Franchise Internal Services

Franchise Internal Services

BACKGROUND

The federal line manager generally receives numerous administrative
services from internal monopolies and is totally dependent on those
monopolies for delivery of the services needed for program
accomplishment. These monopolies do not have concrete incentives to
treat the line manager as the customer, and the line manager has little
control over the quality of services received. Exacerbating this
situation is a highly conservative, risk-averse federal culture that
emphasizes adherence to regulations over service and results.

In recent years there has been considerable growth of cross-servicing
within the government. Enterprising service organizations have expanded
their services to customers in other organizations on a reimbursable
basis. The Cooperative Administrative Support Unit program has been a
catalyst for such cross-cutting service support between agencies.
Similar efforts have been successful in the Department of Defense
through the Joint Inter-Service Regional Support Group program and the
Defense Reutilization Marketing Organizations. Centers of innovative
entrepreneurship have developed elsewhere in government including the
Department of Agriculture's National Finance Center; the Department of
the Treasury Financial Management Service's Center for Applied Financial
Management; the Interior Department's Administrative Service Centers in
Denver and Washington; and the General Services Administration's Federal
Computer Acquisition Center for automated data processing buys. The
success of these organizations in improving service and reducing costs
sets the stage for expansion of this concept throughout government.

The franchising concept draws from most of the principles of the
National Performance Review (NPR), including focusing on the needs of
the line manager, injecting competition, finding market instead of
administrative solutions, decentralizing authority, and fostering
excellence. We have chosen the term "franchising" to refer to internal
services based on three basic concepts: They are reimbursable,
competitive, and conducted within governmentwide principles and
criteria.

NPR's motivating vision is for the line manager to receive quality
services fast and for the best value. In this concept, service
excellence is promoted through competition among administrative
units.[Endnote 1]. The line manager controls funding and buys from the
best provider. Servicing units grow or shrink based on demand for their
services and are free to manage flexibly to meet demand. The financial
bottom line guarantees discipline and excellence in the system. Services
are driven by the needs of the line manager who is free to purchase
these services from the best provider.

This concept is applicable to any services common to more than one
organization. These include all administrative functions such as
procurement, personnel, payroll, finance, logistics, security, and
facility management. They could include other services such as
information technology, engineering, quality assurance, and other types
of internally focused support. The characteristics of this approach
include:

--The "franchised" support unit operates within principles and minimum
criteria, which are established governmentwide by central agencies (ie.
Office of Personnel Management (OPM) for personnel) to guide
administrative and other services. These criteria would be incorporated
in the contracts executed between the customer and servicing agencies.

--The market mechanism drives the model. Administrative units actively
market their services to gain business.  Entrepreneurial management is a
key success factor. The line manager seeks the best deal based on price
and excellence of outputs--speed, consistency, attitude, and quality of
services provided.

--The franchising could occur in a variety of circumstances including:
within small or large geographic areas; with a mix of local, state, and
federal government; with any combination of services; among existing or
new civil service units; and at some point during the implementation
process, with competition by private businesses.


NEED FOR CHANGE

Flexibility to manage a unit is critical for success and includes
businesslike practices, the ability to manage the workforce easily in
response to business changes, freedom from full-time equivalent (FTE)
controls, a revolving or industrial-type fund with pricing flexibility,
and simplified personnel practices. A number of actions recommended
elsewhere will provide considerable additional flexibility for managing
in a businesslike manner.

There are numerous barriers in the current system. Financial barriers
block reimbursable activities from the flexible use of "profits" and
transfer of funds among line items and object classes. Personnel
barriers and recommendations are discussed in an accompanying NPR report
on human resources management. FTE controls on agency workforce levels
are based on agency appropriations from Congress, and the FTE control
system must be changed to enable rising and falling workforce levels and
budgets in a competitive, reimbursable cross-servicing environment. FTE
controls are discussed in an accompanying NPR report on budgeting.
Unless the FTE control system is changed, agencies will lack the
incentive to use their own ceiling to expand services and the workforce
on behalf of outside customer organizations even though the costs are
paid by the customers. Parent agencies do not perceive service to other
agencies as a part of their mission, and central management agencies
have tolerated or only half- heartedly promulgated this as the
government's policy. In addition, a lack of internal agency delegation
of financial and other authorities to field-level managers creates
impediments to cross-servicing arrangements.

Incentives are needed for success. In addition to new flexibilities
recommended by NPR, additional incentives are important to success. A
means of providing capital loans for initiating new servicing units or
upgrading existing capabilities would be desirable. In addition, an
important incentive would be flexible use of "profits" including
gainsharing with employees and the parent agency.

A minimum supporting management structure would be necessary to provide
services to the franchised support units and customer agencies. The
model would be an unbureaucratic "central nervous system" serving as an
information repository and broker. Services to units would include
coordination with franchising agencies and information on start-up, best
practices, business advice and opportunities, regulatory issues, etc.
Services to agencies would include working to ensure a critical mass of
competing providers and information on potential servicing units and
services available. This would be a mixture of central national effort
to provide promotional, information, and brokering services and reliance
on regional and local efforts among significant numbers of participating
agencies.

The desired end-state is a government in which internal services are
delivered by servicing organizations (meeting previously established
criteria) in competition with similar organizations. Their customers are
the line organizations responsible for carrying out the government's
missions in the least costly and most effective manner.  While the
details of this need to be tailored to each agency's specific
circumstances and requirements, the basic principles of the process are
as follows: agencies prepare their internal service providers for
conversion to competitive, reimbursable business practices; in graduated
phases, funding for these services is redirected from the current
service monopolies and provided to the customer organizations; as the
customer organizations receive the funds, they are free to purchase
services from competing service providers who offer more effective
outcomes; the former monopolies succeed or fail based on their ability
to provide equally or more effective outcomes than are available
elsewhere. This will not be an easy process. The idea of applying market
incentives to internal federal services is revolutionary to those who
have practiced in the 100-year monopoly tradition. Even with greater
flexibilities and new incentives, there will be great resistance and
reluctance to try.  While agency heads are grappling with long-term
plans for making this concept work within their organizations, NPR
recommends an interim effort designed to sell and facilitate the overall
concept within and across agencies; identify early opportunities for
implementing franchising; and provide a central support activity for
start-up and long-term implementation.

ENDNOTE

1. For further discussion, see Pinchot, Gifford, and Elizabeth Pinchot,
The End of Bureaucracy and the Rise of the Intelligent Organization (San
Francisco, CA: Berrett-Koehler Publishers, 1993), pp. 120-123.