Spend Management: High Stakes, High ROI

By Brian Selander

Two very different kinds of storms--one financial, the other literal--threaten our state governments. As the hurricane season gets underway, states are racing to protect their citizens' safety, implementing costly but crucial plans for evacuations, disaster relief, and recovery. At the same time that these states are making commitments to their residents, the federal government's budget crisis makes it less able to provide a financial hand.

One important result is a renewed focus on the actual "nuts and bolts" of state government spending, because every dollar wasted in overpaying for goods and services is a dollar that could have been spent on disaster preparedness. Demanding that the business of government not be a partisan issue, constituents are encouraging their governors to act and sound more like the leaders of large corporations, embracing some of the efficiencies, effectiveness, and responsiveness of the private sector to meet these challenges.

Governors of both parties representing states across the nation are managing their spending by using some of the same tools and tactics employed by the Fortune 500 companies whose budgets are of similar size. Chief Executives like Democrats Mark Warner of Virginia and Bill Richardson of New Mexico and Republicans like Arnold Schwarzenegger of California and Donald Carcieri of Rhode Island have joined over a dozen colleagues to literally get a better price on the "nuts and bolts" their states buy through a process called strategic sourcing.

By investing in spend management technologies, these governors are identifying, creating, and sustaining cost savings by leveraging their enormous purchasing power to guarantee that they get the best prices possible for goods and services. They are challenging and questioning the way their states did business in the past to make sure every tax dollar is spent wisely in the future.

The results have been dramatic--an average of 15 percent savings on tens of thousands of items that have delivered hundreds of millions in savings.

How is this achievable? In each state, every successful strategic sourcing project includes someone outside of government taking a line-by-line look at millions of individual transactions--from a single light-bulb to dozens of photocopiers--that take place each year across over 100 state agencies and divisions. Armed with this analysis, each state then moves aggressively along with experts in private and public sector purchasing to capture these savings. These additional hands-on-deck help eliminate waste of taxpayer dollars by driving down the prices on these items and bringing new bidders to the table. Each of these experts has typically also included a savings guarantee with their work to ensure the state actually saves.

Without this analysis and focused, detail-driven process, many states fail to identify real savings opportunities, fail to leverage their buying power to the fullest extent, fail to provide small and in-state suppliers the opportunity to deliver "best value" offerings, and fail to make agencies adhere to the contracts that are put in place. Each dollar lost from these failures is a dollar diverted from the governor's vision for a stronger, safer state.

As important as these initial savings is the "sea change" established when the governor brings agencies together thinking collaboratively across boundaries. Instead of just focusing on the lowest-price for their division, state employees now seek the best value for the taxpayer and the state. Instead of thinking as individual entities when it comes to procuring goods and services, the state now acts in a more coordinated manner. This cross-agency coordination enables the state to react more like the single entity it really is, and, in a more coordinated way, tackle other crises as well.

So why is this practice not up and running in more states? Less than half have taken up strategic sourcing. In many ways, trying to change the direction of state government can be a lot like changing the direction of an aircraft carrier--a long and deliberate process. The private sector can reward peak performance with financial incentives and be more flexible with under-performing employees in ways that states can not. Private sector procurement practices can be rewritten easily to include new tools and techniques to meet a company's focus on profitability, while state procurement codes and statues can take months or years to change. An oppositional legislature or impending re-election can demand that an administration's focus be as much on surviving the daily news cycle as crafting a 10-year plan.

But governors concerned about their states' bottom line and committed to flexible, responsible solutions are using strategic sourcing to create an organizational culture where everyone understands what it means to do a better job getting the best value, strives to do a better job working together, and continuously learns to expand their skills by working side-by-side with outside experts to ensure they can tackle new challenges with best practices from the public and private sectors.

Voters in 36 states will choose governors this November. It would not be surprising to see that many of the candidates who succeed are able to overcome these impending storms by building on the management success of their colleagues who have launched strategic sourcing projects.

About the Author

Brian Selander is the National Director for CGI Spend Management Solutions (formerly Silver Oak Solutions). For information on CGI, visit: www.govinfo.bz/5966-307.