Cost Effective Growth

One of the challenges in managing brands is to find the right balance between investing in developing the asset and delivering a positive return. It doesn’t matter if we are talking about a product, corporation or community. The tactical choices may be different, but the challenge is the same.

Profit or Growth? is a book authored by Bala Chakravarthy and Peter Lorange. The underlying premise of the book is that you do not have to choose between the two options, but can simultaneously pursue both through continual renewal and internal entrepreneurship.

In the context of a community, this means you can pursue sustainable economic prosperity without having to tax residents to a degree that their disposable income doesn’t keep pace.

The authors argue that growth and profitability can often be opposing forces. In a community context, an example would be population growth requiring an increased investment in services (e.g. building/expanding schools) that are funded by an increase in local taxes. Growth means more job opportunities so it is hard to characterize it as a bad thing. But, growth needs to be funded and when it translates into increased taxes it’s easy to see why some people might oppose progress. The authors would characterize this as a “performance dilemma” that needs to be addressed.

Four Strategies For Cost Effective Growth

Strategy #1 – Protect and Enhance the Core

This strategy requires a focus on continually improving the efficiency and effectiveness of current operations and assets. Think of it as a strategy to drive increased productivity so every tax dollar delivers improved value to residents. This is a proactive strategy. Think about all the programs funded by taxpayer dollars and determine how to reduce the transactional costs starting with the most expensive and working your way down to the least expensive. Imagine how many more initiatives the same amount of tax dollars could fund if waste was eliminated from the currently funded programs. Getting more value from the taxes currently collected is just smart.

Strategy #2 – Transform the Core

This strategy requires an objective assessment of what is genuinely working and what is not. You need to define which programs are providing real value in a cost efficient way and which are serving a small group of constituents and doing it poorly. Cost per resident served is a good metric to evaluate. If programs are judged as necessary, but cost per delivery is too high, then corrective steps need to be taken to ensure the tax dollars invested meet a minimum target return. This can be done through a productivity increase or an increase in the number of residents served. The solution will vary by program, but every program should be expected to meet a minimum performance criteria to ensure taxpayers they are getting value. This doesn’t mean every program must provide a positive Return on investment. There are some social programs that may be funded because from a societal perspective it is simply the right thing to do. But, every program can have a target performance measure it is expected to meet that drives efficiency into the service delivery. I appreciate how challenging this strategy is to execute because of the political pressure exerted by special interest groups. But, just because it is challenging doesn’t mean it shouldn’t be a priority and addressed. Programs that are judged to be ineffective should be evaluated for de-funding. Organizations receiving grants to deliver services that are judged to be inefficient should be put at risk of losing the grant to an Organization that can serve more people with the same grant dollars.

Strategy #3 – Leverage the Core

This strategy is about identifying operational strengths and focusing on finding cost sharing ways to deliver superior performance. In communities this can translate into exploration of public-private partnerships to deliver services previously only supported by government. It can look like consolidation of administrative services that ensure developed competencies in one area are applied across as many programs as possible. One specific example is a competency in managing federal funds. This tends to be a real skill set and can be reapplied across departments/programs within government that are supported by federal funding. Rather than reinventing the wheel, a training initiative can be developed with the intent of exporting talent from the department/program with high competency to departments/programs that can benefit from the expertise. Another example is to identify the people in government with unique capabilities that are key to efficient delivery of services and ensure their career path is not at risk with every political Administrative change.

Strategy #4 – Build the Core

This strategy is all about building competency. Hiring the right people with the right skills to manage program delivery can make a huge difference in productivity and cost. This is a strategy that can benefit from collaboration between the private and public sector to ensure best practices in the private sector are transferred to the public sector. The public sector can also help by making specialized skills available to the government on an as needed basis. Imagine if your local government had access to apolitical experts on process design and could tap into that expertise to help identify improvement opportunities. The performance gains could be impressive. It would be an effective way to help determine what work could be eliminated and how to lower cost while simultaneously improving service levels.

Discussion

The fact is at any point in time several of the strategies will be required to ensure results. In my mind, the key is to have a purposeful improvement process in place that identifies and eliminates non-productive work as well as incentivizing increased productivity. It is a constant battle to keep cost down and service levels high. But, the results can be to simultaneously deliver better results for more people with no increase in tax revenue. They have to be mutually exclusive outcomes. Cost effective growth is achievable. It just isn’t practically simple.

What Are Your Thoughts/Experiences?

I would love to hear stories of where you achieved improved productivity without a cost increase. What were the key drivers of success? Are there best practice local governments that we can learn from or at least can improve our optimism that cost effective growth is possible? What are the barriers to success that you see or have experienced?

More Resources on Strategy

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