What Price Consolidation?

Combining government functions seems like a good idea, but it doesn’t always save money and it rarely improves results. There are alternatives worth considering.
by | May 30, 2012
 

Look almost anywhere in government these days, and you'll find an elected official or senior administrator pushing some sort of consolidation agenda. Consolidate cities, school districts, back-office operations across jurisdictions, administrative functions within a jurisdiction--you name it and someone wants to consolidate it.

The lure, of course, is saving money. And consolidation sounds good to the body politic. To those who want smaller government, fewer organizations feels smaller. To those seeking administrative control, consolidation appears to reduce complexity. And it's just intuitive that consolidated functions are inherently more "efficient." Right?

Not necessarily. Cost is only one element of government's bottom line. What really matters is reducing cost and improving results at the same time. And here is where the history of consolidation has not been too friendly to the bottom line. Think about a consolidation with which you are familiar. It's likely that the actual captured savings are relatively small and, if you are lucky, the impact on service results is neutral. More likely, that consolidation ended up producing worse results than before.

Every year, governors and mayors hire consultants and appoint blue-ribbon panels to study duplicative functions and recommend how and where to consolidate. In most states, this phenomenon has been going on literally for generations. Why is it necessary for every governor or mayor to re-study and re-consolidate administrative functions such as information technology, human resources and procurement? Because large centralized bureaucracies usually don't deliver better service, so line agencies develop their own internal people to deal with the large administrative bureaucracies. That creates the need for the next chief executive to do another study and consolidate some more. It's great for us consultants.

There are good reasons to consolidate. And it can be done effectively. Follow these tips:

• Focus on value for the dollar rather than just on cost. This will help mitigate the need to continually re-consolidate.

• Understand the perspective of the "customers" of the functions being consolidated and take those into consideration in developing the consolidation approach.

• Consolidation usually involves merging two organizations into one. Consider integrating functions into a new structure rather than merging existing structures into one another. The former involves making things work more seamlessly for the customers, while the latter relies on putting two or more organizations under a single chain of command.

• Usually consolidation involves adding a level of management. Consider a process of "flattening" concurrent with the consolidation process.

But to save money and produce better results, consider these alternatives:

• Create incentives for organizations to voluntarily consolidate. In Minnesota, the introduction of public-school choice and post-secondary options made it a winning proposition for smaller rural school districts to integrate their operations.

• Get organizations to follow the same basic strategy even if they are not put under a single chain of command. Franchises like McDonald's use this concept.

• Sometimes a well constructed marketplace can reduce cost and simultaneously improve results. One form of market provides the opportunity for organizations to purchase administrative or "back- office" services from one another or from a private source. The federal government has done this successfully for years.

• Another market-based approach goes a step further by requiring all agencies or jurisdictions to purchase certain services from an outside source. Consider, for example, a metropolitan area with 100 municipalities. Instead of taking away the autonomy of these 100 city councils through consolidation, what if legislation provided for only five police departments, none run by one the municipalities but operated under the oversight of a single public body not part of a municipality. Each city council could have the power to contract with the police department of its choosing. If it found itself dissatisfied with the service, it could contract with another. That way, there would be five police organizations instead of 100, but local control could be exercised through choice.

• Consolidate administrative structures while allowing governance bodies to remain independent from one another. For example, geographically proximate cities could capture many of the advantages of consolidation by forming co-ops to deliver a wide range of municipal services.

Let's get realistic about the advantages and the pitfalls of consolidation. That can lead to better ways to consolidate or to alternatives to consolidation that better achieve the intended purposes.

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