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Management in Practice

Can Government Be Run Like a Business?

The private sector has markets and a profit motive to drive innovation and efficiency. Can such an approach translate to government? Jesse Samberg ’87, who has worked to reinvent governmental functions at IBM and New York’s Metropolitan Transportation Authority, offers practical examples of applying the tools of business to the public sector and ambitious hopes for overcoming intractable hurdles.

The Ronald Reagan Building and International Trade Center in Washington, D.C.

  • Jesse Samberg
    Shared Services Fellow, IBM Center for the Business of Government

President Trump came into office promising to make government run more like a business. He told the Washington Post, “I promised the American people I would produce results, and apply my ‘ahead of schedule, under budget’ mentality to the government.” To those ends, he established the White House Office of American Innovation and placed Jared Kushner at the head of the new organization. One year in, the Office of American Innovation has extended and expanded the Obama administration’s work on modernizing government technology and plans to pilot centers of excellence starting with the Department of Agriculture, according to the Federal Times.

But what about the premise? Writing in the Harvard Business Review, McGill University management professor Henry Mintzberg posits, “Business is essential—in its place. So is government, in its place.” The problem is that these two institutions serve fundamentally different purposes. “The place of business is in the competitive marketplace, to supply us with goods and services. The place of government, aside from protecting us from threats, is to help keep that marketplace competitive and responsible.”

Perhaps there is a middle way. To understand how ideas from the realm of business could improve the efficiency and effectiveness of government, Yale Insights talked with Jesse Samberg ’87, the shared services fellow at the IBM Center for the Business of Government and formerly the director of shared services initiatives at New York’s Metropolitan Transportation Authority.

Q: How can the tools of business be applied to the public sector?

In the private sector, the profit motive drives change, efficiency, and innovation. The government is a very different animal. It has to respond to all kinds of different, competing interests, including political considerations. But my career has been spent applying business ideas to the government, in the context of these competing interests.

I spent 30 years at New York City’s Metropolitan Transportation Authority (MTA). Early on, I was deputy director of real estate. At the time, the property records were on paper in filing cabinets. The MTA was extracting very little value from an extraordinary multi-billion-dollar real estate portfolio because nobody knew what we had. We digitized the records. It took years, but it was a necessary step to looking at our real estate as a business. What could we lease? What could we sell? How do we put the portfolio to best use?

Later, I was part of the team that looked at fare collection. We were so far removed from the idea of a business that when we first talked about creating a fare card, people argued, “Why would we let customers buy a MetroCard with a credit card, which has a 2% transaction fee, when cash is free?” Nobody had ever figured out what it actually costs to collect cash. If you remember the old movie The Money Train, every night subway trains with guards would stop at each station, they'd collect sacks of cash and bring them to the money-counting room in Maspeth, Queens. People spent all day, every day sorting money. It turns out the cost of cash is 5% to 8%. Considering fare collection as a business let us introduce the MetroCard and a series of follow-on opportunities that fare cards allow.

Q: Shared services has been a long-term project for you. Could you explain the idea and it’s uses?

The MTA is made up of eight agencies with a combined $16 billion budget. It's a very complex organization that oversee the subways, two railroads, a private bus company, as well as seven toll bridges and two tunnels. Each agency was run as a separate business. If the agency did a reasonably good job, nobody was demanding any changes.

We decided to look at increasing the overall efficiency of the organization. We did that by figuring out which parts of each agency was unique and which functions were shared. For the shared functions, we created a Business Service Center.

Human resources is an example. Consolidating HR activities in the business center isn’t telling an agency who to hire; it’s standardizing the bureaucratic process. The agency gives me a job description. I post it. I screen applicants. I send the candidates to the agency. The agency chooses which to interview and who to hire. I do a background check, onboarding, and sign them up for benefits.

That is a typical organization for shared services. It streamlines the transactional pieces without taking away decision-making power from the people who should have it. The Business Service Center in New York City was roughly a decade ahead of the rest of government in the United States and stood up what is now known as the most comprehensive public-sector example of shared services in the country.

We did the work better and faster; we also did it cheaper. The efficiencies saved money that could be shifted from supporting mission to doing mission.

Q: Could shared services work at the federal level?

The George W. Bush administration shifted federal payroll functions to a shared services approach. The Obama administration did additional work. But, if it were expanded, the federal government could be the biggest use case in the world. When I came to Washington from New York a year and a half ago, I was going to boil the ocean. I was running around Washington saying shared services could change everything. A bunch of things have changed since then, including my attitude.

I call what we did at the MTA the 20th-century model. It was one agency looking within itself. In Washington, there are 24 major agencies reporting to the president. The 20th-century model would have Commerce look across its sub-organizations—the Census Bureau, Weather Service, Patent Office, and so on—to figure out how to improve the Department of Commerce.

The 21st-century model would say, “Let's look across all 2.1 million federal employees and hundreds of organizations to see what the government as a whole can do to be more efficient than the way they do things today.”

For example, we might look at the 40 to 60 different pieces of software that do finance. Many were built piece-by-piece within one sub-agency over the last 50 years. I call this Government 1.0. They did the best they could, but today there are more effective, cheaper commercial software options. Could the government say, “We’re going to use Oracle, SAP and one or two others. Major agencies can select from among them and we'll get out of 40 or 60 different types of finance software for each of our sub-agencies”? I call that the 21st-century model or Government 2.0.

But even as Government 2.0 is needed, we can see Government 3.0. That would look government-wide at the potential of emerging technologies—AI, robotics, big data, blockchain—to run government more effectively. It could mean more effective shared services or letting government employees have more impact through technology.

Different people in different roles across the government are focused on 1.0, 2.0, and 3.0. Watching this, I’m trying to figure out if we are at the cusp of big change or are we only on the verge of very incremental change.

Q: How is the Trump administration approaching the use of the tools of business to make government more effective?

When the Trump administration came along, notwithstanding that many people in Washington were suspicious of its political ideology, we thought maybe it would really shake things up by rigorously applying business practices. Maybe these ideas about approaching government more like a business would be implemented. That may still happen.

Someone in the administration said it has to be approached as a relay. At first, I was upset because I thought, “What do you mean a relay? Let’s get it done.” But it’s obvious things don't change that fast in government. It's a relay in the sense that even if I had a great idea that was revolutionary and Trump-y, it would likely take more than one administration before it was really impactful.

The president changes every four or eight years; the heads of these agencies typically change twice as often as that. How do you sustain a vision? It's really tough.

Beyond that, at the moment, I think the disruption under consideration by many isn’t applying cutting-edge technology or business skills to make government more efficient; it’s actually disrupting government itself. We are wrestling with, “Am I trying to make government more effective or a I trying to make government smaller and let the private sector do it?”

Q: Is it possible to make government more effective even as there is a question about what its mission is?

It's getting very complicated, right? One unfortunate factor is that government does a really bad job of letting the public know when it actually can be useful or helpful. It is reactive, instead of being proactive.

Personally, I’d argue, let’s give the government a chance to deliver the service better. That said, I understand government is resistant to change, so making it more efficient and effective is challenging.

Why don't shared services happen? For the public sector, the downside of failure is bigger than the upside of success. Agencies are reluctant to cede control even of non-core functions for fear that it would somehow hurt its core functions.

Government is hugely hierarchical. There’s a culture that doesn’t ask people to perform in an entrepreneurial way. If I, as a government bureaucrat, try something really hard, and I’m wildly successful, somebody shakes my hand and says, “You did a good job.” But if I try something really hard, and I screw it up, my career is derailed. It’s disproportional. It’s a disincentive for taking chances. Even though I push people to change, I also appreciate why they might not want to.

Q: Are there models you look to for blue sky possibilities?

Look at what the iPhone changed in a little more than 10 years. It’s almost hard to believe how much everything in life has been transformed. The way we get information, the way we watch entertainment, the way mail and information get delivered, telephony, and culture all changed. The iPhone is a platform that has carriers fighting for it. It has programmers submitting millions of apps to be considered for that platform.

We all need government services. Why isn’t government more of a platform? Why aren’t we thinking “How do I harness applications from the outside? How do I incentivize change from the inside? How do I put it all together to enhance the way we deliver service?”

I was at a conference hosted by the co-working company WeWork. I asked the attendees, “Can anybody imagine people working for the government from a WeWork site?” Why is our model nine to five at a desk instead of basing expectations on outcomes? As long as you deliver what you promise to deliver, I don’t really care if you’re at your desk or at home or another facility. Maybe that’s government 4.0. That may be a leap that nobody can even begin to imagine—a government running like a business where things are based on outcomes, not based on people putting in eight hours at their desk.

Q: How are these ideas received in Washington?

After 30 years in government, I know it’s hard to bridge that gap between public and private sectors. When I was with the MTA, I used to come to Washington to try to build support for bringing business solutions to government. Now that I’m doing the same thing with IBM, I hear back from government officials that I’m just trying to help IBM make money.

This is ironic; I'm already had a long and successful career. I’m not angling to be in line for chairman of IBM in 25 years. IBM couldn’t and wouldn’t pay me enough to promote ideas that would hurt government. But here's what I would argue: IBM makes money from the chaos of government. The private sector does great when the government uses 40 different software packages. If the federal bought one software package for its 2.1 million people, the private sector would make a lot less money.

Q: Where do you think we should focus to make progress?

There’s a tendency to look for the newest, sexiest thing. I love the MTA to death, but when you think about it, the new Second Avenue Subway cost $4 billion and it carries 200,000 people. The new 7 line to the Hudson Yards cost $1.5 billion and it carries 50,000 people. Meanwhile 6.5 million people ride the rest of the subway system every day and it’s falling apart because there’s nothing sexy about upkeep.

Similarly, there are lots of idea that are sexier than improving the efficiency of the inner workings of government. But it’s something we should and can do.

Ideology gets in the way of thinking about better government. It’s ironic, in a way: there is an ideological divide over what the mission of government is—over what services and functions government should actually deliver. Yet don’t we all think that whatever government does, it should be efficient, effective, and deliver on its mission in the least costly way possible?