After the Prime Minister’s Casablanca moment, the UK’s newly minted Office for Budget Responsibility has downgraded economic growth projections to 2.6% from 3.25% http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/, and the government has announced the first £6.2 billion of spending cuts and a wave of public sector reforms. Organisations are facing a cost squeeze as never before. Maintaining organisational performance against this backdrop is not easy. We believe that and aggressive cost cutting alone is not the best way forward. Rather, a balance is required with immediate cost savings from cut backs in non-core activities being recycled into initiatives that deliver sustained performance improvement at reduced cost.
The key is to to be ambitious – you can make changes that repay themselves within a year. There is always lots of low hanging fruit particularly after a period of routine budget increase. So, how can this be done? Some examples are:
- Taking a serious look at your procurement – In complex public services, it is not unusual for services to be procured from multiple suppliers and for there to be overlap between the service contracts. Improved portfolio management can quickly deliver significant savings. In a recent example, we found that a public body was buying the same service from four organisations without a standardised output. Standardisation reduced the costs by 75%. The piece of work leading up to this saving cost half the amount saved in year one, and delivers year on year savings. So its not a one-off.
Improving service with reduced capital investment – Take a look at your asset base and see how you can reconfigure it to meet key needs rather than starting procurement of a magic bullet solution (which tend to be very expensive and under-deliver).
Life cycle costs – Some old systems cost more to run and maintain than modern systems. For instance, an easily understood but small scale example we replaced our telephone system last year with a new system whose life cycle costs were less than the maintenance on our fifteen year old system.
Concentrating on the core – Organisations need to re-establish what their mission is and how to deliver that efficiently. Work processes that only indirectly support delivery can be pruned to make for a leaner organisation. Recently, an Executive Agency we worked with was able to save 1/3rd on operational data collection through streamlining the work processes used to collect data and removing duplication.
Beware economies of scale – Procure at the right level. In very large organisations, there is a temptation to believe that the purchasing power of thousands of units provides a saving over purchasing on a more local basis. The two cautionary tales are that users are not necessarily all the same and gathering a single requirement might be an expensive compromise. The other thing we have seen is a smart few hundred person unit achieving better prices for the same thing than a 15,000 person central corporate activity.
Working across organisational departmental boundaries – This can tap into latent capability and allow re-use of existing resources.
You do have to look at staff cost – In the private sector, the recession unemployment cost has been lower than expected so far because companies and workers have taken the pain through reduced salaries and benefits and the deferment of rises and bonuses. Similar pain is required in the public sector.
You will notice that some of these savings result from a centralised perspective e.g. rationalising overlapping contracts, whilst others exploit the clarity of thinking and value you get from focused procurement at a more local level. None of these changes come for free, and finding solutions that minimise knock-on effects is never simple – the devil is in the detail. But they can deliver breakthrough efficiencies that build an organisation that will both survive a crisis, and emerge stronger once the environment changes. Whilst simple cut-backs (e.g save 20% by reducing staff by 20%) may provide a short-term prescription, they are rarely anything more than cosmetic and they remove the ambition of getting more for less. In fact, often they damage the long term health of the organisation. More baout our performance improvement services is at http://bit.ly/cNW1Th.
Given the immediate challenges faced in the public sector, on the 6th July Cambridge Consultants will be hosting a breakfast event in London drawing together senior executives from across the public sector who understand the challenges they are facing to share approaches to meeting the impending challenges and opportunities. To register your interest, please contact us at: firstname.lastname@example.org.