Big Society, 25%-40% budget cuts…
One way or another UK public agencies need a radical response to the pressures from the economy and the coalition government.
When the recession first hit in 2008 Japanese motor manufacturers in Britain seemed to do everything they could before they actually made staff redundant, if they ever did. Toyota, Nissan and Honda were all good examples.
Regular readers know the importance I assign to employees in driving improvement in an organisation – see for example my post on How to improve government (and keep improving it).
But how can you say to people “Your talents are key to improving this place” and then hand them their P45? [non-UK readers – a government form people are given when they leave an employer]
From the USA comes advice from author Gregg Stocker on his blog Avoiding the Corporate Death Spiral (named after his book of the same name).
He starts with the memorable words
When a ship encounters rough waters, the captain does not consider throwing crew members overboard to protect the ship’s owners
From a North American and private sector perspective he lists seven steps to avoid layoffs. This is my take on each, in the order Gregg lists them.
- Shortened Work Week: Although akin to a pay cut, a shortened workweek forces everyone to participate without the loss of jobs. Also, receiving time off helps compensate for the reduction in pay. Sounds sensible – better to earn even 60% of your former wage than 0%. The sums to produce any saving needed should be easy to do. I’m not aware of this happening anywhere in the UK public sector.
- Unpaid Holidays: Similar to the shortened workweek, implementing unpaid holidays allow more flexibility in choosing the extent and timing of the cut back. Again, I’ve not heard of this happening anywhere
- Hiring Freeze/Attrition: Although an obvious step, I have worked with companies that laid off in one part of the company while hiring in another. Any positions that are critical to fill should be done by transferring and training existing employees. Fairly widely used but how effectively? “Transferring and training” is critical but how creative is the public sector in moving people around and supporting them in those moves? And since everyone’s urged to work in partnership with other agencies, what about transferring people between organisations?
- Elimination of Bonuses: Nobody should receive a bonus during a period that people were laid off. I was in a meeting several years ago with a large division of a Fortune 100 company where managers decided to implement a layoff in order to protect their bonus accruals – a totally unacceptable action. A very mixed public sector picture. Performance related pay is entrenched in some public organisations, entirely absent from others. Personally I’d eliminate it entirely, not to save money but for all sorts of other good reasons (see for example Alfie Kohn’s now classic Punished by Rewards. The Trouble with Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes)
- Elimination of Dividends: In spite of what many people believe, the resulting damage to the organization caused by a layoff does not protect shareholders. By protecting its workforce, companies are actually actually protecting future returns for shareholders. Studies have shown that companies that resist deep cuts during downturns recover much more quickly than competitors (in terms of earnings and share price). Stocker’s only step not directly relevant to most of the public sector. But the ethos could apply to agencies required to make a set return on capital for the government.
- Focused Kaizen Activity: Improvement activities should be focused entirely on reducing costs (while improving or maintaining existing quality levels). Kaizen activities focused on cost reductions will prevent employees from being idle during downturns and assure that the savings achieved will be sustained once business returns. Something like this should be in the organisational DNA, not a response to a crisis. Stocker says kaizen. Others might say systems thinking or other structured improvement. For this particular purpose it matters not. I have recently seen an example of a local authority function where careful measurement proved that 26% of the total cost did not add value for customers and could in principle be eliminated. The challenge, which many wrestle with, is the ungainly named benefits realisation, which in this example would mean eliminating 26% of the budget.
- Pay Cuts: As a last resort, pay cuts should be implemented to save jobs from being eliminated. I believe in implementing across-the-board percentage cuts with executives being asked to volunteer a larger percentage. Of course pay cuts and pay freezes need to be in the mix as that “last resort”. And senior managers taking a larger cut sends the right message. But without all the other good things Stocker mentions this inevitably goes down like the proverbial lead balloon.
Of course some of these actions imply less work being done and so less service being delivered. But that’s going to happen anyhow.
And some would need a major culture change in the UK – amongst politicians, senior managers and trade unions. Put to the point could they all make the leap? I have my doubts.