Cost Cutting Hints for the Private Sector from the Public Sector
For over thirty years now I’ve made my career in the private sector. Working both for a large corporation and owning my own business. I’ve been through more economic cycles than I care to think about and have been given marching orders to cut cost with each one. Following my corporate career, I was quite convinced I knew the routine and understood the decision making process to effectively manage a business while reducing cost. I have, however, come to doubt my expertise in this area as I consider the approach I see being taken in the public sector. I think walking through a private sector example of applying lessons learned from state and federal governments might prove to be a real learning experience for all of us neophytes in the world of capitalism.
Step One: Stick Your Head in the Sand
We don’t always see bad times coming, but we can see unhealthy trends and recognize bad times are here when we read it on the front page of the paper. The objective here is to not consider all of this bad karma. If you’re spending beyond your means in good times and there’s a lot of negative talk about the economy, don’t have some knee jerk reaction and start moderating your spending.
Public sector pay grades are based on budget, for God sake don’t cut your own budget until someone puts a gun to your head. Spending money also buys votes and you don’t want to lose your job. Making tough decisions is for losers, quite literally. The private sector also compensates based on the scope of your financial responsibility and you don’t make friends cutting budgets. The twist that corporations throw is measuring financial responsibility by profits, not expenses, what’s up with that?
Look, in bad times, profits are going to bad for everyone. Is there that much difference in making no money and losing a little? Either way, salaries will be frozen and incentive compensation will be pathetic at best. Why knock yourself out cutting expenses and turning your employees against you. Stay the course like the big boys in public office.
Step Two: The Best Defense is a Good Offense
When finally forced to discuss the issue of deficit spending, elected officials don’t get caught in the trap of discussing spending. The problem is not spending, it’s revenue, tax revenue. If there’s not enough coming in to pay for spending, the solution is to raise taxes, not cut spending. The citizens are just going to have to do with less to keep the government running. Take this lesson and run with it you corporate tools. The problem is not the bottom line it’s the top line. The solution is to announce a variance to plan on line 1 and make no other changes to the forecast. Shareholders, you’re going to have to suck it up.
Our elected leaders are masters at this. Put a tax on the next ballot. Tell the people that you were given a mandate and you intend to deliver what the people want; spending. If the little people vote down the tax then move on to fees. Make the cheapskates pay for every last thing they do that involves public property and services.
The private sector application to this important lesson is to turnover pricing to the accountants. If the investors aren’t going to budge on their expectations and customer aren’t willing to buy more than just raise prices on what they are buying. That should work, shouldn’t it? Hell, it will take them a couple of months to synch up with new suppliers and hopefully by then the storm will be over and you can begin charging market rates again. No harm done and if there is, there will be plenty of new customers to be had in the recovery.
Step Three: Make it Hurt!
You’ve tried to defer the problem to another generation, you’ve tried to make John Q. Public pay for the shortfall and you’ve gotten pushback every time. The budget has to be cut and the public is going to pay. Executed correctly, they will rue the day they ever asked you to make a tough decision. As a public official, you’re no loser. You’re going to win this war one way of the other.
Bureaucratic bloat is your power base and you’re not going to let the electorate spoil that. In the public sector, budget cutting is not a function of optimizing the goal of delivering essential public services with reduced resources. No, that’s the capitalist game. In the public sector it’s all about power and those that dared try to diminish the role of government by refusing new taxes are going to pay.
It’s the one-two punch. Hit their conscience and then their survival instinct. Put a torch to benefits for the most vulnerable in society. Take food from children and turn-off grannies utilities. Get on TV and make it known that these difficult choices were the result of the people’s selfish decision to not raise taxes. Then close the prisons, let the inmates run loose and fire the police. That’ll show them. Mayhem has a way of making the people rise up and demand action.
If the corporate weenies could put this kind of plan in place they would understand the meaning of power. Limos and private jets may make you feel important, but that’s nothing compared to having people beg you for help. Put the fear of God in someone and make them feel like an unworthy member of the human race and you’ve got them just where you want them.
Shut down customer service and let those pesky customers figure out their own problems. Stop shipping product and see what happens next. Keep all your people, they’ll love you for it.
Sure, things will get pretty screwed up and it’s unclear what will be left of the business in the long run. Future consequences don’t seem to bother our public officials.
Richard Gabel
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