Firms on Economy’s Cutting Edge Show Government How It Can Excel

What makes government work? Increasingly, the answer is a model drawn from the experience of companies on the economy’s cutting edge.

For the past decade, American business has been reshaping itself around the relentless advance of computer and communications technology. To take advantage of the new tools, the most innovative companies are junking the bureaucratic pyramid that defined corporate America through the age of mass production. In its place, they are constructing flexible organizations that push power through the ranks to encourage constant innovation and adaptation.

This new approach is built on a series of interlocked principles: sharing information; decentralizing authority; establishing precise standards of performance; rigorously measuring results. In the old system, companies were held together by a chain of command that passed information from bottom to top and decisions in the opposite direction. The new system relies on concrete benchmarks of progress and a free flow of information to hold together organizations where decision-making power has scattered in all directions.

This managerial revolution has helped ignite the recovery of American competitiveness in industries from computers to autos. Now, some public policy entrepreneurs are applying these principles to government--the ultimate bureaucratic dinosaur--with equally powerful results.

As New York City police commissioner from 1994 until his resignation last summer, William J. Bratton presided over the city’s epic drop in crime. Many factors contributed, but none were more important than his reorganization of the police department around these insights.

Bratton radically devolved authority to the department’s 76 precinct commanders--but then held them to an unprecedented level of accountability based on new measurements. When Bratton became commissioner, the city gathered crime statistics only on an “ad hoc, slipshod� basis, says Jack Maple, his deputy commissioner. As one of their first acts, Maple and Bratton instituted an exhaustive statistical operation that tracked crime on a daily basis.

With the enhanced intelligence, Bratton launched twice-weekly “crime control� meetings in which precinct commanders faced withering questioning over the trends in their jurisdiction--which were displayed on maps down to the block level. The collection of such detailed data changed the frame of discussion. Crime was no longer some amorphous social plague--it was a tangible, identifiable problem with a specific address. Why were robberies up on this block? Why were rapes rising in this precinct? Just asking the question in that way provided enormous pressure for improvement. “We forced the commanders to come up with plans to knock down crime,� says Maple, who’s now spreading this gospel as a consultant to the New Orleans police.

In Indianapolis, Republican Mayor Stephen Goldsmith has reinvented the delivery of basic city services around these same ideas. Like Bratton, Goldsmith began by insisting on better measurement of his operations. For all the data that cities collect, Goldsmith says, “Almost no mayor knows how much it costs to fill up a pothole or collect a ton of trash.�

With help from an outside accounting firm, Goldsmith acquired those numbers--then used them to decentralize control over the delivery of city services. Using the cost data as the benchmark, he opened dozens of services--from trash collection to printing--to competition from outside contractors.

The results have been stunning. In some instances, city departments, streamlining their own operations, won the contracts; in other instances, private firms offered the best bid. Goldsmith even allowed nonprofit neighborhood groups to manage city parks.

Private firms and city employees alike agreed to contracts that set rigorous standards for performance--which have leveraged further efficiencies. In all, Goldsmith says, the city has saved an average of 25% on each of the services it has opened to competition--freeing funds for investment in police and infrastructure.

Some of the same instincts are evident in vanguard thinking about education. Reformers from President Clinton to Texas Gov. George W. Bush are hoping to seed innovation by increasing local control of schools and proliferating charter schools, which operate free from most state rules. Then, Clinton wants to measure these diverse experiments against a common standard by establishing national tests in math and reading.

That would be a good start. But few institutions are more trapped in the centralized, industrial-age model than the schools. The typical school district is both bureaucratic and blind: it denies individual schools virtually any control over their budget, yet “doesn’t have a clue� how much of its money actually gets into the classroom, says Sheree T. Speakman, an expert on school finance at the accounting firm Coopers & Lybrand.

Speakman, who addressed Vice President Al Gore’s conference on the family and education last week, has developed a quietly subversive weapon for change: a sophisticated accounting program that pinpoints exactly where education dollars go. Districts that she’s analyzed typically find that only about 32% to 42% of their money gets to the classroom, with the rest disappearing into overhead and management. Like Bratton’s crime figures, such numbers, when exposed, create their own demand for change.

That’s why Gore, at his conference, encouraged parents to ask school districts “how the money is being spent�--a simple question with explosive implications. And why a group of high-tech executives at the conference unveiled a prototype program that could provide parents, through the Internet, detailed fiscal and academic data on their children’s schools. And why Goldsmith, starting this fall, is mailing Indianapolis parents comparisons of how their schools’ academic scores stack up with local and national averages.

All of this points toward a vision of school reform that pushes money and authority down to the school level--but then provides parents the information to hold teachers and principals accountable for performance. Creating that connection between authority and accountability can produce electric results--as Bratton, Goldsmith, and some of America’s sharpest entrepreneurs can attest.