Governing Magazine/October 1995

TECHNOLOGY COLUMN

COMMON GROUND FOR ELECTRONIC COMMERCE

By Jerry Mechling

Jerry Mechling is director of the Program on Strategic Computing and
Telecommunications in the Public Sector at Harvard University's
Kennedy School of Government. To reach him, call 617-495-3036 or send
e-mail to jerrym@ksgrsch.harvard.edu.

Every year, governments buy a huge volume of products and services
from the private sector--some $1,600 for every man, woman and child in
the country, of which some $250 is for computers and other information
technologies. Nearly everyone agrees that these purchases generally
take too long, cost too much and often don't result in good value for
the money spent.
 But people don't agree on what, exactly, to do about it. In general,
government information-technology and program managers want more
front-line control and freedom from the time-consuming requirements
and reviews imposed by the procurement bureaucracy. They argue that
procurement should adopt what is becoming the core principle of modern
organizational design: empowering front-line workers while holding
them responsible for producing results rather than following rules.
Under attack, the procurement people admit severe problems with
present procurement systems but argue that centrally administered
rules are essential for preserving accountability and the benefits of
free and open competition.
 At first glance, this looks like a zero-sum power struggle. In
reality, however, both sides share common ground in their support for
electronic commerce, where governments are shifting from paper-based
to computer-based communications with suppliers. One well known
example is the Vendor Information Program of Oregon, where
communications comprising requests for proposal, bids, vendor
selection and specific orders are communicated through an electronic
bulletin board (see the Internet World Wide Web site at
http://www.das.state.or.us). Another example is the electronic
commerce initiative of Vice President Gore's National Performance
Review (http://www-far.npr.gov).
 To use computer networks for procurement, governments are
establishing and expanding the use of standards for electronic data
interchange, (including standards for privacy and security); building
databases that include RFPs, winning proposals, protest appeals and
judgments, and product pricing and reviews; and developing interfaces
and analytic tools to ease comparison shopping and transactions
management.
 What makes these initiatives worthwhile? Two benefits are key:
 1. More efficiency for simple and routine purchases. Electronic
markets are more competitive and efficient primarily because they make
it easy to comparison-shop and arrange just-in-time deliveries among a
larger number of buyers and sellers. Oregon finds that its VIP program
has resulted in more bids than ever before, with the average bid of
substantially higher quality and lower cost. By moving to electronic
orders and just-in-time deliveries, agencies save by shutting down
warehouses, as did the Defense Personnel Support Center of
Philadelphia when it shifted to electronic purchasing of medical
supplies. Electronic procurement also encourages the use of controls
based on post-audits rather than time-consuming prior approvals, since
the detailed record-keeping needed for post-audits is more readily
maintained in a computer-based environment.
 2. More effectiveness for complex and novel purchases. Computer
networks also make it much easier to ask and answer questions back and
forth with multiple vendors. This helps especially in complex and
novel situations, such as the design of RFPs for major software
development projects. Thus, while electronic commerce helps with high-
volume, routine purchases (of great concern to procurement officials),
it also helps with lower-volume, non-routine purchases (of great
concern to information-technology managers and program people trying
to reengineer or reinvent their governments).
 Of course, broad support for electronic commerce does not mean
problem-free implementation. Privacy and security issues will take
work, as will the fears of some small businesses (although techno-
savvy small business, as a rapidly growing group, may win big with
electronic commerce). Ways must be found to evaluate bids efficiently
when there are too many bidders.
 Still, the prospects look good. In a recent Harvard survey,
government practitioners and vendors were asked to evaluate 13 broad
proposals for information technology and procurement reform on their
overall importance and ease of implementation. As you might expect,
most of the proposals rated as more important were generally rated as
tougher to implement. In contrast, the electronic commerce proposal
was rated as one of the most important AND ALSO one of the easiest to
implement (number 2 in both rankings). That is rare. With endorsement
like that, the advice for governments considering getting into
electronic commerce boils down to three words: Just do it!

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