Case Study on How Indiana Lost Control of its Welfare System

A Dallas-based provider of business-process outsourcing (ACS) had been hired by IBM to handle calls from social-services applicants when IBM contracted with the state to manage almost a third of the state’s welfare caseload. The $1.3 billion contract was signed, and Governor Mitch Daniels promised that privatizing the state’s welfare and food stamp programs would save the taxpayers $1 billion over the next decade.  Thus, the privatization of the Indiana’s social-services system was created to enable the state save revenues collected from taxes for a period of the next ten years.  Privatization would purposely aid in reducing the expenditure on social-services to the public and from the signed contract, Indiana projected to save at least $1billion in the decade that would follow.

New systems were to advance the management of the Family and Social Services Administration (FSSA) in such areas as discussed below; the contract was to assist FSSA to handle calls from residents who were seeking welfare benefits, such as food stamps and Medicaid coverage. They were to offer communication solution to FSSA to any citizen calling to seek assistance on the mentioned issues. When signing the contract, the IBM announced that it would deliver services to fix challenges involving inaccuracy and incompleteness of the data gathered, incorrect communications with the clients, and monstrous challenges faced by seniors, people with disabilities, and other vulnerable members of the society.

Privatization affected various control levels at FSSA in such ways as:

• Financial- the new systems affected the FSSA financially in that the contracted ACS was just interested in making money, and offered poor services or no services at all. The call center employees were not well trained, as Thompson says that their training was very substandard. We may conclude that they offered poor services from their poor training standards.
• Structural- the structure of the new system did not serve the FSSA well because Angie Kennaugh admitted that as an ex-ACS, their work was to get people off the phone. They were alleged to make high profits by producing a whole lot of junk. The new systems that were deployed were just interested in giving services without minding whether they were the right services.
• Strategy- the strategy these systems were to serve was not met to any standards whatsoever. Instead, they gave lengthy call center hold times and too many errors in processing the applications made. They even lost some clients’ documents.

Focusing on operations control, IBM and ACS acted to exercise preliminary control in that they dismissed the client applications for baseless reasons. In a lawsuit filed by the American Civil Liberties Union, a mother lost her food stamps and health care for her children because her tax form had one missing document. On screening control, they alleged that “failure to cooperate” was a reason for denial of services. In normal circumstances, one should not be denied the services on a “failure to cooperate” reasons. Further, the IBM and ACS had their post action control. They blamed the elimination of individual caseworkers who were handling the customers’ requests alleging that some problems arose when dealing with some applications. In my opinion, the contracted IBM and the hired ACS were supposed to deliver the best to the citizens of the Indiana community, because it was a contract and they were therefore obliged to fully comply with the terms of the deal. In addition, they were supposed to offer the best training to their call center employees, equipping them with skills to respond to the challenges FSSA was facing. Shifting blame is a sign of failure in the management of the two companies.

In my opinion, the approach of IBM and ACS to bureaucratic control contributed to the collapse of the privatized system in that none of the two companies had a greater personal contact with the clients. This contributed greatly to the collapse of this privatization because neither the ACS manager nor the IBM managers could claim direct responsibility for the clients’ challenges. This left the customers with workers who were not fully responsible or trained to offer the services required. Decentralization might have improved FSSA’s operations because when information and services are not centralized, the public can easily access them without passing through long queues and bureaucracies. This enables them to benefit from faster service rates and quality works from the governments, and such organizations that serve the general public. In addition, they can access the services from the comfort of their homes without having to travel long distances seeking the services they need. This can be seen from the way FSSA Secretary, Anne Murphy, admitted as she testified before state administrative committee. She says that clients can apply for food stamps and Medicaid online or by telephone without necessarily visiting their offices.

To the FSSA, decentralization could be a better way to render services to its clients because it does not require an entire state’s population to seek the services from a single office situated in the state’s capital city. It also challenges the staff at different quarters to improve their service delivery to be effective and efficient. It could also be cheaper to hire fewer workers in the decentralized system than contracting a company that gives a low deal.

Characteristics of Effective Control

1. Accuracy- Effective controls give accurate data and information, which is essential for effective managerial decisions. On the contrary, inaccurate controls diverts management efforts and energies to problems that are not existing, and should be given low priority and fails to alert the managers on the problems requiring attention. Privatization is characterized by inaccuracy, and this diverts the attention of the management rendering privatization ineffective and inefficient.
2. Timeliness- effective controls ensure that information reaches the decision makers in time so that a meaningful response can follow. In privatized firms, there may be delays as far as information relay is concerned. Hence, the people in the decision making rank do not receive information in a timely manner and this may lead to certain damages.

• Flexibility- Rigid control systems may not be suitable for a fast changing environment either in business or the economic sector. Thus, effective control systems must be flexible to allow adjustments for unanticipated threats and opportunities. The management should quickly update as any modification may arise and accommodate relevant changes. In privatization, this may not be possible because it is not easy for several managers to adapt to dynamic changes in their line of business.

1. Acceptability- effective controls must be in a way that they are well understood and acceptable to the people they affect. The employees must accept that such controls are necessary, and they do not affect them as they meet their personal and organizational goals. This may not be the case in privatized firms because any changes from the management will be viewed by the workers as a strategy to make more profits. They may therefore tend to be sluggish in accepting any changes.
2. Integration- effective controls must work in harmony with corporate values and culture, and organizational policies. Different individuals have different values and privatization may be a problem to harmonize all these ideas. This makes privatization an ineffective system to run a certain sector.
3. Economic feasibility- the expense of a control system must balance against its benefits. It must have economic feasibility reasonably in operation. In an effective control, the benefits and the revenues collected must be more than the cost of implementing the control system. Privatization may not consider the cost of running the company, but may just be interested in its existence and this renders privatization ineffective.

In the case presented, privatizing the food stamp and Medicaid system proved to be ineffective because it lacked various aspects of an effective quality control. It could not integrate well with the former policies, and was not easily acceptable to the public. It also lacked the accuracy of handling the client’s needs.