Apples and oranges

I read an article this weekend in which it was suggested that Eric Pickles will be asking local authorities to put a cap on their chief executive's salaries so that they do not earn more than the Prime Minister. I do find something ironic in these pronouncements coming from a man who was leader of Bradford Council over twenty years ago when it was amongst the first to break from the practice of paying chief executives using a scale that was based on the population of the area. (I'm tempted to say that Bradford were the first but I haven't done the research to verify if my memory is correct.)

Anyway, the other thing that strikes me about all the talk about whether the head of a local authority should be paid more than the Prime Minister is that it is comparing the allowances paid to an elected office-holder with the salary of an executive officer. To use a cliche, it is comparing apples with oranges. It seems right to me that the allowances paid to MPs and councillors should have some regard to the Prime Minister's allowance. If an elected mayor or council leader were being paid £150,000 a year I think there would be a case to answer. But the Prime Minister is not paid more than the executives who manage the government. Surely the benchmark, if there is to be one, should be with the salary scale of permanent secretaries. But, of course, if that were the case there'd be nothing for Pickles to say.

The engagement's off

In September I wrote this post about Islington and Camden's plans to merge their management teams. According to this article in the Guardian the marriage is over before it began. 

Ten rules for managing public money

I haven't written a post for a couple of weeks because the deadline for submission of the manuscript for my book is fast approaching and I spend all my time on that. I thought I'd upload this slide which summarizes ten rules for managing public money. There's an awful lot more in the book than this but it was after I'd worked out these rules for a lecture that I got the idea for what became the book proposal.

When I've handed in the manuscript I might write a sequence of posts expanding on the ten rules above. Or perhaps I'll let you read about it in the book. Either way, I suspect that there won't be many posts here until after 10 December.

Untitled

When I read about Iain Duncan-Smith's proposals for a single Universal Credit I was broadly in agreement but an obvious problem came to mind. It relies on a major IT system. I was going to write about that record but Colin Talbot has already written this post so I don't need to bother. I will say, though, that the attempt to bring the NHS into a national system is a mess and it seems to me that a Universal Credit system must be many times more complicated.

...not budgets

As mentioned in my last post, perhaps organisations can address their current budget problems by not having a budget in the first place. You're thinking, "That's nonsense." But let me explain this counter-intuitive proposal.

Neely, Bourne & Adams (2003) proposed this idea, arguing that having no budgets results in organizations spending less than they otherwise would. This paradox is based on the assertion than when a manager (whether in the public or private sector) is given a budget they are being set an expectation to spend a certain amount of money to produce goods or services and, therefore, they will aim to spend that much. If on the other hand the manager is not set such an expectation then Neely et al claim that the manager will only spend what they need to spend to produce the goods or services.

 Given that one of the uses of a budget is to control spending how would an organization that has adopted these ideas avoid spending more than it receives and, potentially, insolvency? They suggest that the finance director at the centre of the organization would be able to monitor income and expenditure at the aggregate level to ensure that the organization is solvent but there does not need to be any of the standard monthly budget monitoring reports produced for each manager, saving an hell of a lot of time for everyone. Presumably if the finance director identifies a potential problem they would instigate whatever remedial action they felt was required without needing to issue a budget report to a manager.

 It's an interesting idea and there are examples of private sector organizations adopting it. I know this idea runs counter to the whole doctrine of New Public Management where responsibility should be devolved and decentralised to the front-line but, to be honest, for a lot of front-line managers the constraints on what they can and can’t control makes their budget responsibility to be more theoretical than practical. There’s some attraction from the suggestion that it would reduce spending and increase efficiency without having to go through a painful exercise of making budget cuts but it would be difficult to adopt in the public sector because it is so far away from the culture of producing detailed, line-by-line budgets. I think the legal requirement to have a balanced budget only needs to done at the aggregate level. Having done that a public organisation does not have to allocate budgets to managers but, one suspects, there would be considerable reluctance from the finance director and other managers because of the risk to them if things go wrong. Imagine the inquiry into why an organization has run up a considerable deficit discovering that the organisation had been operating without a budget!

So, it's a radical idea but there are hundreds of public organisations struggling to solve the problem of where to cutback. This method would allow savings to emerge without making having to announce any cuts. Perhaps it's worth a try.

Reference:

Neely, A., Bourne, M., & Adams, C. (2003). Better Budgeting or Beyond Budgeting? Measuring Business Excellence , 7 (3), 22-28.)

A time for leaders...

Following the spending review announcement there will be feverish work going on all over the public sector to make plans and budgets for 2011/12. The level of cuts that these public managers are facing is an order of magnitude larger than they would have faced in the previous ten or twenty years.

What these managers are facing is what Ron Heifetz calls an adaptive problem as opposed to a technical problem. I saw Heifetz give a lecture at Warwick Business School in the summer where he explained that managers are good at technical problems. They’ve seen them before, they know how to find the solution. Adaptive problems, on the other hand, are novel, complex and don’t lend themselves to easy solutions. What they require, said Heifetz, are leaders rather than managers.

Looking at the financial conundrum facing public organisations, this means that the answer is not likely to be found by trying to do what has been done every year for a generation. Yes, over that time, public managers have found ways to eek out 2 or 3 per cent efficiency savings, or to put fees and charges up a bit, or to find a new grant that will pay for a project, but that won’t work to find the 7 or 8 or 10 per cent that has to be found for three or four years in a row. Public organisations have to try some radical ideas, take some risks. And to do that they need leaders who can show the organisation how to move ahead.

In his lecture, Heifetz draw a parallel between the tackling adaptive problems and natural selection, where random adaptions that best suit the environment succeed. Failure to adapt quick enough can lead to the ultimate failure: extinction. I guess this idea, when brought up in association with bureaucratic public organizations, inevitably leads one to think about dinosaurs and that the future is bleak. But consider this: birds are evolved from ground-dwelling dinosaurs so perhaps the future could be dramatically different from what we know today.

In my next post I have an idea for tackling the current budget crisis that perhaps fits this bill: not having a budget at all.