San Diego "Insources" for Efficiency

The city of San Diego's goal is to build private sector accountability and efficiency into the public sector, including IT integration projects.

Outsourcing is big business for all types of enterprises. Last October, German automaker BMW announced that it was hiring the Canadian manufacturer Magna International Inc. to design and build BMW's new X3 SUV at Magna's plant in Austria. Ericsson, Nokia and Motorola all use Singapore-based Flextronics to build their cell phones. The U.S. Postal Service has even started using FedEx planes to improve the reliability of its overnight package service.

Nowhere is this trend more prevalent than in the IT field, where outsourcing budgets are high enough to fund small nations. Gartner Inc. estimates that North American IT outsourcing spending last year topped $100 billion, an eight percent increase over the previous year despite the recession. Gartner predicts the figure will hit $160 billion by 2005.

Done right, outsourcing ften cuts costs. However, there is a downside—a failure to accumulate "equity" in terms of either facilities or in skilled, experienced personnel. As with renting an apartment rather than buying a house, one offers immediate cost savings and simplicity, but the other has distinct long-term advantages.

Take the case of the city of San Diego, Calif.—the second largest city in the state, with a population of over 1.25 million and a $2.4 billion budget. The city has developed a system that uses the best of outsourcing together with in-house operations.

"There's a whole spectrum of options, from pure public on the one end to fully privatized on the other," says Brook Doty, San Diego's optimization program manager. "We see all of them as viable and valuable."

Optimization Program
The San Diego Optimization Program grew out of recommendations from a citizens' task force created by then-mayor Susan Golding, which suggested various ways to bring private sector efficiencies to city government. The program team acts as internal consultants to the city with a five-person staff focusing on three areas: IT integration, benchmarking/best practice integration, and public contract operations.

The Optimization Program doesn't involve itself in the selection of software or hardware. Instead, it ensures that business practices and applications work together smoothly to achieve the best result.

Outside of the Optimization Program, a city CIO oversees IT project management and funding. San Diego Data Processing Corporation (SDDPC), a non-profit corporation formed in the 1970s from the city's data processing department, provides technical support externally. SDDPC services San Diego and aids several dozen local, state and federal agencies.

"Our experience over the years is that projects don't always yield as much return as we hoped," explains Doty. "Either too much time is consumed in customizing software to meet our practices, or workers/departments never really effectively change their work practices to fit the software and obtain the full benefit."

His office works with city departments to re-engineer processes to fit the practices built into new and existing software. This approach has helped the Risk Management Department implement workers compensation claims software and the Treasury Department to consolidate accounts receivables.

The Optimization Program also acts to smooth out cultural issues associated with technology implementations. For instance, when San Diego installed global positioning units on all the trash trucks to help it manage the trash collection process, labor organizations voiced concerns over privacy, work standards and use of the data for disciplinary actions. Doty's office was given the task of establishing a framework that would not only address these particular issues, but also the impact of future technology on city personnel.

How does the Optimization Project operate? Primarily, its benchmarking/best practice integration activities involve entering departments, establishing baselines, and reviewing departmental missions and objectives. Based on this survey of existing conditions, it looks at means to re-organize operations for higher efficiency and service levels, carries through with the changes, and monitors results.

The Outsourcing Issue
While this methodology has improved IT performance overall, its impact is most apparent in the way the city addresses the issue of outsourcing. Unlike many government entities, it looks far beyond the immediate financial savings.

"There are some ethical issues in outsourcing that cannot be ignored," says Doty. "You have to ensure that everyone with a stake in this process—employees, vendors and the public—are treated with fairness and respect."

To achieve this, Doty's office conducts assessments on specific aspects of city operations, either directly or by hiring an expert in that particular zone. Once completed, the Optimization Program compares existing operations with the level of performance being achieved in the private sector. This includes a detailed investigation of what it would cost to contract out in order to arrive at that level of performance.

At that point, though, the city doesn't just put the job out to bid. Instead it uses a process called Bid to Goal where it works out a plan to achieve the same results internally, contracting with its own departments to deliver the expected service level at a competitive price.

"We're finding that when we give our public employees tools to be effective, they can compete effectively with private sector vendors," Doty notes.

The city struck the first such contract with the Operations and Maintenance Division of the Metropolitan Wastewater Department. The result: A savings of $59 million over a four-year period, plus the city won the 2001 Program Excellence Award for Innovations in Local Government from the International City/County Management Association. Following the success of this initial test, the city's contract with the Wastewater Collection Division brought a $4.5 million annual cost reduction which is also expected to reduce annual sewage overflows by 35 percent.

Together with other optimization actions, including enlisting business volunteers to conduct periodic reviews of each department, the city has saved over $100 million to date, with another $50 million to come from actions underway. Not surprisingly, in its study, "California Competitive Cities Report Card," the Reason Public Policy Institute (Los Angeles, Calif.) states that San Diego is the most efficiently run large city in the state.

More important than the financial savings are the ways the programs have benefited both citizens and employees. In annual surveys, citizens give the city a 95 percent approval rating. As for employee response, the San Diego Business Journal recently named the city as the best large company to work for in San Diego.

"None of this happens unless all the stakeholders are involved and they all have a voice," relates Doty. "Key to our success is building the great relationships we have between labor, management, frontline employees and citizens."


Team Leader: Brook Doty, Optimization Program Manager

Organization: City of San Diego

Location: San Diego, Calif.

Web Site:

Goal: To achieve private sector accountability and efficiency within a city government.

Scope: Ongoing, multi-year project to cut costs and raise efficiency levels for $2.4 billion government enterprise.

Solution: Establish what costs and service levels were available from private vendors. Then work out how to achieve the same service levels and financial savings internally.

Results: Has achieved substantial cost savings while meeting the needs of labor and citizens.

Future Challenges:

  • Second round of inspections of all city departments just getting underway.
  • Expanding Bid to Goal to include other city departments.

Cost Savings: $100+ million

Interoperability Issues: Coordinating labor and management needs. First negotiations took 14 months, but based on the trust gained in the initial project, the second set of negotiations only took 14 weeks.

Lessons Learned: Don't try to change too much all at once. Find something where an easy result can be achieved, then build up to larger projects.

Evaluation Requirements:

  • Cost
  • Productivity
  • Citizen satisfaction
  • City conducts in-depth interviews of 600 citizens to rate satisfaction with 34 government services.

Other Systems Considered: Privatizing operations. "There are still opportunities for us to do competitive outsourcing but we are being much more selective," says Doty. "What we are finding is there is no one-size-fits-all solution."