 'politicians have demanded that the theorists achieve all sorts of impossible feats: cut expenditure while improving services, or boost morale while slashing work forces. The more unscrupulous theorists have played on these self-contradictory fantasies by overselling their products. Private markets rarely work just as the management books suggest. The "lessons" distilled from them often work poorly for very long in other companies and rarely fit the complex environment, culture, and constitutional setting of public organizations.'"

So will "blowing up the boxes" make our state government better and cheaper at the same time? Don't bet on it.

Sad to say, it's not a new story. Almost 2000 years ago, when the Roman Emperors ruled all the known world, one of the earliest novelists -- a man who lost his life serving as "Minister of Fine Arts" for the mad Nero -- observed:

"We trained hard, but it seemed that every time we were beginning to form up into teams, we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization." Petronius Arbiter, @ 60 A.D., but see

At least there will be more government jobs for Performance Reviewers.

* Note: It could have been worse. Suppose the creature had Arnold Schwarzenegger's brain in Pete Wilson's body.

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