Private Efficiency

A few days ago we told you about a McKinsey study on how public organizations are beginning to implement lean manufacturing methods.  Government has a particular problem where lean can be a great help.

A car manufacturer or a retailer that fails to add value finds that its customers go elsewhere. But in government departments and other public organizations, putting customers first may be more difficult. One reason is a lack of competition. Customers of the government—job seekers or patients, for example—usually have no choice of provider. The demands of the customer, who may never even appear in the office, rarely come into focus. Much of the public sector remains supplier led, not customer led.

Unfortunately too many policy wonks still believe government spending and budgeting is a zero-sum game, and therefore taxes must be raised to improve the quality of services.  Lean shows otherwise.

To address the problem, public-sector leaders are looking with growing interest at "lean" techniques long used in private industry. From the repair of military vehicles to the processing of income tax returns, from surgery to urban planning, lean is showing that it can not only improve public services but also transform them for the better. Crucially for the public sector, a lean approach breaks with the prevailing view that there has to be a trade-off between the quality of public services and the cost of providing them.

Although its been pretty seriously distorted over the last few decades, the Constitution techically allows for very few government services.  A discussion of whether certain functions should be privatized or simply improved within the realm of government is outside the scope of this blog.  However the private sector does provide some examples of how to do certain activities better.

Take the National Weather Service, for example.

Despite dire predictions from the National Hurricane Center, no hurricanes hit the U.S. last year. This year they are again predicting as many as 10 hurricanes, up to five of them hitting the U.S. Fortunately, Dean also seems most likely to miss us. All this raises a question: Is the government’s free weather prediction service so bad that it is worth paying for private companies to predict the weather?

With all the blame still going around about Hurricane Katrina’s devastation, one fact has missed getting much attention: private weather forecasting companies predicted the threat to New Orleans well before the National Weather Service. In fact, AccuWeather issued a forecast that the hurricane would hit New Orleans 12 hours earlier than the government service.

A new study by Forecast Watch, a company that keeps track of past forecasts, found that from Oct. 1, 2006, through June 30, 2007, the government’s National Weather Service did very poorly in predicting the probability of rain or snow. Comparing the National Weather Service to The Weather Channel, CustomWeather, and DTN Meteorlogix, Forecast Watch found that the government’s next-day forecast had a 21 percent greater error rate between predicted probability of precipitation and the rate that precipitation actually occurred. In looking at predicting snow fall from December 2006 through February 2007, the National Weather Service’s average error was 24 percent greater.

So private companies provide more detailed and more accurate services, available free via the internet, than the government service we’re spending $882 million a year for.  And don’t get me started on the duplication of weather services provided internally by other government agencies.  Hmmm…

And how about school books?  Let’s take a look at what’s happening in the DC Public School system.

DCPS superintendent Michelle Rhee is doing a heroic job trying to get textbooks into classrooms by the start of school. One problem is that school officials still can’t tell her how many books they actually need. Classes start on Monday. Is the problem insufficient funding? As it happens, DCPS’s total gross budget for the last school year was upwards of one billion dollars according to its own website, and its enrollment was about 52,000 students. That means DCPS had total per pupil spending of nearly $20,000 last year, or half a million dollars per class of 25 students. You’d think that would cover books.

It may cover books, but the problem is in the planning and decision-making.  What’s an analogy from the private sector?

When was the last time you walked into a Barnes and Noble or a Borders bookstore in mid August and didn’t see a well-stocked “back to school” display? Why is it so easy for them to handle inventory issues when they don’t even know how many customers they are going to have, while DCPS is flummoxed, year after year, despite having a fairly accurate enrollment number up front?

You could also consider how textbooks cost $50 (to well over $150 for some college courses), with the excuse being that quantities are lower than mainstream books.  However one-off printing at a professional "lean printer" like iUniverse, owned by Barnes and Noble, would be approximately $30 for the same size book, author royalties included.  One at a time, delivered within a week.

Lean efforts in government are starting to yield results, especially in the military.  But competition will always have an advantage in creating efficiency.  Perhaps some activities should be privatized, and perhaps some should stay part of the government for a variety of reasons.  But if government agencies had to compete with their private sector analogues, such as happens fairly directly with the postal service, efficiencies could be created without outright privatization.

Sometimes you simply don’t get what you pay for.