Forest Magazine Point of View: Outsourcing and the Alternatives
Gifford Pinchot III
The poster child of the outsourcing movement was IBMs personal computer business. IBM outsourced most of the components and in just four years grew its sales to $4 billion. A great start-up story. Their strategy was to hold on to the core control points of the PC business, which they judged to be system integration, marketing and service. Consequently, they outsourced the keyboard and the metal bending on the boxthese worked fine. They also outsourced the chip production and the operating system. These were big mistakes; soon Microsoft and Intel were worth more than IBM.
IBM misread the future of the competencies they would need for success. But this mistake need not have been catastrophic. The deeper mistake was choosing an organizational strategy, namely radical outsourcing, that required them to be right about the capabilities they would need. Had they insourced to intraprises (intracorporate enterprises) instead, they would have controlled the PC business.
In the business community, outsourcing is a popular tool for improving the cost-effectiveness of a corporation. According to James Brian Quinn, professor emeritus from the Tuck School of Business at Dartmouth, about 80 percent of the work done in a large organization is done for others within the organization and could be configured as a service to be supplied to the organization from outside. His prescription is to look at each task in your organization and ask, Are we the best in the world at this task, or is there some potential supplier that is better at that specialty than us? If you are not world-class in any activity, fire those employees and hire the outside specialist firm to do it for you.
The assumption is that in most cases the outsiders can do the job better, faster and cheaper and therefore most work should be outsourced. In my experience of the U.S. Forest Service, this is not true. Agency employees, when given a chance in fair competition, canand dobeat outside competitors.
The Federal Activities Inventory Review Act, called the FAIR Act, has the potential to create a very different Forest Service. The act is based on the idea that outsourcing the work of most federal jobs will bring vitality, cost-effectiveness and innovation to the agencies. The Forest Service could be making the same mistake as IBM: outsourcing the very competencies that it will need to deal with a rapidly changing world. Fortunately, there is a safer option already being pioneered within the Forest Serviceenterprise teams.
In the late 1990s, the Forest Service launched twenty-one enterprise teams, each specializing in delivering some service to willing buyers in other parts of the agency. There was no pressure on line managers to give the enterprise teams any business. For any task, a forest supervisor could hire employees directly, hire an outside contractor or hire an enterprise team.
How did the enterprise teams do with all this competition? Today nineteen of the twenty-one teams are flourishing. The enterprise teams have proven that even with open competition, Forest Service employees can do a better job than outside contractors.
Recreation Solutions, an enterprise team run by Jeni Bradley, is a good example of how good Forest Service people can be. Instead of providing recreation planning and trail-building management for one forest as she did before, she heads an enterprise team that has been selected by customers to provide recreation planning services for multiple national forests, the state of California, the Bureau of Land Management and the Washington office of the Forest Service.
Other enterprise teams compete with Recreation Solutions. Trails Unlimited competes in building trails and training others to do so. Grant Strategists competes in fundraising. And she has outside competitors. Despite all, Jeni has grown her team to thirty-five people and her billings to nearly $10 million annually. And the teams she competes with are doing well too.
Internal competition and competition with outside vendors are giving the Forest Service what it hopes to get from outsourcing: flexible, cost-effective, innovative service to achieve the agency mission. Other successful enterprise teams model fire behavior and help firefighters predict the path of a fire, resolve knotty conflicts, assess timber, prepare and defend environmental impact statements, edit documents, obtain grant money, manage databases and resolve workers compensation cases. These enterprises tell us two things: first, Forest Service employees, given the right environment, can outperform contractors; second, enterprise teams can accomplish the efficiency and reduction of bureaucracy that outsourcing is intended to produce.
The FAIR Act is based on a basic truth: choice is the universal solvent of bureaucracy. A network of organizations whose relationships are disciplined by marketplace choices can outperform a giant chain-of-command organization. We know that this is true on the very large scale. We all agree that large economies, like those of China or the Soviet Union several decades ago, do not do well when all the decisions are made by a single chain of command. In many kinds of decisions, the marketplace produces surprisingly good allocation of resources, a strong motivation toward innovation and efficiency and far outperforms the chain of command.
Large corporations are beginning to understand that this same lesson applies to them. They are forming intraprises, which look very much like enterprise teams. This is not surprising, because they were modeled after the Forest Service enterprise team experiment. For example, in one multinational semiconductor firm, line managers can buy from intraprises services including web design, computer programming, financial planning, application hosting, mechanical engineering and prototype construction. The enterprise idea is spreading to industry.
As with privatization of electric power and water, the results of outsourcing are not always what was hoped.
Prices rise once you are hooked. In the late 1990s, many big firms outsourced their information technology. Once a firm was no longer able to operate its information technology, outside vendors generally raised prices. In another example, in 2000, greedy executives in the outsourced power generation industry took 40 percent of their power generation plants offline for maintenance. Prices soared, and without warning the power to southern California hospitals, traffic lights and elevators shut down. What might happen when all the people doing agency work on the ground are lowest-cost contractors?
The jobs in the Forest Service are not easily defined in advance. Many Forest Service employees do many different jobs in a day, many of which cannot be anticipated. This situation requires a flexible workforce that does botany one day, incident command for the next few weeks, then goes back to the office to create public communications. This flexible sort of work is hard to contract for. How do you define the task before you know what it is going to be?
The government is not good at contracting. Outsourcing appeals because it seems like a solution to the fact that governments are not good at managing. But governments are no better at purchasing. If anything, government purchasing is even more bureaucratic and political than government work systems. Contracts often take months. Suppliers develop their own internal bureaucracy to deal with the bureaucracy of the government purchasing. Soon $700 toilet seats begin to make sense.
Enterprise teams solve this dilemma. You get the advantages of competition and market choice without the government purchasing system overhead.
In the face of the FAIR Act, enterprise teams are our best chance for saving Forest Service jobs. In many cases, they are also the best way to get the work done. There are two things to be done:
1. Remove the barriers to the more efficient operation of enterprise teams.
2. Create more enterprise teams ready to take on outside competition and win.
The enterprise team system is already working quite well, but it is not expanding. We need to fund the enterprise bank, volunteer to create enterprises, strengthen enterprise team launching and support systems and fix any policies that get in the way.
The administration has stated that enterprise teams are part of the answer. Lets build on that commitment with policies that support a level competition between enterprise teams and outside vendors. First, we need to count contracting with enterprise teams in any quotas for outsourcing. This is critical for the survival of Forest Service jobs and the preservation of agency competencies. Second, we need to make sure that outside contractors cant use political means to prevent enterprise teams from bidding on contracts. Third, we need to build enterprise team accounting into federal financial reporting so we can clearly see the financial impacts of the programs.
We need the innovation and cost-effectiveness that markets and competition can supply, but we also need the stable work relationships and community spirit that job security in an organization with an uplifting mission can provide. We can get the best of both worlds by building up the enterprise team system.