The Sweet Spot in Sour Times

When times are tough, politicians and managers have the cover to make hard choices.
by | November 1, 2008

A crisis," says Michigan's Governor Jennifer Granholm, "is a terrible thing to waste." Of course, if you're Governor Granholm, you've had a lot of experience with crisis lately. But almost all state, county and local leaders are familiar with the phenomenon in one way or another. In these economically challenging times, sophisticated managers see opportunity.

"The fiscal problems force hard choices," says Chris Hoene, director of policy and research for the National League of Cities. "A crisis forces people to look for different arrangements for how they deliver services. When times are tough, the politicians have the cover to make hard choices."

Four years ago, when Iowa's economy was going from bad to worse, the state underwent a thorough management transformation. "When people in crisis are expecting action," Tom Vilsack, who was governor at the time, told us, "they're not as critical about what you do as that you do something. The worst thing in a crisis is inaction." Vilsack's advice is to act decisively, then evaluate whether those actions are working -- and be in a position to modify as necessary.

More recently, Minnesota's difficulties in balancing its budgets have led to long-awaited change. For years, management leaders in the state had been advocating a merger of the state's department of human resources and its finance department. A combined department made a great deal of sense, but union leaders feared that jobs would be lost. Meanwhile, each unit had its own sense of mission, which some feared would be surrendered if they became one. So talks of a merger bogged down over and over again. Then, when the state confronted a multibillion-dollar budgetary shortfall, union leaders and legislators discovered a sense of urgency. The merger was completed earlier this year.

There's a lesson here, says Lawrence Jacobs, who heads the Center for the Study of Politics and Governance at the Hubert Humphrey Institute: "Just having an idea that's ripening and a strong leadership that wants to see it happen isn't enough. You need to have a broad opening in the political and policy process." There's nothing like the potential for significant service cuts and personnel layoffs to create that kind of opening.

Similar examples can be found elsewhere. New York City is considered to be a well-managed city today. But insiders continue to attribute some of the more significant management upgrades to the fiscal crisis in the late 1970s, when New York teetered on the edge of insolvency and hard choices were made. Similarly, Phoenix has been cited as a model of good labor relations. But most of the elements that make that the case were created in the 1970s, when terrible relations with unions led to sanitation slowdowns, "blue flu" and other manifestations of massive mistrust on both sides.

Sadly, if management improvements are the silver lining around dark clouds, there can be still more clouds around the silver linings. Bad times can lead governments to make cuts that inhibit the kind of analysis that leads to future savings. In the early 1980s in Kansas, times were so terrible, recalls legislative auditor Barbara Hinton, that "nobody had the ability, nobody had the time to step back and think and evaluate and measure and adjust. So you ended up going from one crisis to another to another."

Moreover, when the pressure is on to find savings through managerial change, the easiest thing to do is simply take action, and promise results -- whatever the real likelihood of their actually coming to pass.

Bad times, in short, can be both a blessing and a curse for good management. "Tough fiscal times can sometimes bring actions that smother creativity," says David Ammons, a professor of public administration at the University of North Carolina. "Governments may take steps to increase top-down control or limit the discretion of operating managers. They may manage the crisis not by careful strategic moves but by hiring freezes and across-the-board cuts. That's the risk in times of crisis."

With all this in mind, it's pretty clear that crises can lead to managerial improvements -- but not all by themselves. If that were the case, we'd be on the brink of a new golden age.

A number of other factors have to be in place. Among those that Jacobs ticks off are an appropriate understanding of changing demographics, strong leadership and the intelligent use of technology. And although Jacobs doesn't mention this, we would add that there also needs to be a good measure of good luck.

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