The ongoing battle of cost cutting

The state government minister and his advisor moaned about how cost cutting was taking over their lives.

Somehow they thought expressing how tough it was to cut costs may cut some ice with a couple of business owners.

But the attitude of a conservative minister a year in office only contrasted the growing disparity between private and public sector management in tough times.

Governments have occasional attacks on costs, well telegraphed, and then efficiency dividends. They rarely work in what should be the real outcome, providing a better service at less cost, day in, day out.

Any good private sector manager knows cutting costs is just part of daily, weekly, monthly routine, year in, year out.

I asked the minister what percent of each day, week, month he devoted to better service for less cost. He immediately turned to his advisor, and both looked blank.

Here is the formula any serious private sector manager follows – 50% of effort on growth, 25% on costs and the rest on administration, such as statutory and corporate reports, financials and the like.

As a CEO I used to work on costs at least half a day per week, but put most effort of the effort in during October and November when I would review the way we did everything, including every new technology. I’d talk to customers, suppliers and particularly staff at all levels about what could be done better. I filled notebooks each year, and I thought I knew the business inside out. We would put the new regime to tender for the year ahead, often working with suppliers, contractors and staff over the Christmas downtime to embed real efficiency gains from changing the way we did things.

I told the minister I was intrigued that in the private sector, lots of tablets/iPads were used by frontline people such as warehouse workers, truck drivers and supplier staff. But in the public sector they were held for senior public servants rushing from one cross jurisdiction coordination knitting circle to another.

In other words, companies were unafraid to put devices in the hands of frontline workers to get quick efficiencies. One of our regional operations still gets visited by three public servants who fly from the capital city several times a year.

Still no trust in public sector workers, while our suppliers send a contractor with a tablet.

We once had the misfortune to hire a senior public sector manager who had all the qualifications, but in the end an inability to make good decisions quickly. I was stunned at how slowly a good public sector manager made decisions, and the lack of confidence to carry it through to action. He wanted reviews and reports… and others to share any risk.

And that sort of person won’t take the individual responsibility to cut costs day-by-day, as well as strategically, quickly and confidently as new technology allows.

Amid all this, cost cutting was only a quarter of the management effort, like eating is necessary for survival. At least half the effort must be on growth, otherwise no enterprise will thrive.

Our public sector manager spent 10% on growth, 5% on cost and 85% on administration to avoid taking responsibility for decisions.

And this was close to the formula the minister and his advisor eventually coughed up.

As I expressed to the minister, when we in the private sector run up continual deficits, we go broke. Yes minister, that’s a heck of an incentive to forget moaning, but make efficiency an everyday task.