Reinventing Regulation

by Larry Grant

If one could remove oneself from the panic of the financial crisis, it could be instructive—even amusing—to see if this crisis does, in fact, take the course described by its antecedents:  Crisis, regulation, co-option.  Let’s hope not, but, cynical me, I expect the worst.

The worst in this case would be a rush to regulation that, in typical bureaucratic fashion, will create a new regulatory body based on legislation that will require a one-size-fits-all Procrustean bed.  This will be especially worrisome if the push for regulation of the financial institutions and the markets they play in goes beyond to other institutions/companies the Treasury decides to invest in where the player is too big to fail.  Also, I worry that market forces and public investments will result in further mergers and acquisitions in the banking industry creating even more concentration that we can’t afford to bail out.  (See “Both Sides of the Aisle Say More Regulation, and Not Just of Banks,” Jackie Calmes,  New York Times.)

What we need is regulation that is focused on the specific situation of the institution or product being regulated—e.g., not all banks, this bank; or insurance products by any other name (like “credit default swaps” maybe?).  I found it encouraging that Gary Stein, President of the Minneapolis Federal Reserve Bank appears to support an approach that uses specific data from financial institutions that would indicate existing or future problems so that regulators could act before it is too late.  (Gretchen Morgenson, “Regulators In Need Of Rehab,”  by Gretchen Morgenson, New York Times)  Put another way, Floyd Norris writes in the New York Times that “[o]ne principle of the new regulatory system must be that regulations are based on what people do, not on who they are.”

If you are a reinventor faced with designing a regulatory or control functions, we have a basic approach that, over the last two decades has been continually refined.  This approach has three conceptual dimensions focused on the “situation” of the complier (the institution or individuals to be regulated):  Willingness to comply, Ability to comply, and Risk associated with non-compliance.  (Note:  this approach began with the thinking of Hersey and Blanchard  and their concept of “situational leadership.”)

Taking each of these dimensions independently, the concepts are that differences in willingness to comply, ability to comply, and the risk of non-compliance should have different regulatory responses or demands.  For example, if someone is willing to comply, it doesn’t make sense to treat them as a target for criminal enforcement.  Maybe all they need is the best information about how to comply or the social consequences of non-compliance, or just feedback on the degree to which they are complying.  Why bear the cost of stationing a traffic cop on a stretch of road when a simple radar-enabled sign provides feedback on speed?  In some communities this latter approach is much more cost effective to bring down the speed of traffic.  However, where those to be regulated are not willing to comply, information won’t work—enforcement is necessary.

This is similar to an assessment of a complier’s ability to comply.  For example, some states have found that their tax forms had become so complicated that people had great difficulty paying the correct amount.  By simplifying the forms much higher levels of compliance were achieved without the great additional expense of more auditors and tax enforcement personnel.

In the case of risk, the reinventor needs to keep in mind the risk or cost involved in non-compliance, and the relative cost of regulation.  One needs to take a different approach to regulation if the risk is high, than if the risk is low, or if the cost of regulation outweighs the cost of non-compliance.  A common example is where it costs several hundred dollars to process a procurement form for a product or service that only costs a few dollars, and the risk is very low if the “wrong” product or service is, in fact, procured.  Or take Russian roulette.  As Norris says, “even a low probability event may represent an unacceptable risk.  Few of us would play Russian roulette, even if the odds were wildly in our favor, because it is a game no one can lose twice.”

The challenges in making this approach to regulation work are the issues of resources and metrics.  In other words, the regulator needs to have the tools and ability to assess the relative willingness, ability, and risk involved.  Otherwise, the path of least resistance (for the bureaucrat and the elected official) is one-size-fits-all.  And we know where that path leads.

Interagency Collaboration – 7 New Zealand Case Studies

by David Osborne

Twenty years ago, when I was doing the research that led to Reinventing Government, someone suggested I talk with a fellow at the New Zealand embassy named Derek Gill.  Derek and I had lunch, and he proceeded to tell me the story of radical reinvention in New Zealand from 1984 through 1988–the most far-reaching, rapid transformation of bureaucratic systems that had or has taken place in the world.  I scribbled for two hours and asked Derek to send me anything he could that documented the reforms.  Derek and I have kept up a friendship through the years; he has often helped me explore topics such as strategic management and performance budgeting, for other books.  Ten years ago I had the pleasure of visiting him and his family in New Zealand while speaking at a university there.

Today, many of us are struggling with the challenge of how to get different government departments and programs to work together to solve our most intractable problems.  Such problems don’t fall neatly within departmental lines, so interagency collaboration–what the New Zealanders and Brits call “joined-up government”–is indispensable.  But in most governments, such collaboration is still an unnatural act between unconsenting partners.

Derek and some of his colleagues at the Institute of Policy Studies have written a valuable paper on this topic, based on seven case studies in New Zealand.  Their findings are congruent with mine: the most important thing you can do to drive interagency collaboration is to make all agencies accountable for improving outcomes. When the goal is improving real outcomes that citizens care about, managers have to reach out to potential partners–within government and outside government.  Departmental lines become obstacles one must surmount if one wants to succeed.

Derek and his colleagues provide many more useful insights about the process in their paper, and they write in a casual, entertaining style.  I think you’ll enjoy it. Let me know by posting a comment.

Better Connected Services for Kiwis: A Discussion Document for Managers and Front-Line Staff on Better Joining Up the Horizontal and the Vertical

Health Care – The bureaucratic sum of my parts

by Larry Grant

In the past year I’ve spent far too much time intimately involved with the health care system.  The really obvious pain, of course, is the insurance and payment system.  If you’ve got only one bill, or one provider, or you’re the only one covered by your insurer, it’s not a big deal to figure out what’s going on — who owes what to whom.  However, whenever it gets beyond that, you need a professional (or compliant spouse or offspring) to figure out the bills from the “not-a-bills,” etc.

Not so obvious, but it struck me the other day as a “blinding flash,” is the basic bureaucratic structure of the system.  Three of the main characteristics of a bureaucratic organization, straight out of the industrial age paradigm are specialization, hierarchical control, and the dependence on processes, rules and procedures. Bureaucracy works well in two basic conditions.  First, there is little or no change in what the processes/rules/procedures need to be applied to.  For example regulating food safety in an era when most of our food was produced domestically is different from today’s globalized food market.  Second, the specialized organizational structure has a good fit to the presenting problems a constituent faces. For example, if you live in a city or county where there is no “dead animal disposal” department, try to figure out which part of government is willing to help — public works? Roads? Animal control?

One of the most frequent criticisms of bureaucratic organizations, especially government, is that it is next to impossible to find the “right person” to talk to — i.e., being bounced from agency to agency, desk to desk, to find the right place to get the service you require.  Once you do find the right person or place, you can get great service.  However, if the service required does not fit well within the given organizational structure, then it may be literally impossible to get service without a “case manger” to help the uninitiated navigate the system. (Remember when Mr. Incredible tries to help the little old lady get the right form to the right person in the insurance agency?)

Over the first 60+ years of my life, I’ve gotten great service from the health care system.  But in the last year this system has had to deal with more than one of my systems — pulmonary, circulatory, urological, and things are not working so well.  In the last year, I have seen and been treated by some of the very best medical people in the country (maybe in the world) — internists, hospitalists, surgeons (of several types), cardiologists, pulmonologists, oncologists, urologists, radiologists.  They are great at dealing with their “thing.”  Their “thing,” however, is not me — it’s just part of me.

Like allopathic medical practice in general, the health system is focused on the disease, not the “customer.” (There, I said it again.) While the best businesses and government agencies have learned that focusing on the customer improves performance, in large measure, the health system does not. And I’m not even talking about the insane Diaspora between the health delivery system and the health payment system that our wise and wonderful leaders have concocted and I already kvetched about earlier.

The bottom line is that the current disease management system doesn’t focus on me, or you, or any other person. This suggests a way of thinking about solutions.

What do you think might be in the post-bureaucratic solution set? Hint: I’m off to the Mayo Clinic to see what they have to offer.

A Bailout Badly in Need of Reinvention

by Larry Grant

Frankly, I didn’t want to think much more about government regulation, but it is clear that somebody better.

In an earlier post on this blog, I said that the regulatory cycle went something like:  crisis, creation of a regulatory agency, quiescence, and capture of the regulators by the regulated.  This seems to be playing out right now in the current financial crisis.  There are, to be sure, some added wrinkles: a massive bailout of the financial industry and the adoption of dictatorial powers by the executive branch to dispense these financial favors – excuse me, a “clean” grant of authority.  Still, in reaction to the administration’s “solution,” a new regulatory agency is being proposed.

What can we expect to happen, and how might a reinventor think about it?  I expect that should such an agency be created, it will most likely contract out the actual work of designing and effecting regulation to the experts – yes, the same “experts” who created the mess in the first place.  So we will have bureaucrats, well meaning I’m sure, trying to deal with the flim-flam artists of our age.  Guess into whose pockets the money will flow?

There is an alternative – certainly not the only one, but something a little different.  It reminds me a little bit of the issues surrounding public financing of professional sports stadiums.  It has always seemed bizarre that the public should subsidize rich men’s jock sniffing without getting any of the reward.  If the public invests, why shouldn’t the public own?

As Paul Krugman says, “… if government is going to provide capital to financial firms, it should get what people who provide capital are entitled to – a share in ownership …”  If it is true that the actual percentage of bad loans is in the neighborhood of 3 percent, and the real problem is that we don’t know where they are in these mixed packages of mortgage-backed securities, then once it gets untangled, the people (read “taxpayers”) could get the potential profits.

What reinventors need to do is design ways that government can become savvy investors in the firms that solve the problems.  Then it will be clear who the customer is.

Motivating Employees

by Babak Armajani

Jackie Werth from San Diego County asks: Does anyone know of creative or innovative ways to reward employees for merit and/or results?  In San Diego County, we have a Quality First program in which staff are organized by “performance group” or unit and receiving a bonus for achieving a variety of performance goals.  However, this is difficult to administer, so we are looking for alternative ideas.

Jackie, you are engaged in advanced motivation; not surprising given San Diego County’s reputation for excellence in management.  I have several thoughts about your excellent question.

First, motivation is idiosyncratic.  That is, different people are motivated by different things. So, any approach to motivation needs to take the individual into account.  That’s why I like to stay away from elaborate County-wide reward systems.  Instead, you will get better results by giving managers and employees a set of tools that can be used to motivate themselves and others; each according to his or her own motivation needs.  While doing annual reviews with employees at PSG, one person asked that the firm pay for her house cleaning service.  She figured it would cost about $400/month.  I wanted to really reward her so I suggested giving her a raise of $800/mo.  She said, “No, I don’t want the money because I will never end up using it for house cleaning.  I want the firm to give me a clean house.”  It was hard for me to refuse the opportunity to reward a great employee at half the cost of what the firm was prepared to spend.

Second, two general types of reward motivate people:  extrinsic and intrinsic.  Extrinsic rewards can come from your boss, the County, even your co-workers or a customer.  They involve somebody rewarding you. Things like bonuses, plaques, or days off are examples of extrinsic rewards.  Intrinsic rewards come from inside the person.  They are self-rewarded.  What drives a mountain climber?  Intrinsic rewards.  Or a student doing extra credit to get an A?  Intrinsic rewards.  Or a busy mother who volunteers her precious time at a local food bank?  Intrinsic rewards.

Frederick Hertzberg, who studied motivation back in the 60’s, found a) that a sense of accomplishment, personal challenge, increased   responsibility, and belonging were among the strongest intrinsic rewards in organizations.  Further, he demonstrated that b) intrinsic rewards are generally much stronger than extrinsic ones (though some individuals are strongly motivated towards money and other extrinsic rewards).  Most importantly for your challenge, Jackie, Hertzberg posited that c) the motivational value of extrinsic rewards tends to “zero out.”  That is, if I get used to winning a bonus for my good work in San Diego County, I’ll come to expect the bonus.  It will no longer “satisfy” me—in Hertzberg’s terms. In fact, NOT getting a bonus will dissatisfy me.

Third, I’m learning that, its good to have things like the County’s bonus system, but that you will get the best results if you make this a team reward rather than an individual one. Especially, if the basis for the bonus is on some objective measurable criterion. The head of the federal student loan system (FSA) promised and delivered a fixed bonus to every employee if and when the organization met specific targets in customer (students with loans) satisfaction, unit cost (the average administrative cost of a student loan or grant), and employee engagement (measured by Gallup).  This was a big deal for most employees.  They were not only motivated to win the bonus, but also they were compelled to come out of their silos and collaborate with one another in order to reach the targets.

Fourth, harness the power of intrinsic rewards—not necessarily through some sort of “system”—but rather by giving employee frequent opportunities to reward themselves.  Ask yourself these questions about your organization:

•    Do we have ways to directly connect employees with those whom they serve?
•    Are there measures that let employees know how they are doing?
•    Are these measures prominent in the work place?
•    Are the data on the measures updated daily or at least weekly?
•    Do employees understand the connection between their job and your organization’s mission?

Taken together, these four strategies can help San Diego County build a full repertoire of rewards that motivate employees to continuously improve.

State governments are from Mars, local governments are from Venus

by Beverly Stein

I’ve been in both state and local government.  I served in the Oregon legislature for three terms where I thought of myself as a friend to local government.  Then I served for eight years as the head of the largest county in Oregon and used to quip “You should be required to serve in local government before you serve in the state legislature — otherwise you just don’t get it!”

I also worked for nine months in the State of Iowa on a PSG Transformation Partnership Team with Iowa Governor Tom Vilsack.  Among our projects was working to improve the relationship between Iowa’s 99 counties and its cities with the state.   In the beginning of this project we conducted a workshop with representatives from cities, counties, the state administration and some legislators.   We asked each group about their perception of the other groups.   The local governments heard that the state thought they were inefficient.  The state heard that local governments thought they didn’t have a clue about the challenges faced at the local level and the impact of state mandates.

This is not a new problem.

As people who have been married for a long time know, issues in relationships are the product of many years of good and bad experiences.  Cities, counties and states have been married for over 200 years — a lot of time for patterns to emerge, patterns that do not work well in the 21st century.

Of course, in times of economic crisis, this relationship worsens.  States are forced to slash budgets, often at the expense of local governments.  Localities, for their part, are forced to turn to alternative means of methods of funding – like raising property taxes – that are highly unpopular with constituents.  As a result, state and local governments, instead of cooperating, often blame and point fingers at each other.

In terms of sheer power – to allocate resources, control local decision-making, and cut or raise taxes – the relationship between state and local governments is, without dispute, unequal. States have ultimate control over localities, while local governments are forced to comply (or develop creative ways of not complying) with whatever decisions the state makes.  This is true even in home rule states; local governments may have large degrees of control, but that control is ultimately granted – and can be taken away – by the state.

We are, of course, currently experiencing such an economic crisis, and it is not likely to go away anytime soon.  Across the country, states and localities are enveloped in the worst fiscal crises in recent memory, and as the situation continues to worsen, the state/local relationship has reached a breaking point.

I believe the tension between state and local governments and their perceptions of each other are not much different from state to state.  However, some states have better relationships with their local governments than others.

I am aware of a few attempts to improve the situation. Several years ago in Oregon, the state human services department joined representatives from a county to jointly present their budget to the legislature.  This had a dramatic effect on the perception of legislators, to the degree that they could more clearly see the budget needs of counties and no longer cling to the perception that county services are optional.

There have also been bills in Oregon to professionalize the relationship between state and local government.  These bills allow counties to opt out, have liability protection, and the ability to reduce services when funding is cut.  Oregon has also created Community Solutions Teams to better address the problems on the local level and created a Performance and Accountability summit designed to align performance measures.

In California, the League of California Cities doubled their membership dues to bolster their lobbying power at the state.  Their goal is to build alliances with business communities and others, help cities exert pressure on state, and develop contact with the media. The league has been relatively successful; at least the situation is much better than before.

What ideas do you have for improving the relationship between state and local government?

Budgeting pioneers – coming together to get results

by Jim Chrisinger

A government budget is one of the most powerful levers of change.  Yet most perceive budget processes as notoriously impervious to change. Not necessarily.

At least 20 jurisdictions, including cities, counties, school and park districts, states, and a Canadian province have adopted new budgets built on prioritized outcomes. At PSG, we call this process Budgeting for Outcomes. We pioneered it in 2002 with Governor Locke in Washington.

With more and more jurisdictions tackling budget reform by creating their own version of a priority or outcome-based process, we thought it would be valuable to get some of them together to talk about what works and what doesn’t. Last month, representatives of six jurisdictions in various stages of implementing their new process participated in a conference call.

The discussion showed that this model can successfully challenge the status quo, breathe life into performance measures, make government more results-oriented, bust silos, and prioritize and align spending with the public’s priorities. For all of these reasons, tackling budget reform can be a high-value, high-leverage strategy for government transformation.

One participant talked about how ranking priorities and utilizing data as evidence set up a different and more constructive budget conversation.  Others have also emphasized that point.  When I led accountability and results for the State of Iowa, we implemented an outcome-based budgeting process and I interviewed leaders after the first cycle for their feedback.  One deputy director reflected, “It made me think about things differently.  We do these things, to get this result, for this price.  I really had to ask myself whether what we were getting was worth that price.  I’d never asked that before.”

Isn’t it amazing – and troubling – how traditional budgeting does not prompt that question?  Many have also noted how well a priority-based budget communicates to the public, elected officials, the media, and stakeholders.  It’s “common sense” communications.

The call participants also discussed challenges they’ve encountered: sustaining the new budget process through changing administrations, figuring out how to handle internal support services, and holding departments accountable for the outcomes they commit to deliver.

On this last question, participants on the call advised relentless follow-up. Outcomes and data need to matter year-round, not just at budget time. One organization is holding a quarterly performance forum with their chief executive and another keeps their teams for outcome prioritization (made up of employees and citizens) in place year-round so the departments can regularly report to them on how well they are achieving their performance goals. The Finance Director noted that “peer-to-peer accountability is very effective.”

At PSG, we’ve found that Budgeting for Outcomes can also launch performance management in organizations that haven’t already gone down that road because it establishes a reasonable number of measures that demand attention. When it works well, departments can attract funding for great new ideas.  Of course they also risk their funding in the subsequent budget cycle if they don’t show results in the current one. We’ve also found that it’s easier to implement Budgeting for Outcomes in jurisdictions that already have good performance management in place.

Has your organization reinvented its budget process to better align it with organizational priorities? What worked? What challenges did you face?

If you’re interested in participating in future calls with others who are reinventing their budget processes, please contact me at jim@psg.us or (651) 227-9774.

Do Regulators Have Customers? (aka Attack of the Killer Tomatoes III)

by Larry Grant

So I’ve implied that the FAA has “customer confusion.” Why is it a big deal? Many government agencies have, in effect, dual roles – providing service as well as acting as regulators. For a reinventor, there are two things to be concerned about. First, it is very difficult to be both a service provider and a regulator at the same time. Second, and far more important, being clear about who is your customer is central to reinvention.

Many of our clients think that the notion of “customer” relates to how you treat people in the spirit of good “customer service.” They fear that if their agencies don’t believe that the people they deal with are their customers, they will behave cavalierly toward them – especially toward those to whom they are supposed to deliver obligations.

The problem with this point of view is that it views customer service as the central issue. In a reinvented organization the concept of “customer” goes far beyond how workers treat people. Reinvention is literally turning the organization upside down. In a bureaucratic organization the principles are hierarchy, and control through command. A reinvented organization is one that is accountable to its customers, not its “bosses” in the chain of command. In other words, in a reinvented organization the customers are at the “top” of the org chart, and everybody’s job is to either serve the customer, or serve someone who does. The issue is not customer service (although this is important), it is, rather, fundamentally changing the accountability relationships within the organization and between the organization and who it is intended to serve.

There is plenty of evidence that this is a key to unlocking the real power of individual workers and teams, and unblocking the energy and creativity of organizations.

Government workers know in their gut that the objects of regulation are not customers. Asking a traffic cop to call a speeder a “customer” is just nuts. To get them to treat these folks like human beings by calling them “customers” only does more to reinforce their resistance and cynicism toward reinvention.

For want of a better term, we call those to whom we deliver obligations “compliers.” There are issues with this, for some, because the term also includes “non-compliers” (i.e., people who don’t live up to their obligations), but on the whole this does help government workers understand that these folks are not “customers.”

How do you get your workers to treat these “compliers” well? Start measuring “complier treatment.” It won’t compare to measures of “customer satisfaction,” but it will get feedback on the quality of treatment. The next step is to think about organizing the work so that workers who are in compliance, regulatory, or control function are separate from those delivering services.

Other resources:

Situational Compliance – What’s That?

Achieving Compliance When You Can’t Compel It

The Attack of the Killer Tomatoes: Part II

by Larry Grant

Who are the customers of compliance or regulatory functions? Usually elected officials. To reinventors the customer is the primary intended beneficiary of a specific service (or product). In the case of regulatory functions the primary intended beneficiaries of the process are the citizens (or the “people,” as in “we the people”). In a representative democracy such as in the United States, the interests of the people are presumed to be held by the officials we elect.

This idea resonates with some and confuses others. We need to say a lot more about the idea of “customer” and “complier,” but since this started with “killer tomatoes” and government regulation, let’s start at the beginning.

The history of regulation (or, if you will, “government interference”) is pretty interesting. It certainly goes back to Roman times with the regulation of grain and slave markets. But “modern” regulatory practices come just after the dawn of the industrial revolution when the British government began to take an interest in factory and working conditions—especially in the mines. In the United States it was certain of the states (like Massachusetts) that established regulations around factory working conditions. It was only after the turn of the 19th century that the federal government got involved. The irony being that the greatest pressure for regulation of industrial practices came from big business as a means to increase the costs of smaller businesses and thus drive out competition.

As regulation (and regulatory government agencies) became more common a certain regulatory rhythm began. A crisis (real or imagined) creates a public outcry, a set of laws are passed, a new (or old) regulatory agency is obligated to interpret and enforce the laws by creating regulatory processes, which, if followed, will end the crisis and ensure that it will never happen again. Of course, like a river, which you can’t step into the same place twice, the same crisis in need of regulation rarely occurs. In this way there is both opportunity for new crises—begetting new laws, agencies, and rules, and, as true of any good bureaucracy, processes beget even more processes, interpretations, rules, and the experts who know them. Over time the only people who really know the rules—because it becomes part of their life-blood of profit, the real engine in the whole thing—are those who work in the regulated industries or markets. The regulatory agency and its agents are now long out of the crisis-driven public eye, and dependent on the regulated to understand the regulations and the processes they are intended to regulate. A former professor of mine viewed this as a classic example of the “symbolic uses of politics” where crisis begets action, action begets, quiescence, and quiescence begets in its turn cooption. In effect, the regulatory agency gets “captured” by those whom they are supposed to regulate.

One fundamental reason why this happens is confusion about who is the customer. At the most obvious level, it doesn’t make sense to say that the individuals and businesses are the primary intended beneficiaries of the regulation. Sure, they do benefit by being regulated, but it is we the citizens who are the primary intended beneficiaries. And most government workers know this in their bones.

Look at the Federal Aviation Administration mission and vision http://www.faa.gov/about/mission/:

Our mission is to provide the safest, most efficient aerospace system in the world. Our vision is to improve the safety and efficiency of aviation, while being responsive to our customers and accountable to the public.

Who do you think they believe to be their “customers?”

Attack of the killer tomatoes: Regulatory policy comes home

by Larry Grant

My daughter would not use ketchup on her hamburger this weekend because she saw that it was “tomato ketchup.”

I can’t help but notice how often the governmental regulatory process has come up recently—from toys, to food, to drugs, to financial markets, to accounting practices, to the airways, to just about anything and everything in our lives. It’s hard for a “reinventor” to ignore regulatory processes and practices, but our clients are extremely reluctant to take them on—until there is a crisis, and even then the wheels turn slowly (witness 9/11 and containerized cargo) and only down well-traveled bureaucratic roads.

How is a reinventor of government to approach this? That is the question. The stakes and incentives for both the regulator and the regulated are high. Agencies in a bureaucracy don’t like to solve problems that are their very reason for being, and the regulated, even though they rail against the regulatory paper storm are quite comfortable with the status quo. Who know what evil lurks in the shadows of change?

Paul Krugman, in his NYTimes column last Friday the 13th, highlights how some of our most, apparently, mundane regulatory functions of U.S. government affect everything from my household, to our foreign policy, to the stability of foreign governments (witness the demonstrations in Korea related to American beef). So even though the regulatory functions seem mundane, the stakes can be high – as I found out when my bypass surgery depended to a great extent on a drug that was found to be adulterated.

What is a reinventor to do with regulatory functions that don’t work – or don’t work the way we think they should?

As with just about any question concerning reinvention we begin with “who’s the customer?” That is, who is the primary intended beneficiary of any product or service – or regulatory function? The idea of “customer” makes many public servants uncomfortable – particularly when regulatory or other kinds of “control” functions are concerned. I find that this discomfort goes away when we point out that the “customer” is not always the person or group that you interact with regularly – like in a retail transaction.

It doesn’t make sense to call the recipient of a speeding ticket the customer of the “arresting” officer. This is because the primary intended beneficiary of the speeding ticket is not the speeder, it is the “public.” This is to say that it is in the public interest that we regulate traffic. The officer in this case delivers an obligation (in the form of a ticket) to the speeder.

This is quite common in government agencies. Sometimes the agency is delivering a service (such as welfare benefits), and sometime the agency is delivering an obligation (ensuring eligibility for the benefit). A reinventor makes a strong distinction between service functions and compliance functions, because their customers are very different. Service functions are generally delivering services (or benefits) directly to their customers. Compliance functions generally deliver obligations to the people they regularly deal with – we call them “compliers” so they are not confused with “customers.”

So what do you think? Who are the customers of these regulatory functions?