Secretary Yablonsky and staff, I want to thank you for taking the time to entertain my presentation this evening on changing the way we evaluate our work at DCED.
I am as aware as you are of the importance of these next few months, with the gubernatorial election looming in 2006, so in recommending the following changes I hope you will understand that I am not advocating some theoretical, pie-in-the-sky strategy that sounds good for the long run but has no short-term viability or payoff.
However, I do think we need to take a good hard look at how we can change the way we evaluate our work at DCED. Let me start, then, by talking a little bit about our current evaluation techniques and where they can be improved. I want to then offer three reasons why we should change our evaluation strategy and then offer three ways we can implement such a strategy.
To begin with, I believe our current evaluation methods are inadequate and in need of change. In reviewing our newpa website, as well as the most recent Legislative Budget and Finance Committee audit of our department, I see three areas of shortcoming.
First, these methods tend to focus on inputs, such as dollars spent by the department, or job creation numbers that department activity can claim association to, rather than outcomes, such as increased productivity or economic growth. As a public agency, we have an obligation not just to spend money but to spend it to produce results.
Secondly, our economic development strategy tends to focus on providing unique programs to distinct constituencies, rather than improving the overall landscape for Pennsylvania businesses and workers to succeed. As I will discuss later, I believe this approach produces inferior political gains nor economic performance.
Thirdly, the LBFC audit admits that keeping quality measures for assessing program performance is difficult, and so it settles for simply surveying program users about customer service and perceived effectiveness. If we want to do better as a department, we have to do better in this area.
But why change, and why now? May I offer three reasons why “business as usual” is exactly the wrong approach at this time.
First, we’re struggling compared to other states. I was able to find total economic development spending by states for 1998 and 2001, and Gross State Product per capita by states for 2000 and 2004. So I calculated the annual percentage increase or decrease by states in ED spending and in GSP per capita. This table is a summary of my calculations. It tells a story, or rather five stories.
Delaware shrunk its spending the greatest and still had the second highest growth figures in the region. Maryland increased their spending the most and had the highest growth figures to show for it. New York had the least growth, but at least they were able to lower their ED spending. And New Jersey and Pennsylvania’s numbers are the most pessimistic: they spent more and more on economic development, and have less and less (compared to their peers) to show for it. And Pennsylvania, whose spending grew faster than New Jersey’s and whose economy grew slower than New Jersey’s, has the most pessimistic story. These percentages matter, because even a percentage point or two means (on the left side) millions in public spending or (on the right side) billions in citizen productivity. So it behooves our state to right this ship, lest we fall further behind.
If you look at the numbers in a different way, the story for Pennsylvania looks even worse. Let’s consider what results our state is achieving in economic development for every dollar it spends on economic development, and compare it with our neighbors. The chart above shows 2004 GSP per capita and 2001 economic development spending, and then calculates the GSP per capita per $ 1 million in spending on economic development. In other words, for each $1 million invested by each state in economic development, how much GSP per capita was produced.
As you can see, Delaware’s low-cost approach has been extremely effective, as they boast by far the highest ratio. New Jersey has the second highest GSP per capita of the five states, so their productivity combined with relatively low economic development spending yields the second-highest ratios. Maryland and New York are big spenders on economic development and have mediocre GSP per capita figures and therefore mediocre ratios to show for it.
And Pennsylvania’s situation is the worst of all. It has the lowest GSP per capita of the group, and by far the highest economic development spending. Meaning that every $1 million spent by our state on economic development makes each citizen of Pennsylvania $52 more productive, a ratio that is about 20 times less than front-runner New Jersey.
OK, so our lagging performance means we should do something. But what? Well, evaluation can and does improve performance, if you do it right. A performance measurement approach to running a department exalts evaluation as an important operations tool, rather than relegating it to the pile of things you get to when you get the chance.
Whether we aggregate the numbers or an agency like the LBFC does it, performance data can improve performance in three ways. First, you can use it as an accountability mechanism to supervise, inspire, and compensate employees. This is one of the ways the private sector distinguishes itself from the public sector in pushing itself to greater and greater effectiveness. If we claim to be the state agency that is about helping the private sector become more effective, we ought to lead the way by operating ourselves in that way.
Second, we can assemble the data into a dashboard of sorts, to help you and other senior managers make important day-to-day decisions. Pennsylvania is a huge engine for the global economy. To help you help that engine along, I’m suggesting we put in front of you a few idiot lights and some other real-time information, so that you can spot trouble coming and so that you can adjust more quickly and aptly to situations.
Third, using the aggregated data in a scoreboard format creates a level of transparency that can be positive for our department and its workers. You might think that our staff doesn’t want their performance paraded for all the world to see, or that state residents don’t care to see it anyway. But I do think you can use such a scoreboard effectively. We can pick a few key numbers that we’ll be tracking and rally our team and our citizenry around them; after all, who doesn’t like to keep score and root for the home team to win? And the fact that our performance measures will be available to the public will put in our staff a healthy fear of not wanting to get embarrassed, and get the public to further buy into what we’re doing and get more involved it.
But let’s talk more directly about political ramifications. Here are some of the points I need you to convey to the governor to get him on board with these suggestions. First, we can’t afford any surprises or failures at this point. Better evaluation, like that flashing idiot light, will help us preempt potential problems.
Second, transparency will sell well with the public now. Between Philadelphia’s pay-to-play scandals and the late-night pay raise fiasco, citizens feel like politicians around here are afraid of the light. Let’s take the offensive on this issue and shine the light on ourselves, and let the public know we’re not afraid to expose our performance, good or bad, because we care most about doing our best for the people of Pennsylvania.
Third, I understand that a large dimension of economic development is the relationships between attractive companies that we’re trying to attract, retain, and incubate. But this doesn’t necessarily mean, then, that the way to do economic development is to craft case-by-case incentives packages for whoever comes knocking at our door. Instead, I would argue that the kinds of companies we want to find their home in Pennsylvania don’t like it when economic development at the state level means headaches with bureaucratic processes or an uncoordinated hodge-podge of special programs. Rather, when they see an economic development agency being innovative and technological in its approach to improving and evaluating operations, that’ll signal to them that this is a climate they can grow in.
OK, we’ve beaten the “why” into the ground. We need to answer the “how” if we’re going to get the governor to sign off on this change.
Let’s start with the notion of this balanced scorecard. Again, this is about something that will simultaneously serve as a mechanism for accountability, a dashboard for decision-making, and a scoreboard to rally around.
I’d like to suggest three major buckets of stats to track: DCED’s departmental productivity, Pennsylvania’s economic health, and Pennsylvania’s competitive advantage. You see some of the major stats listed here, but you could have any number of additional stats underneath, many of which might be for internal use only. But the three buckets of stats above, I think, are a good start for a balanced scorecard.
You’ll notice that a lot of the items we already track and we already emphasize. That is by design; again, I’m not suggesting we turn this ship 180 degrees. A lot of this is about the use of the measures, not the creating of brand new measures. And so you see some of the familiar indicators like dollars invested and jobs created.
But I also want to track things like GSP and personal income, against the same figures from a year ago. Ultimately, we have to answer to our citizens, are we better off -- individually and as a state -- than last year?
I also want to hold our program heads to a certain standard of effectiveness. Economic development is a vitally important role within our state’s government, and we spend a lot of money on it. We need to move towards a portfolio of programs and actions that are based on cohesive strategies for the future and proven successes in the past, rather than just chasing after deals and incentives in the present. We can take a step in that direction by creating performance indices for each of our programs.
Let me use this opportunity to applaud the efforts of the Legislative Budget and Finance Committee for the most recent audit of our department. In general, I find their work to be very helpful to the kind of approach to evaluation I am recommending. They have done a good job of aggregating program descriptions, expenditure summaries, and survey responses, and of offering some areas of consideration. This information can be used to further evaluate the effectiveness of different programs within our department.
However, as we turn our attention from how to evaluate ourselves to how to present the results of such an evaluation, I want to make a couple of points about how we can pick up where the LBFC leaves off and do even better for the people of Pennsylvania. First, the LBFC report is certainly not something that is ready-made for mass consumption. It does, though, contain some good information that we ought to make more easily viewable by our citizens. The balanced scorecard, or at least a stylized public version of it, would be a more appropriate summary report to make available to the public, so they can connect what we’re doing with results they see in their communities and across the state.
Second, much of the LBFC’s report is about what activities we do, whether it is consistent with the legislation that was passed to make such activities possible, and whether people think those activities are being done efficiently. It does not tackle the more important, albeit harder, question of whether or not we should be doing these activities, and to what degree. In other words, you could have programs that are operationally well-run and legally compliant, but that aren’t the best combination of activities for producing results for the people of Pennsylvania. Adding performance indices for each program to the data already collected by LBFC will help us make better decisions about which programs to focus on and how to best allocate resources among those programs.
Which brings us to the tricky issue of constituency services. Which is to say that it is easy to say that it’s not worth it to take the extra effort to come up with performance measures to help decide which programs to keep and how much to spend on them, since such decisions are often driven not by program performance but rather by constituency politics. But as tempting as it is to respond to customer demands by designing or redesigning programs that fit those demands, it can and does lead to a department whose activities are uncoordinated and therefore inefficient. In his response to the LBFC’s latest audit, then-Secretary McCullough admitted as much about DCED in the mid-1990’s, calling it “a hodge-podge of programs.” Changing the way we evaluate our programs can help us find a strategy that really works and then help us constantly adjust our programming accordingly. By tracking the right stats, like GSP per capita and other growth measures relative to neighboring states, we can see where we’re winning and where we’re losing. And by holding individual programs and giving you a dashboard of real-time data on program performance, we can make better decisions about resource allocation and ultimately about investing public dollars.
Nevertheless, we also have an election coming up, and constituencies important to our reelection efforts may be unhappy if we start shuffling money around. So we might have to lay low until the elections. But that doesn’t preclude that we can begin to test this message with the public of being smarter with public dollars when it comes to economic development investments. And it isn’t all wrong to base strategic priorities on what will benefit key groups, so I’m not suggesting that we completely abandon that strategy. There are, however, going to be some constituencies that have been supportive of us in the past who will find themselves with less or no public dollars if we decide that reallocations or reductions in economic development spending are needed. Appealing directly to the public on the notion that our new rigorous evaluation methods are yielding us a more objective way to prioritize our efforts will give us some political cover, but not a lot. We’ll have to figure out how to keep key players on our side if we decide to go this route.
So what’s next? Well, as I mentioned, I’d like you to take these ideas to the governor, to get his buy-in on the overall concept and on how we can use it for our political benefit in the weeks and months to come.
I’d also like your go-ahead on a couple of avenues mentioned in this presentation that I’d like to pursue in further detail. One is developing the balanced scorecard. Another is developing performance indices for each current program. Both of these efforts will be equal parts performance measurement, database systems, graphic design, and political strategy. I’d like your approval to meet with key folks to take these concepts to the next level of development.
Finally, I’d like to have a follow-up meeting with our political advisors so we can be more coordinated on and sensitive to the constituencies we currently have a connection with through our department’s programs and investments. While we are moving towards greater ownership of an overall strategy for catalyzing economic growth in the state, and while we are giving greater weight to impartial performance indicators to dictate what levers to pull and where to put money, still we can’t be totally distanced from the important relationships we need to cultivate and maintain. So I’d like your permission to convene such a meeting and to openly discuss these strategies to figure out what we do next there.
Thanks again for your time. I hope this has been a helpful presentation for your work, and I welcome the opportunity to follow through on these ideas to help make them work for Pennsylvania.
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