By Andrew K. Reese
The Great Recession has hit individual state governments with a ferocity rarely seen in the past. As just one sign of the impact, the National Conference of State Legislatures (NCSL) has reported that the 50 states have seen a collective budget gap of more than $300 billion since the economy first tipped into recession in December 2007. The result has been layoffs and furloughs of state employees, facility closures, restrictions or the end of services, and countless other belt-tightening exercises.
The state of Georgia has not been immune to the impact of the recession, projecting a state budget nearly 20 percent smaller in 2012 than it was at the start of the recession, down from $20.5 billion to $16.5 billion. But Georgia also has benefited from an ongoing procurement transformation initiative that has seen the state bring huge amounts of spend under central management and achieve significant cost reductions through the application of strategic sourcing. Says Brad Douglas, commissioner with the state's Department of Administrative Services, "We would be in much worse shape if what we have done had not occurred."
Private Sector Experience
When Douglas joined the government of the state of Georgia in 2005 as assistant commissioner for procurement at the Department of Administrative Services, it was something of an experiment for both Douglas and the state. At the time, Governor "Sonny" Perdue was leading an initiative to transform the state's operations, and a key element of Perdue's initiative involved bringing in experienced executive talent from the private sector to oversee the transformation, including in the state's procurement office.
Douglas, meanwhile, had spent nearly two decades in the business world, including eight years running the procurement operations at large companies in the staffing services and hospitality sectors. "My rationale for coming to Georgia was that, in 18 years in the private sector, I had always wondered whether the business principles that I utilized in the private sector were applicable to the public sector," Douglas says.
After just five months as assistant commissioner, Douglas was promoted to commissioner, and he brought in Tim Gibney to fill his assistant commissioner post. Gibney had previously headed procurement at the University of Notre Dame, where he had implemented a procurement transformation initiative that included successfully rolling out e-procurement technologies using a solution from SciQuest. Additional hires from the private sector followed, including the director of strategic sourcing lured away from Microsoft; an experienced procurement hand recruited from Bell South and put in charge of technology purchasing; and another procurement veteran — and Georgia Tech grad — from Advanced Micro Devices.
The Move to a Strategic Mindset
Georgia brought in consulting firm A.T. Kearney to act as the state's "transformation assistant," providing more than 20 "feet on the street" to assist the state in getting through the initiative. Kearney helped the state define an optimal organizational structure under the guidelines established by the Procurement Taskforce of the Commission for a New Georgia, a body set up by Perdue to establish a vision for the transformation of state government. The consultants further helped in capacity building — outlining new workflows and defining the capacity that the state's procurement office could sustain, so that Douglas could ensure adequate staffing levels. Kearney also helped rewrite job descriptions, perform a fit-gap analysis of technologies to support the transformation, and revise and reengineer processes and policies to streamline administrative processes that didn't add value to procurement.
The roadmap that the state's procurement leadership mapped out with A.T. Kearney called for moving procurement staff away from a transactional focus to a more strategic role. That meant implementing processes and technology that would allow for routine transactions to be automated — taking the paper-pushing out of procurement. But it also meant creating a procurement workforce that had higher level skills in areas like negotiation, project management, collaboration and strategic sourcing. Therefore, early on in the transformation initiative, the staff in the state procurement office went through an evaluation process to determine whether their skill sets — and mindset — matched the procurement office's more strategic direction. Shockingly, of 40 staffers who entered the process, only five were rated as capable of moving in a more strategic direction.
A.T. Kearney also helped the state set up a seven-step strategic sourcing process, which Douglas says was a critical component of the transformation. "Without a strategic sourcing process, what you end up with is someone sitting in an ivory tower saying, 'Well, what can we go source today?'," Douglas explains. "That's how you end up with a state-wide contract for trash bags, instead of a contract for maintenance, repair and operating suppliers covering 20,000 line items. With a strategic sourcing process, you have someone who says, 'What are all the items that go into running a building?', and then goes out and leverages the marketplace to put together a broader set of goods that can be combined on a contract, with a rationalized supplier base."
Organizationally, the state procurement office now includes a strategic sourcing group built around four commodity teams targeted at Technology (headed by the Bell South veteran), Goods (the recruit from AMD), Services (led by a longtime staffer who stayed on with the procurement team) and Infrastructure (headed by a retired Air Force officer who previously helped lead the introduction of strategic sourcing to that branch of the military). Supporting the strategic sourcing teams is a group dubbed "the Knowledge Center," where staff do spend analysis to identify gaps in spend under management and opportunities for putting in place a leveraged, state-wide contract. The Knowledge Center staff also work on evaluating, selecting and implementing technologies to support the state procurement function, as well as on the state's new training and certification program for procurement, and process improvement.