Greed is Good

Last fall I had just completed a workshop about the concepts in my book We Don't Make Widgets when I was approached by one of the participants. She said, "Look, I get where you are going with this: We do have widgets and processes; we have customers; we should try to improve our operations. But" -- and I knew exactly what was coming -- "you just can't run government like a business."

In my most sympathetic voice I said, "I understand your feelings. When you say we can't run government like a business, which aspect are you are most concerned about?"

Her body then contorted and convulsed, like someone who's been told they have a bug on them. "Businesses are so ... so ... greedy," she said. "All they care about is profit."

"Exactly," I replied. "Now imagine if we were as greedy about profit as the private sector. How great would that be?"

The look on her face said what I've heard a thousand times: "We're not here to make a profit." Except that we are. It's just not measured in dollars.

In the private sector, the performance outcome is obvious -- money. We in the public sector are here to achieve a profit also, but it's shown in the form of results. As I contend in my book, the purpose of any organization is to maximize return to its investors by building better widgets for customers in more efficient factories. Investors? ROI? Customers? Have I lost you? Let's step back.

One of the classic misperceptions we have in government concerns the role of taxpayers. Quite often, we think of taxpayers as customers. But are they? Let's check this out. Would you say Apple's shareholders are its customers? The answer is, it depends. If you look at the graphic below, you see the typical business structure. A business has investors. What do investors want? The maximum return for the least amount of investment. The investors then get together and democratically elect a board of directors. It is the job of the board of directors to ensure that the investors' resources are being put to their best use -- that is, they are maximizing profit. The board hires a CEO to carry out its wishes. Underneath the CEO are business units and inside the business units are where the "widgets" are made for customers -- in this case MacBooks, iPods, iPhones, etc.

So to repeat the question, are Apple's shareholders its customers? No. They are investors, and investors want maximum return for minimum investment. Apple's customers are the people who buy the iPods, MacBooks, and songs from iTunes. If you were an investor in Apple but never bought an Apple product, you would not be its customer. Investors want profit; customers want widgets that are fun, easy to use, reliable and cool. These are totally different roles and expectations.

Now, why am I talking about Apple so much? Because this exact situation applies to taxpayers and government. What role do taxpayers play? Taxpayers are investors. (Granted, they are investing against their will, but work with me here.) What do investors want? Return. More specifically, the maximum return for the smallest investment possible. What is return in government? It's not dollars -- it's results. Clean air, safe neighborhoods, a thriving economy, educated citizens, healthy children: those are the outcomes of government, our "profit."

The graphic above completes the analogy. As investors, the taxpayers democratically elect a board of directors (a legislature, a city council) to manage the investors' resources to maximize return. Underneath the board is the CEO (a governor, county executive), and underneath the CEO are business units (departments, divisions, bureaus) where the "widgets" are made for customers. In this case, the widgets are building permits, mental health treatment plans, road and bridge designs, tax refunds and so on.

Which brings me back to my recoiling class participant and her fear of corporate greed. Businesses are greedy. Yes. And just like Gordon Gekko said in the classic movie Wall Street, greed is good. When a corporation makes money, lots of people benefit. Sure the shareholders benefit, but so does the economy. A moneymaking enterprise hires people, pays taxes, funds schools and develops the skills of the workforce.

The same holds true for government. When government agencies achieve results -- when we are greedy about our profit -- lots of people benefit. Our greed changes lives, builds communities, transforms families, revitalizes cities, safeguards the environment. And just like in business, our "board of directors" (the legislature, city council, etc.) has a moral obligation to put tax money where it will best yield these great returns. To continue investing money in a losing enterprise -- a program with no demonstrable results -- squanders precious capital that could be used productively elsewhere.

In short, we do not run "not-for-results" agencies. Recognizing that we, too, are profit-making enterprises helps us to focus our attention on results, communicate our value to our investors, develop innovative ways to get more profit, and share our profit with our employees (stew on that one for awhile).

I'll leave you with the immortal words of Michael Douglas' Gordon Gekko. (Most people forget the second half of his speech.)

What is your organization greedy about?