As noted in my previous post, service reviews are started for a number of reasons. The driving factor for them is that governments, on whole, are being asked to meet an increasing service demand from their community, without increasing tax rates.
To tout the success and impact of these initiatives governments tend to use on measure above all else: cost reduction.
Cost reduction is an easy, effective, and universally understood metric for success, and this is why it is commonly used. Many times, it is the only publicly available result of the service review. In a quick Google search, I was able to find calculations from Regina, Vancouver, and Toronto, ranging from $1.95 million to well $167 million in estimated savings.
That said, I believe cost reduction does a poor job of communicating the success of service reviews:
- It doesn’t say what you are going to do with the money (and you know you can expect a grumpy citizen asking for you to “give it back” at some point)
- Often those big wins aren’t there (likely, less than 10% of your budget is discretionary)
- And most importantly, it doesn’t indicate whether the government is actually performing better
In many cases, the big numbers that come from these service reviews are related to actual cuts made to services and resources. In business and government, sometimes cuts and reductions are very, very necessary, but I can tell you that when you are trying to get your staff to “buy-in” to service reviews and a culture of continuous improvement, it is a lot harder when they know that your biggest marker of success is how much you cut costs.
In my work, I try to emphasize the positives of service reviews as a means of improving service delivery and the experiences for staff and citizens, and this is why I recommend focussing on service reviews as a means of improving effectiveness and efficiency, and one way to do that is through the lens of cost reallocation.
An Illustration of How Cost Reallocation Supports Improved Effectiveness and Efficiency
Qualitatively, other jurisdictions have reported that cost reallocation does a much better job of supporting the improved effectiveness and efficiency of their organization than cost reduction. And recently, the Harvard Business Review provided a quantitative value for cost reallocation in its quote that “companies that were able to reallocate capital expenditures across business units achieved an averaged shareholder return 30% higher than companies that were slow to shift funds.”
To illustrate the value of cost reallocation, consider an organization, which has resources spread across five services (A,B,C,D, and E) as shown in the figure below.
In part B, all the services are evaluated, and the results show that Service A can be redesigned to be performed more efficiently, thus freeing up more resources. At the same time, the evaluation shows that Service E is under great strain to meet citizen demands, and that the customer experience for those citizens is unsatisfactory (it’s really bad).
The recommendations then suggest using the free resources from the redesigned Service A to augment Service E and improve the quality of service and the customer experience. In doing so, you have:
- Increased the efficiency of your organization
- Provided more and better service to your stakeholders – and-
- Improved the overall customer experience for your community
You likely did not reduce overall costs at the end of the day. However, you found a better allocation for the costs that were incurred, and the impact on the community is better. In other words you found a way to address the main drive for the service review in the first place, to meet the growing demands of your community without raising taxes. That is the benefit of cost reallocation. And so, I recommend to anyone engaging in a review of their organization, to consider the benefit less from the cost reduction side, and more from the benefits gained through the effective reallocation of costs.