Dumb Practices: Why American Tax Dollars Are Wasted And Where To Find The Solution

15 january 2013

Is America in debt because of dumb practices? If so, then debt reduction could be delivered by being smarter. That’s not too big a challenge for the world’s smartest economy.

To date, though, America doesn’t seem to have had its light-bulb moment says  a new report that suggests a route to some significant dollar savings.  So are the report’s arguments credible?

Municipal debt in the USA is $3.7 trillion, on top of that better known figure, the near $17 trillion of federal debt. The answer is social business and big data. The report actually says that the answer lies in better procurement practices in US states, cities and towns, and by extension at the Federal level. And better procurement relies on collaboration (or a form of social business) and better data.

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Well, Cram’s picture is not just about Rosslyn’s data analytics being a part of the solution. Looking at the UK experience, for example, he points to examples where local governments have become the prisoners of cartels, particularly in construction, which led to overcharging of almost $500 million in one  UK region.

The reason the public sector does not procure well, says Cram, is often caused by simple competitive dynamics. Suppliers have a better overview of pricing in their product categories, than public sector buyers do.

“In the United States, procurement data is patchy. This means that procurement spend cannot be optimised either in terms of best value, supporting innovation or investing most effectively in the overall United States, state and local economies. This disadvantages even the best procurement teams. For example, there is no national database on how much is being spent overall and with whom.”

And he adds:

“There are thousands – probably tens of thousands – of finance, procurement and other enterprise systems in use, often with little compatibility.”

So three steps to saving those dollars?

1. One solution therefore lies in collaboration between public sector bodies within states to identify spend commonality and understand price and discount potential. Outside the public sector collaboration of some kind is now widely accepted as a must-do. We need to extend that philosophy to towns and cities.
2. Another lies in using, best in class analytical tools that can deal with incompatible data formats and unstructured data. Enter Rosslyn with its tools.
3. And third, even though some states have hired first class procurement specialists there isn’t enough product specialization. Develop the kind of product category specialization that drove success at Walmart.

How convincing is the argument? I find it difficult to dismiss because it rides a couple of waves  – collaboration and smarter practices. Those waves are there for a reason: they seem to work. Has Cram given enough for a state of city to take the argument forward? I doubt it. But that is a convening task and the big challenge for all collaboration projects is exactly that – who can be a credible convenor of new partnerships? We’ll see.