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Excerpted from The Reinventor’s Fieldbook by David Osborne and Peter Plastrik
Sunnyvale, California, began to phase out taxpayer support for recreational programs in 1991. Like many cities, it decided that “leisure services” were not a high enough priority to spend so many taxpayers’ dollars on them. Unlike many communities, however, Sunnyvale did not abandon its recreational programs; it turned them into a public enterprise. Instead of living almost entirely off tax revenues, the enterprise would have to rely increasingly on its sales to customers. It would have to compete with businesses also chasing the recreation dollar.
Forcing public agencies into a competitive marketplace changes their behavior almost overnight, because they must please their customers to survive. Suddenly, they have entirely new challenges: finding out what customers want, learning what competitors are offering, and reducing costs so their prices will be competitive. But this is just the tip of the iceberg: public enterprises eventually take on most of the management characteristics of businesses. Sunnyvale’s Leisure Services unit invented new recreation services, marketed them to customers, and entered into business partnerships with the school district.
Before Sunnyvale’s Leisure Services unit had to compete in the marketplace for its funds, about 75 percent of its money came from tax dollars. By 2000, taxpayers provided only about 20 percent; sales to customers brought in the rest.
Enterprise management is so powerful because it combines four strategies: Core, Consequences, Customer, and Control. It uncouples public organizations, creates consequences for their financial performance, makes them accountable to their customers, and gives them control over their own operations, typically exempting them from bureaucratic administrative controls.
When Sunnyvale turned its Leisure Services unit into an enterprise fund it saved the taxpayers millions of dollars. But cutting the city budget’s support for the agency was only part of the story. Although its tax support declined, the Leisure Services unit grew rapidly—by increasing its base of paying customers. “A lot of cities have been cutting recreation services and loading on new fees,” said then–city manager Tom Lewcock. “They find they end up doing less. We’ve been doing the opposite—we’re growing the programs.”
It took a “huge amount of market research,” new service offerings and “smart pricing” to increase the organization’s market share, Lewcock said. “We are competing with zillions of businesses for the recreation dollar, but we offer things that others don’t.”
The key was listening closely to the customers. Shortly after Parks and Recreation Director John Christian arrived in Sunnyvale, he sent a team of managers, frontline employees, and professionals to Disney’s customer service training program. He then made them an internal customer service training team. He also began sending similar teams on benchmarking trips, to learn from other cities and counties.
One of the first innovations to result was a customer satisfaction guarantee. Christian described it this way: “No matter what we do, if you’re not satisfied, you get your money back.” They also shifted from offering programs on a quarterly basis, with three-week breaks in between, to continuous programming. And rather than forcing people to come in and reregister for a continuing program, they now assume people will continue in the next session.
“We’ll assume you’re registered, and we’ll bill you,” said Christian. “If you want
to continue, just send it in.”
Because the schools were in a fiscal squeeze and were cutting back on things like music and art, Leisure Services developed a series of high-quality after-school classes for middle and high school students. Acting as a broker, it recruited dozens of other organizations—from community colleges to music schools to dance studios—to run the programs. “The parents—our customers—say, ‘Don’t you dare take those away,’ ” said Lewcock.
Leisure Services also cut business deals with the schools. One lets the city use school playing fields for its programs for 25 years, in exchange for maintaining and redeveloping the land. Another involves the school’s indoor facilities. Whenever the gyms, auditoriums, and multipurpose rooms are not reserved for school use, the city can rent the space out to the public. The schools get 20 percent of the fees collected by the city. The arrangement not only increases use of school facilities, it provides citizens with one-stop shopping for facilities.
Christian credited all these innovations to the fact that Leisure Services had to sell programs to its customers to generate 80 percent of its revenues.
“That has changed our way of operating,” he said.
We have found ways to do business differently, particularly with partnerships.
We’re forced to look at the bottom line. People talk about bottom-line stuff, people talk about being market-driven, people talk about being customer service-driven.
The city’s success with its Leisure Services enterprise prompted it to develop another public business in 1996: selling services to people who are researching patents. The city’s patent library decided to install a video link to the Patent and Trademark Office in Washington, which provides powerful new computers and services such as teleconferences with Washington experts. As Sunnyvale’s patent library becomes the most advanced in its region, it plans to phase out tax subsidies and expand services to paying customers.
Local governments have long used enterprise funds to finance operations at convention centers, golf courses, airports, and the like. They institute user fees, segregate the accounting of those revenues from the government’s general fund, and use the customer revenue to support the services. By shifting costs to service users, the tool allows governments to undertake activities their budgets won’t support. Often, however, governments use the tool simply to shift costs. They neither force the enterprise funds to raise all their own revenue nor free them to respond to their customers’ needs.
Sunnyvale’s enterprise funds are designed to become virtually self-sufficient, and their costs are fully accounted for. They cannot escape the discipline of the marketplace. They are also free to change their day-to-day operations. Christian told Lewcock that he would have to “organize like a business, not a traditional public recreation department,” Lewcock recalls. “I said, ‘John, you can do most anything you want to do. We’re going to focus our attention on your bottom line.’ ”
Sunnyvale uses enterprise funds mainly to make existing government employees more customer-oriented, cost-conscious, and business-minded. Reinventors also use the tool to start up new activities the government cannot fund by itself.
To learn more about Enterprise Management, click here for a pdf of The Reinventor’s Fieldbook chapter, Enterprise Management: Using Markets to Create Consequences. All chapters of the Fieldbook and Banishing Bureaucracy can be found on our Books Online page. |
