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Competition as a means to an end: human services supply chain needs a brain

In part one, Nicholas Gruen and Chris Vanstone explored how it’s government’s reputation on the line as human services are increasingly delivered by a corporate supply chain, drawing on lessons from Toyota.

A supply chain needs a brain

About two years after the fall of the Berlin Wall, a delegation of Russian bureaucrats visited London and one famously asked Paul Seabright, a leading economist who met with them, “who is in charge of the supply of bread to the population of London?” Counterintuitive though it may be, in a market, no one’s in charge. That’s not true of a corporate supply chain. It will make use of markets in myriad ways, but, like a body, it will have a nervous system providing it continual feedback about the performance of its various parts, and a brain capable of aggregating that information and strategising improvement.

This is what we were getting at in the Australian Centre for Social Innovation’submission to the Productivity Commission’s Human Services inquiry:

“A ‘brain’ works out what creates outcomes and what doesn’t. A ‘brain’ would know how the system is currently performing and how to improve and grow services when they are working. . . . In many of the sectors in which we work, though the initial system rarely performed as we would like, increased outsourcing has, in fact, reduced expertise as to what works. The risk is that government has become an expert in contract management, and service providers have become experts in ‘contract delivery’. ‘Brains’ have atrophied on both sides. We’d like to see the Commission reverse this trend and enable both to be experts in ‘outcome creation for vulnerable groups’. We work with some of the most progressive government departments and service providers and they often struggle to keep their ‘brains’ intact because of the larger forces operating around them.”

Indeed, in exploring one area of human services that had produced disappointing results within a large department run by senior managers who were dedicated and highly regarded (including by us), we nevertheless found that one operational unit had begun delivering considerably improved performance. But this went undetected amongst senior management and the unit was disbanded with changing departmental priorities.

A brain needs a nervous system: managers must be kept honest

Even if government administrations learn the lessons argued for above, the greatest difficulty remains as it ever was. For profit seeking firms in a market, quality, cost, profitability and economic value are relatively tangible. Even where they are quite imperfect, markets offer considerable intelligence (transparency) about the economic value of specific goods or services and comparative costs between suppliers, all of which helps keep management to the honest toil of satisfying customers at minimum cost.

Human services are much more difficult – conceptually and practically. Firstly, in the human world, interactions are more complex and uniquely situated within a context than is the case in the market provision of most products. So it’s much harder to know what works, how and why it works, how it affects other parts of the system, the difference between long- and short-term impacts and so on. Secondly, because of their public good and benevolent quality, many human services aren’t funded by paying consumers. This robs the resulting systems of all the transparency and feedback around cost, price and quality that emerges from the organic tension between buyers and sellers in a market.

In lieu of these market signals and disciplines, system managers typically specify performance measures. But designing good performance measures – measures that will have some diagnostic power for those operating the program – will often require intimate knowledge of the workings of the program itself. For instance, an appealing measure of the performance of a job placement program would be the number of job seekers continuing in new jobs after job-placement services. For a child protection program, it might be the number of children removed from struggling families following early intervention. But are these the right measures? Could too rapid job matching destroy value by foreclosing better matches, or by diverting valuable system resources to where they are redundant? And how does one weigh up the relative merits of child removal with poor home care? It is these things that monitoring and evaluation should be shining a light on, enabling the system to better understand and improve its own impact.

In all this, performance measures imposed from the top sound like a mistake waiting to happen. Bureaucracies have a terrible habit of role-playing their expertise, while in reality going through the motions and covering their arses. And this can occur whether service is delivered by lower levels of the hierarchy or by contractors. Yet our experience in TACSI tells us that progress occurs when we draw those we are trying to help into the process, when we’re intentional about the change we’re trying to facilitate and about the process of learning. That means articulating our theory of change and then testing each assumption we’re making about how change occurs. The rigour of this process, against which we’re constantly testing our practice, is ‘scientific’, seeking to test itself against reality at every turn. Competition within functioning markets has the same quality of relentlessly disciplining those within firms against a hard reality from without – from the market.

The real question confronting the PC’s inquiry into Human Services is how one might generalise TACSI’s ideas for program design and management to the system level. We’d propose these building blocks:

  1. Monitoring and evaluation (knowing what you’re doing) should be at the heart of program delivery – whether delivery is by government or external providers.
  2. It needs to be designed and administered at the level of those delivering services on the ground.
  3. However, the ultimate responsibility for the monitoring and evaluation system and the data within it should lie, not with the portfolio minister to whom the delivery agency reports, but with an independent agency that reports directly to Parliament like the Auditor General or the Ombudsman.

Monitoring and evaluation – the ‘nervous system’ of the production chain would thus be:

  • Co-designed by those at the coalface of delivery and by experts in monitoring and evaluation;
  • Independent of the institutional imperatives of the delivering agency;
  • Transparent to all to maximise the scope for the wider system to learn, and to deliver improved bureaucratic and political transparency of performance.

Framing choice

Finally, it is worth noting the way choice is typically framed. It’s certainly worth asking whether allowing firms or NGOs to compete to supply human services might work better than delivery by government hierarchies. But questions about choice should also provoke deeper reflection. Consider how case-managers are chosen for clients in child protection agencies, or teachers for students or nurses for hospital patients. Allowing patients to choose their nurses could substantially disrupt efficient routines, but giving students greater choice in their teachers or clients greater choice of case-workers could prompt all manner of system improvements. This isn’t to say that choice is self-evidently the best criterion by which such matches should be made. These are complex cases and the clients of these services may not be particularly wise in pursuing their enlightened self-interest. However, exploring ways to reframe choice and specifically who chooses what (or whom) within human service agencies seems like a promising and overlooked consideration, whether or not we arrange the system to look like a market by having multiple suppliers compete for business.

In fact, in a TACSI-built peer-to-peer mentoring program for families going through tough times – Family by Family – the family that identifies itself as needing help chooses its mentor family from a selection of profiles as someone might seek a date on an online website. But crucially, we didn’t design this part of the program from some ideological judgement that choice is better, or even that choice would ’empower’ families seeking help – though we did want to empower them. It just seemed natural to do this as we co-designed the program with the families around their perspectives and needs, not the needs of all the higher status participants in the process – the mentor family, the family coach and other professionals running the program.

As long ago as 1907, John Dewey was ruminating on what might today go under the slogan of ‘citizen centric’ services. Thinking of schools, he wrote:

The change which is coming into our education is the shifting of the center of gravity. It is a change, a revolution, not unlike that introduced by Copernicus when the astronomical center shifted from the earth to the sun. In this case the child becomes the sun about which the appliances of education revolve; he is the center about which they are organized.

In many ways, schools have been transformed just as Dewey hoped – using his own words to drive the change. And yet, compared with an imaginable alternative embodying the spirit and not just the letter of his words, he’d be surprised at how little progress we’ve made at building services around those they’re intended to benefit – in schools, in hospitals, in human services more generally.

We should be wary of a repeat in which, to use Gary Sturgess’s words, in the pursuit of reform we “simply replace one kind of institutional monoculture with another”.

Author Bio

Nicholas Gruen & Chris Vanstone

Nicholas Gruen and Chris Vanstone are chairman and chief innovation officer of The Australian Centre for Social Innovation respectively.