A & Q w/ G

David Akers of NEOSO
Cool Cleveland's CIO gets some answers, has more questions

Bob Aber, NEOSO's Membership Manager and I were talking and he confirmed what I had initially thought— when people talk about regionalism, it’s hard to get a handle on exactly what that means. Are you talking about school systems? Are you talking about government? Are you talking about taxes? Or are you talking about kind of the government services that local municipalities provide? Right? You have eight services that you’re currently offering, correct?
Right.

Why don’t you go over those in a nutshell?
The easiest one to understand is auto parts. Everybody buys auto parts. Most of the governments, now this is school districts, municipalities, counties, whatever, even libraries and colleges and universities, they have fleets. They all buy auto parts. So we put together a deal that has three aspects to it: 1) It will save them, and we’re finding right now the average upfront savings is 20%. Just 20 cents on the dollar.

How much is the total buying power of like municipalities? It’s 13 counties, right?
David Akers: 745 governments. So you’ve got, shoot, the table I did that has the 13 counties and how many of there are of each different government. It’s from a U.S. Census Report from 2002. It’s actually pretty cool. You sit there and you read it like, “Holy shit, there’s a lot here.”

<laughter>
Okay, so 745 governments, 400 are municipalities-to give you a size of the scope. They all buy auto parts. We spent a lot of time in the garage. Do you want the 30-second, or you want the two-minute?

All right. So we found that a) price is important, so we put together a deal that you can’t beat the pricing and it’s not because you’re not a good buyer of auto parts. You just can’t beat the pricing because we’re representing a big component. The second thing that we did is we asked a lot of questions around what takes time? What’s slowing you down? Number one thing, waiting for parts. So we built into the service supplier inventory management, so that you’ve got the right parts there on time and if you don’t have the right parts, they’ll get delivered in less than an hour. So we eliminated the waiting. The other big thing of cost was traditionally, every time a part gets dropped off or picked up, there’s a separate invoice, so Finance winds up with dozens or hundreds of invoices. I mean you’ve paid bills. Can you imagine?

Sure.
So consolidated billing and a whole bunch of other things to save time. Then the third aspect was we said to the supplier, “When we get big enough, collectively, we want a better deal.” So we actually went ahead and set goals which then come back in the form of a rebate. It comes into NEOSO and some of that we keep for operations, but we can pay out a chunk of that to the participating members. So you will, if you’re a city the size of Shaker Heights, 30 million dollar budget roughly, 300 vehicles in their fleet, 108 of which we can provide service for through this program, or parts for through this program. A city the size of Shaker Heights will save somewhere between $30,000 and $40,000 a year and will be able to reallocate or reassign anywhere between one and three full-time employees. So that the potential, the economic impact for Shaker Heights is, as an example, ranges, you know, between $100,000 and $150,000 a year.

Right. I’ve got to ask you about the water pump <laughter>…
The fuel pump.

Bob told me about the percentage of savings for the City of Shaker Heights on the fuel pump, which was something like 40-some percent. That’s amazing to me.
Yeah, it was. Actually, it was Maple Heights.

Okay.
It was a Crown Vic. I think it was a 2002 fuel pump for the Crown Victoria which apparently we’ve learned, because it’s cool. We get to learn about all the different stuff, right? I mean I know about auto parts, a little bit. But they were paying 270 bucks…

Geez.
…for every one of those. Through our program it was $172.

In the Crown Vics, there’re probably a lot of those in Northeast Ohio…
There is. It is a rather popular car-police cars , building inspectors, and administrators.

I want to get into the whole IT service aspect of it a little bit, because there’re three things that you do. There’s the Shared CIO Service, Computer Care, and Training. How are those programs going? Are they being adopted by members?
I would say we’ve got activity in the pipeline. It’s a longer sale. Selling a CIO is a little bit more complicated than selling a fuel filter or a fuel pump, but the Shared CIO, and if you think about, for example, Law Directors... most Law Directors are not full-time employees of the city. But they could cover two, three, four, five cities. Well because it’s the same mind. There may be different legal issues they’re addressing, but it’s the same mind. Same thing with technology. And one of the things that we learned along with the way is that for the typical government, just for government in general, let’s be honest. Information Technology snuck up on government, and governments have been just reacting ever since. So one of the things that we talked to governments about is, you know, if you were going to build from the ground up a Police Department or a Service Department, a Public Works Department, who’s the first person that you’d hire? The Police Chief. The Service Director.

<laughter> That works for your IT Department too.
That’s the Chief Information Officer. And so now the neat thing about it, and this gets into, we talk about practical regionalism. I mean if you want to put a headline about NEOSO, it’s practical regionalism in action, that’s what it is. The thing about a CIO is, what does the CIO do? One of the things, you’re a CIO, you know, you put together a plan, right, a technology plan looking forward. ]Well if we can compare Plan A to Plan B to Plan C to Plan D and start to say, “Well, gee, you guys are going to be spending money… Well let’s aggregate.”

It’s got to be a huge cost for municipalities, keeping up-to-date with hardware, up-to-date with software, up-to-date with the training on new software...
It’s huge. So the thing that we also found is they don’t, most of them don’t actually budget for Information Technology. So the costs are allocated into this department or this line item. So when we went through, we partnered with Perceptus. You know those guys, right?

Sure.
We partnered with Perceptus during the pilot project and did an assessment of eight different cities, and what we found was the, it’s a visual, but the cost per user is very high.The overall quality per user is very low. So you’re paying for the Cadillac and getting the Yugo. Which means you’ve got a couple different options. If you’re happy with the Yugo, let’s ratchet down the cost so that that’s all you’re paying for. If you want the Cadillac or something in between, let’s align the costs and the quality by looking at it holistically. That’s what the CIO does, as you know.

I’m curious about the purchasing of computer equipment as simply that, because you mentioned it, and I’m also curious about how this fits in with things like power and broadband. I know that you’ve got some stuff coming online, but are you looking at those things as well, because it would seem to me that buying boxes for users, but then plugging power into them and also plugging has got to be a huge cost.
It is without question. I will tell you, George, the way that we’re doing this is we’re doing baby steps. So downstream there’s a lot of things we’d like to get to, but our objective is to get started with stuff that we can demonstrate has an immediate value. Certainly as we have a shared CIO rolling out, and as we have this Computer Care Program, which the really cool thing about the Computer Care Program is we align the incentives between the service provider and the service recipient. Instead of a traditional model, where the service provider gets paid every time they come out for a visit, so their incentive is to have as many visits as possible. We switched it around. They lose money if they keep returning for visit because what they have to fix. How do you make it so you don't have to return for the same problem?

You fix it <laughter>.
You fix the problem, instead of putting a Band-Aid on it. So their incentive now is to fix problems. What’s that do? That dramatically increases the productivity. Well how do you do that? Getting back to your question about boxes. You have to have high-speed access so you can solve things remotely and you have to have common boxes or common imaging on the computers. So what actually happens is, it gives us a way by talking about computer care and how to bring those costs in line and the service levels up. Oh, by the way the broadband or the common boxes or buying stuff together all fits.

The price of fuel is outrageous and that’s something that you’re working on now, right? And looking at the website, you want to have this stuff in place by fall of this year?
Yes, and it is so cool. Andrea told me the first time—she sat through one of these fuel discussions—she was like, “Oh my god. That was the best day.”

Andrea Castrovillari: It was.

Could you explain that a little bit more?

Andrea Castrovillari: I think initially I was thinking about fuel as, “Okay, now we’re going to go and try to get the cheapest price on fuel.” And looking at it from the outside, you think that that’s all it’s about. Well when Jack Woods explains what is involved in purchasing fuel, well the most expensive thing about fuel is the transportation of the fuel, not the actual product. But then you have-it’s like a puzzle. You have to figure out, well, how do we, what’re the components of the fuel (because if it’s made up of this component, maybe it won’t comply with the government regulations, maybe the communities won’t use it if it, you know, is in this format)? But then do the communities have the proper equipment? Do they have the tank that’s big enough for the trucks to empty the full tank? You know, so there’re all these different factors, and it’s like, for me it’s like a puzzle.

It’s logistics.

Andrea Castrovillari: Right. It was absolutely fascinating. And how cool is that, for NEOSO to be able to figure out a way to bring fuel to the region in a way that would save the region money.

Sure. I’m sorry, you said seven hundred and?
Seven hundred forty five (745) local governments.

Local governments, and they’re all busy thinking about this, right? They’re like, “You know, we’ve use all this fuel. We’ve got to have it” but they’re not aggregating their purchasing power at all.
Well actually, that’s a bit of a misnomer.

Is it?
I would tell you, George, I think that governments often times get a bad rep. There are lots of examples of governments working together. Maple Heights, 14, 15 years ago started a Salt Consortium and they do a great job, and there are four or five other Salt Consortia in different parts of the region that I know of. I’m sure there’re more than that. A group of cities, Independence and Brecksville, and I think five or six others, there’re maybe eight or ten things that they buy together year in and year out, and what it demonstrates… And actually that was part of the thinking behind NEOSO. There’s a demonstrated history of governments working together, and the interesting thing about it to me at least is that almost every time they work together, as long as they see it through and have the perseverance, they save a lot of money. So it begged the question of “Why aren’t we doing it systematically? It works. There’s a willingness in “the marketplace,” the governments to do it. Every time someone does it, it works. Why isn’t it happening more?” And the answer was, when you start looking at it that way is, 1) Someone’s got to make it easier to do and 2) It needs to be somebody’s job, because ultimately, if I’m the Finance Director for Maple Heights and I’ve got a deadline at noon on Friday for the Salt Consortium and I’ve got a deadline for my Mayor at noon on Friday, which one am I going to do?

Sure, the Mayor.
The Consortium suffers. It needs to be somebody’s independent job. So the beauty of NEOSO is what we’ve said is, “We’ll do the work. You tell us what you want. You tell us how you want it, and we’ll engage with you, so we are responsive to your needs. You’re a marketplace. We’re going to serve you as your provider, if you will, but we’ll make it easier.” So we’re creating a buffet, and what they do, they join NEOSO, and that gives them a little seat at the table, doesn’t cost them anything for their reservation, and then as we lay out this buffet, which right now has eight items and a year from now will have 14 or 15, and so on and so forth, and potentially literally could have thousands.They can sit there and say, “Yeah, I want that. I don’t want that. I want…” So they can customize what they choose to utilize from NEOSO based on their needs, but they only have to come to the table once, instead of having to do it individually every single time. That’s the beauty of it.

Do you mind if I get specific about one of the cities?
Go.

What’s going on in East Cleveland? How are you guys helping them?
We are, Eddie Taylor and Bob are working with the Mayor of East Cleveland to… Let’s see, we’re working with them and bringing them a couple different offerings and helping to evaluate for the City what the value is for the City. And that’s what we do every time. The City says, “Okay, get the big picture and how does it apply to us?” Then we go in with the suppliers or the providers or the vendors and go through and do an analysis for them and say, “Okay, here’s the value for you,” so that they can make an informed decision on whether or not to participate. So much like with many other cities right now, with East Cleveland we are working through with them the value of several of the programs that are of initial interest to them.

You’re in start-up mode right now. Right?
Oh yeah.

When did you do the pilot project?
Pilot project, conception of this idea February 4, 2004, breakfast at Corky and Lenny’s with Brad Whitehead. First, we put together a relationship with the Cleveland Foundation, the First Suburbs Development Council, through the spring and early summer of 2004. Grant for the pilot project was awarded in late July. We did the pilot project.

And that was from the Cleveland Foundation.
$195,000 from the Cleveland Foundation, and I give them all the credit in the world. They absolutely stepped up. Many foundations could argue, or funding sources, foundation or otherwise, could argue, “Not our job. Government ought to do it.” They stepped up and filled the gap. Pilot project we did from September of ’04 until mid- to late summer of ’05. There were three keys that came out of the pilot project. Question number 1, “How many of these folks will participate?” There’re 14 suburbs in First Suburbs. We told the Foundation to expect five. We had 13 out of 14 participants. So I’m sitting there, I’m going “Woo Hoo!”

You were conservative in your estimate.
Well, no, but it demonstrated something that… Again, it demonstrated that there’s a bit of a misnomer about governments’ willingness to work together, you know. Second thing is we said, “All right, what’s the economic value?” We know that in private industry, in healthcare, and in education, there’s huge economic value by working together, let’s test that in government. We looked at six different areas, categories of spending, totaling, I don’t know, about 22 million dollars, and we identified low-hanging fruit savings opportunities at 11% against that $22 million. That’s real money, and when you extrapolate, 745 governments are spending close to 50 billion dollars every year, which by the way is the State’s budget every two years. You start thinking about, and the numbers actually become too big to really actually even be able to comprehend. Third aspect was, “Can we come up with a model that works?” that works politically, so that governments want to participate and we can cut through some of the political challenges, that works legally. I mean for example, if you’re a Mayor and I’m a private company, you can’t have me go out and do a bid for you, because you could go to jail. There are a lot of legal issues around how governments are allowed to buy. And then the third aspect of it was, “How do we create it in such a way, knowing that there are literally thousands of potential opportunities?” How do we create a model in such a way that whoever’s working the model, whether it’s us or other people, is going to continually go out and knock out new opportunities and not become satisfied with whatever status quo they’ve achieved. So we were able to do those three things that are in the pilot project, and then we rolled into between last fall and the beginning of spring, we were putting all the pieces together. We put together all the membership approach and all this whole thing works and all the legal documents, and we put together our first eight offerings, because it was critically important to all of us that when we came to market as NEOSO and not the pilot project anymore, that it wasn’t, “Hey, this is what we’re going to do.” It was, “Here’s what you can do right now.” And so we’ve been able to achieve that. Now I’ve got to tell you, in my personal, from my personal perspective, that’s given us a lot of credibility with the governments, because it’s not another plan that’s being announced in the paper; it’s a reality. So a little bit of it. Probably a long-winded background, but the team we put together, we said, “We’ve got some key needs. First of all, we need somebody who understands how to buy stuff and how to create leverage with vendors,” and we brought on Jack Woods. Jack spent 36 years building and running strategic sourcing operations for four different Fortune 50 companies.

Hmm. Wow.
Jack knows how to buy stuff. You know the Bo Knows commercials? Jack knows. Right? We said, “Second component of this is that we are selling.” Ultimately this is sales. I mean it’s membership, but it’s sales. We have to sell local governments on a) joining NEOSO and b) utilizing our offerings, and then once you’re utilizing them, we have got to have a rigorous commitment to customer service, because the last thing we need is a bad customer experience and they tell everybody or they leave.

Now let me interrupt real quickly…
Yeah.

…because I was reading on your website that that’s actually kind of a vital function that you’re playing, right?
It’s huge.

Once you get the contracts in place, the customer experience is tantamount, and you’re actually enforcing those contracts.
Absolutely. Our role is quality assurance once we’ve got the initial work done, but so we said, “Okay, how do… I need to find somebody, we need to bring somebody on this team who can work with governments, who can work, I mean potentially 745, who can work with a lot of organizations as customers and keep them happy.” Well Eddie Taylor has done that time and time again. His last company, he had lots of government clients. He built his company up to 10,000 individual companies as clients and he kept them happy. Okay, need that talent, so we brought Eddie in. Third aspect, there’s clearly, there’s a role for philanthropy in this, because it gives us credibility, gives us neutrality. So we went out and got private sector funding. This would never work. So we went looking for, “Okay, we need someone to help us on the Development side,” but closely tied to that is Communications, and so in Andrea we found someone who’s got, you know, the 14 years of Development background, but also has a journalism background. Nice mix. Andrea’s joined the team as our first employee. Then as we’ve rolled out, then it gets into, “Okay, we need people who can take ownership of a county and go track down the East Clevelands or the Shakers or the school districts, develop that relationship with them, get them to join, bring them the offerings, get them signed on. So we brought on Bob Aber, who’s got a good political background, a good entrepreneurial background to do the Cuyahoga County footprint. And then we brought on a guy, Lou Berraterin, in Summit County who is 15, 16 years in government relations. So Lou knows everybody in Summit County, and we brought him in as a contractor, said, “Okay, Lou. Summit County’s your footprint.” And what we’re doing now is we are looking for the Lou and Bob equivalents in surrounding counties.

How are you finding those people?
Networking. It’s all networking.

Interesting. I mean because that’s always been my perspective on regionalism. You really have to be able to develop those relationships with people, and you almost have to find them through your social networks. You have to ask, “Andrea, who do you know?” and then it’s beyond, “Who do you know?” It’s who do they know as well.
Absolutely. I sent an e-mail out last week to probably 20 or 25 people who are regional thinkers from across the region saying, “Here’s exactly what we’re looking for,” used Lou as an example bcause I had a longstanding relationship with Lou, and he helped shape some elements of this, and so literally in there I’m on the phone with someone from Akron calling back and saying, “Hey, I’ve got some suggestions for you.” And then we go and meet them and find the right person, and it is a, it’s a time-consuming process but it’s also extraordinarily educational. So I mean it’s fun actually. It takes time, but it’s fun to do. And our objective within the not too distant future is to have key people in the five countries surrounding Cuyahoga County, and five counties from the Cuyahoga County, and then probably over the course of the next 12 months and get them up and running, and then following that, then get someone in each of the 13 counties so that we are truly serving the region. Now we have to scale it. We can’t just start 13-county wide. We’ve got to grow to it, but the neat thing about our model is, you take a guy like Bob Aber or Lou Berroteran, train them, give them the tools, set them loose.

You can probably find local suppliers of auto parts, but it’s hard to find local producers of auto parts, but then on the IT side of things, you said you were working with Perceptus, right? Is there a kind of local provider aspect to what you’re doing?
Very much. We look at local as the region, and the fact of the matter is that for the, even for the “commodities for auto parts,” you’ve got to have someone who can deliver it within an hour So you can’t go to a Chicago-based company to have them deliver it in Ohio in an hour. So because the service component of what we do is so critical, I mean we are always looking to free up their internal capacity to do some things more valuable. Administration related to auto parts is not remotely valuable. It’s necessary, right? It’s a necessary evil, but it’s not…

It’s not value-added.
…it’s not value-added. So what our job is is to value add, and because that’s our philosophy, and that’s Jack Woods all the way. Because that’s our philosophy, we are driven to pursue local providers of everything. Now there’s another philosophical aspect to this, which is there’s, you can buy commodities basically just with price basis, not with value-added services, through the State, through what’s called the State Bid. Well what we’ve observed that’s happened over time, lo and behold, almost all the winning vendors in the State Bid are based within 50 miles of Columbus. So that means that we’ve got a big chunk of money from Northeast Ohio…

That goes right to Columbus
…going straight down 71. And then you think about all the taxes we’ve got going straight down 71 and…

That’s a lot of money.
…so part of what we’re doing is we are serving to bring some of that money back up to the region for jobs and growing small businesses and mid-size businesses here, so… And one of the things that foundations and some of the civic leaders and all that ask us is, “Is this an economic development play?” and the answer is, “Absolutely.” We’re talking about 50 billion dollars we’re spending in a few thousand square miles. I mean that’s economic development if we can keep that activity here.

For sure. So I wanted to ask you, because this is a A & Q with G-what would you ask them? What would you want them thinking about when it comes to NEOSO and economic development?
Okay, I’ll throw a couple out for you. First of all, in terms of the context, you know, question: How many governments are in Northeast Ohio? Doodoodoodoo.

<laughter>
But the answer, there’s 745 in 13 counties. Another question: Do you know how much they spent? It’s staggering, 40 to 50 billion dollars a year. What’s a comparable to that? Dell, Target, Johnson & Johnson…

It’s huge.
…a Fortune 30 company. And so ultimately the real question is, from a context setting perspective, are we getting the same kinds of economies of scale that a Fortune 30 company operating in 100 countries around the world gets, when we’re operating in 13 counties in a few thousand square miles? I’ll leave that as a rhetorical question. The second this is that, you know, we have a lot of conversation about regionalism, regional activity and so on and so forth, so let’s boil it down. What are some practical things that we can do regionally? And the Voices and Choices process that the Fund for Economic Future supported identified government fragmentation and duplication as, I think, well it was a Number 2 issue.

Andrea Castrovillari: Number 2.

So what are some practical things that we can do today? And is it practical to say, “Let’s consolidate Fire Departments”? Is it practical to say, “Let’s consolidate cities”? Is it practical to be thinking of consolidation as a near-term solution? Survey says no. Consolidation, governmental consolidation, any major scale in 40 years in this country has occurred exactly five times <laughter>. It’s not practical. So practically what can we do? Instead of looking at structure, we can look at operations. So next question then would be: Can I as an individual, or can you as an individual, do anything to affect this practical regional activity? And the answer is absolutely yes. Call up your Mayor. “Have you heard about NEOSO? Have you joined NEOSO?” Call up your school district or your school board. Create an opportunity. Bring us in to talk to the leaders of your government, be that city, library, school district, county, special district (like the Sewer District, the RTA or any of these other regional ones). They’re all potential members. So NEOSO actually provides folks with a very real opportunity to literally engage in transforming their region. So the last question is: Do you want to play?

My questions: Do you think practical regionalism is "play", or is it something to take seriously? Have you thought about ways to make ou region more attractive to companies moving here? Who would you you recommend if you received an email from a startup company looking to hire someone? (:divend:)