Download Commercialization and Competitive Outsourcing

Commercialization and Competitive Outsourcing
Confusion over definitions often led to chaos at management meetings. The following
definitions were used during the Space Operations Management Office Commercialization
program and are still useful today:

Institutionalization means implementing a public sector service function in public sector
institution chartered and suited for providing services to the public. By way of example,
consider Government Corporations. Moving TDRSS from NASA to the DOD is another
example of institutionalizing the TDRSS Space Communications fleet of spacecraft,
facilities and equipments to the agency that benefits most from TDRSS operations.
Institutionalization does not necessarily require a reduction in the total cost of ownership
to the government, but provides a more efficient means for service delivery and provides
mechanisms for more cost effective operations. Moving TDRSS to the DOD does not
necessarily mean moving the ground based TDRSS infrastructure but transferring it to the
benefiting organization for the sake of efficiencies and effectiveness.

Privatization means moving a public function from the public sector of the economy to
private sector of the economy. Examples: AMTRAK and BOAC were both government
provided transportation services that were originally moved to firms in the private sector.
Privatization does mean that the facilities and equipment used by the Government to
provide the service to its customers are transferred to the private sector firm.

Commercialization means procuring services from a firm where the fixed costs are
shared with other customers. The commercialization of the polar network of earth
stations is an example. In this cases, the government still retains the responsibility for the
function of providing services to its customers but does so by employing firms in the
private sector that are willing to reduce the cost to the government by sharing the
development, operations and maintenance costs of providing the service. In these cases
the government procures the services from the firm and does not pay for the initial
capitalization, development, operations and maintenance of the service.
By its nature, Commercialization purchases a service that is commercially ongoing and
viable. Commercialization is based on the notion that there are commercial service
providers that exist and have a broad user customer base. As a result, the development,
obsolescence, and operations costs are allocated across a broader base and the net price to
the customer reflects a reduced cost. (Note the difference between service price and cost).
In another context, Commercialization means blending private sector resources with
public sector resources to finance a public function owned by an agency.
In the case of commercializing the Polar Network, the government assets for space
communications were assigned to the commercial firms as GFE. By their nature,
commercial ventures are more efficient in contrast to Government initiatives that are
more effective.


Outsourcing means finding another entity to implement the public function. The entity
can be either a public or private entity. This term can be applied to Institutionalization,
privatization or commercialization. In the broadest sense, outsourcing can include dualuse and funding of NASA’s infrastructure.
Competitive Sourcing is different than government contracting. Government
Contracting means procuring products and services from a commercial firm where the
government funds the entire product and or service and is the firm’s sole customer. The
procurements are held on a competitive basis. In this arrangement the Government is the
firm’s sole customer for the products and services and the Government funds the entire
initiative.
Other commercialization initiatives can be explored by considering the broad range of
Competitive outsourcing options. Competitive sourcing is the Overarching Term for initiatives
that involve a blend of public and private funds to implement government functions is
Competitive Sourcing (CS) See the Figure below. CS includes Commercialization, Privatization
and Institutionalization. All three deal with finding ways to fund public initiatives in creative
ways.
Typically CS is associated with creative financing in the public sector. The downside of CS
initiatives they usually take a long time to implement.
Jon M Smith
NASA SES retired
www.jonmsmithandassociates.com
[email protected]
409-370-8685
Outsource a Public Function
Privatization
Institutionalization
To Private Sector
To Public
Sector
Commercialization
Firm has other Customers
to share fixed costs
Privatization
Government is the sole Customer
Hybrid
Priv. Capital Only
Blend of Pub and Priv. Capital
Private Capital Only
Blend of Pub and Priv. Capital