Now that Congress has agreed to a two-year budget framework and passed a $1.1 trillion spending bill, the federal government finally has the opportunity for budget predictability that has eluded most agencies since 2010.
The bad news is, the pressure to cut costs is not likely to lessen much despite the long-needed budget stability. Rather than the same old "do more with less" dictum, however, there is another way to look at this push: creating value.
In practice, for most government agencies, the typical annual top-down direction is to cut back overall budgets by 5 percent or 10 percent across the board, without meaningful discrimination between high-value, high-priority activities and low-value, low-priority activities.
In the commercial sector, the creation of value, coupled with an efficient cost management process, is the result of an enterprise management focus to sustain the viability of the corporation. The government's "spend it or lose it" orientation detracts from the ability of the agency to have a meaningful approach to how and where value is created for the taxpayer.
Coupled with the lack of a sustained enterprise cost management process, government organizations have little to no time to focus on either cost efficiencies, the generation of savings, or the creation of value.
Value creation emphasizes the production of a good or a service that is more valuable to the customer than it costs to produce. In government, a focus on value creation would emphasize the delivery of services (or occasionally, products) that are more valuable to our taxpayers, or internal government customers, than they cost to produce.
The government can do this. For proof, look at the work of the Partnership for Public Service's Service to America Medal recipients.These are federal employees recognized for their innovations, focus on, and commitment to creating value in service to the American public. More than a mindset, the value creation model requires a focus on the impact of government outcomes and how they benefit the government's ultimate customers — the American public.
For example, the ultimate beneficiary of investments in aviation security by the Department of Homeland Security is the public. Other than speed of throughput for passengers and baggage, how should DHS think about the value created for the traveling public, and what does it mean for the way program priorities and funding decisions are made at TSA? Furthermore, if the relative value to the traveling public was an important criterion in passing judgment, how many of the existing investments would continue to be funded and would we recognize its value? Finally, when one begins to array the value-creation proposition of DHS investments across the entire homeland security enterprise, would the current mix of investments stand?
There are five areas of the value creation model used by the commercial sector which can benefit the government:
- Portfolio: Government leaders need to begin to think about the services they provide in the context of a marketplace of offerings. Who else provides the same or similar services, and how well does your offering stack up against the value created by other agencies or intra-agency components?
- Customer: Who is the customer base for the targeted area and what is the assessment of the value creation potential? Is there another provider in the marketplace that offers greater value, and if so, how does one justify continuing to deliver those services from your agency?
- Competition: Who are the internal competitors and partners that either duplicate or share in the success of the services provided to your customers? Many government programs have multiple and competing delivery agents throughout enterprise. Whether it’s law enforcement, cybersecurity, health care, or any program service areas with multiple delivery agents, how easily can the recipient of the service provided differentiate your service offering from another?
- Cost: Do you have a clear understanding of the cost drivers that make up the program delivery costs?
- Complexity: How do you reduce the cost of complexity of a service area and therefore improve the value to cost ratio? Many times government is providing a useful service, but the value to cost ratio is either too high or unsustainable..
Many government service offerings provide tremendous value to the public, but many people do not agree with or even recognize that value. Value creation, which sets out to validate that dollars invested or spent are creating value holds promise as a concept for showcasing to the taxpayer community that government can create value. Shifting focus and dialogues to value creation, and away from the refrain of doing more with less, will help the public sector learn from commercial best practices. Then, when government programs
meet the value creation test, the onus is on government leaders to eliminate the programs proven to provide the least amount of value.
Rafael Borrás is a partner at A.T. Kearney. Previously he was Under Secretary for Management and Acting Deputy Secretary of the Department of Homeland Security.