Governing Magazine/March 1996

MANAGEMENT COLUMN

CUTBACK MANAGEMENT: SIX BASIC TASKS

By Robert D. Behn

Robert D. Behn, director of the Governors Center at Duke University,
has written extensively on the challenges of policy termination and
cutback management. He can be reached by e-mail at gov-
ctr@pps.duke.edu.

Today, every public manager faces the challenge of cutback management.
Real resources are declining (though demand for public services is
not). Cutbacks are a reality. Consequently, public managers have the
responsibility to make their agencies smaller while, simultaneously,
fulfilling their organizations' missions. To meet this challenge, they
face six basic tasks.
 First, they have to decide what to cut. Across-the-board cuts are
attractive; they can be defended with a share-the-burden call to
equity. But what constitutional or ethical principle suggests that all
sub-units deserve equal protection?
 Moreover, across-the-board cuts avoid real choices about priorities.
All they do is punish the most efficient units. After all, the
wasteful units are the ones that have the fat that permits them to
absorb the cuts with the smallest impact on performance. In deciding
what to cut, agency leaders are making fundamental decisions about the
organization's future responsibilities and capabilities.
 Second, managers faced with cutbacks have to maintain morale. This
certainly is a challenge. We Americans use growth to measure progress.
A smaller agency is, to our traditional way of thinking, a less
important agency. And the drop in morale created by retrenchment can
also cause a drop in performance, which can lead to further cutbacks,
which can lead to another drop in morale, which can....
 Third, despite the cutbacks, an agency's leaders need to attract and
keep quality people. When resources and morale decline, the best
people--who are (almost by definition) the most mobile--are the first
to leave. And across-the-board cuts can quickly convince these people
that the quality of their work is not appreciated.
 Next, the managers need to rally the support of key stakeholders. For
a county public health department, for example, these would include
those who receive its services as well as nurses, physicians, key
community groups and sympathetic county commissioners. Watching the
agency shrink, they too will conclude that it is becoming less
important. And they will blame the agency's managers. But on which
stakeholders should the managers focus attention? Who can they afford
to ignore--and thus alienate? The managers will have to target their
resources to ensure that the agency is able to accomplish something
that key stakeholders conclude is worthy of support.
 Fifth, the managers need to create opportunities for innovation. Yes,
despite the decline in resources, any public agency needs to improve
performance. This means doing old tasks differently--or maybe even
replacing old tasks with new ones. For a growing agency, innovation is
desirable. For a contracting one, innovation is essential for
survival. Indeed, innovation can help attract quality people and even
earn stakeholder support. Yet in the foxhole mentality created by
retrenchment, no organization will be innovative without a conscious
effort by its leadership.
 Finally, the managers need to avoid disasters. Innovation requires
experimentation, which makes mistakes inevitable. Thus, while
encouraging experimentation and supporting mistakes, the managers have
to prevent the big mistake. For in retrenchment, a big mistake becomes
a disaster. It wastes precious resources, subjects the organization to
ridicule, drives away quality employees and alienates key
stakeholders.
 These six basic tasks are not unique to cutback management. Deciding
what to cut is simply the standard managerial job of allocating
resources. Growing resources makes any management job easier. But in
retrenchment, all six tasks become significantly more difficult.
 Indeed, the task of allocating the cuts is qualitatively different
from the task of allocating the gains of budgetary expansion. When
budgets are growing and a manager misallocates this year's increment,
this kind of mistake can be corrected next year without much damage.
If a productive or important unit deserved a larger increase than it
received, the difference can be made up next year.
 But when budgets are contracting and a manager misallocates this
year's DECREMENT, the error may be quite serious. For if a key unit
absorbs too large a cut, it may disintegrate in a downward spiral.
Performance will suffer, innovation will prove impossible, the best
people will leave and performance will suffer further. Moreover, even
if this unit actually receives an increase next year (rather than
simply a smaller cut), it may take years for it to recover.
 Cutback management may look like the mirror image of growth
management, but the marginal economics of the two undertakings are
quite different. A decrease in resources complicates every task of
public management.

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