In this second Center for Priority Based Budgeting blog installment in our 3-part series on
Peter Diamandis’s book, “Abundance: The Future is Better Than You Think” our
focus is on the power of incentives, incentive competitions, and their
application in local government. See prior "Abundance" related blog posts CPBB Hangs Out with Peter Diamandis - PBB as a Resource Liberating Tool & From Scarcity to Abundance: Resource Liberation Through the Power of Shared Services.
The Spirit of St.
Louis
In 1919 Raymond Orteig established $25,000 prize (the “Orteig Prize”) for the first non-stop flight between New York and Paris. In 1927, with the whole world watching, Charles Lindbergh won the prize and became a global celebrity.
Says Diamandis, “I’d always believed that Lindbergh woke up
one day and decided to head east, crossing the Atlantic as a stunt. I had no
idea he made the flight to win a prize.”
In the book, Diamandis describes how Lindbergh gets
attributed with being a risk-taker (which he was), an ambitious adventurer
(probably was too) and a pioneer in aviation (all likely true). But he
concludes with the fact that the reason Lindbergh made the flight, was to win
the cash prize!
What came next was nothing short of exhilarating and
unexpected. “A landscape of daredevils and barnstormers was transformed into one
of pilots and passengers. In eighteen months, the number of paying US
passengers grew thirtyfold, from about 6,000 to 180,000. The number of pilots
in the United States tripled. The number of airplanes quadrupled…we can draw a
direct link between his winning of the Orteig Prize and today’s
three-hundred-billion-dollar aviation industry.”
Incentivizing
Breakthroughs in Local Government – a TRAGEDY
Within the first few weeks that CPBB co-founders began their
work to help Jefferson County, Colorado overcome a $13 million deficit, the
County’s mail-room operations were under evaluation. Why the mail-room? Well,
it turned out that mail collection and delivery across the County’s campus had
reached an unprecedented level of service, with four deliveries of mail per
day! “It was essentially ‘real-time’ – four deliveries of mail per day? It was
faster than email!”
Upon diagnosing the situation, a funny story emerged. The
reason four deliveries were required was because of one limiting factor – the
mail cart, sadly enough, could only hold a small supply of mail, before the
envelopes started falling off it’s sides. With a larger cart, mail delivery
could be reduced to twice a day, eliminating the need for half the staff!
Problem solved!
Except for one thing…
Eliminating two deliveries of mail per day created a new
problem – eliminating employees. Everybody liked the mail-room staff – they
were delightful, hard-working, dedicated and highly performing employees.
Digging into the issue a little further revealed one more reason that there was
a problem: since the costs of providing mail-room services were buried in the
General Fund, and since none of the customer departments paid for these
services, there was no incentive for the departments to insist on decreasing
the level of mail-room services.
Listening to this story re-told several years later, a
County Commissioner reflected, “nobody thinks to turn out the lights in the
office, if you’re not the one responsible for the costs of the utility bills.”
The efficiency in mail-room services went by the wayside;
but not without a key lesson learned about incentives.
Incentivizing
Breakthroughs in Local Government – a TRIUMPH
The lesson learned was clear – without incentives in place,
it’s tough to drive motivation to
For the three major cost centers of internal services IT,
Facilities, and Fleet, the costs for providing those services were allocated to
budgets of the customer departments. Furthermore, for services that the
departments could find cheaper elsewhere (either through decentralization, or
through another service provider), an evaluation would take place to figure out
the best next step. The incentive was clear: with a $13 million deficit
looming, and cutbacks on the horizon, departments had an opportunity to help
solve the deficit to the extent that they could spur the research of
alternative service options for the County’s major internal services.
And it worked!
Between IT, Fleet and Facilities (each department with
budgets nearing $10 million), this incentive system led to 20% reductions in
costs – covering over half of the deficit, without reducing services to
citizens, without requiring tax increases, and with very reasonable changes to
the way internal services were provided. This was a major triumph!
Fleet changed the way they went about maintaining their
parts inventory – updating business practices to adjust for the “just-in-time”
nature of parts delivery.
Facilities costs plummeted from the reduction in office
remodels – once those costs were in the department’s budgets, when it wasn’t
“free” to the departments, remodel demand went down to a far more reasonable
level.
And in IT, changes ranged from automating common requests of
the Help Desk, to eliminating the production and development of in-house
applications and customized application support, to getting smarter about
project management.
The power of incentives can’t be underestimated. Read more about the history of incentivized competition.
While it is important to encourage departments to turn out the lights and use less IT and facility services, how do we incentize operational efficiency among professional staff in public works, public safety or human services? Is anyone driving innovation in these areas?
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