Thursday, 3 February 2011

Why Efficiency Doesn't Work!

Of course, the title is a misnomer in that efficiency can and does work. Or at least, it works in the sense that we can always find better ways of working, means of achieving better outcomes for the same or less resources. Design innovation, lean systems thinking and a host of other methods have been proved to yield significant results in terms of delivering more for less. And few things can be more important in the current economic climate than achieving these kinds of benefits.

All too often however, problems occur when translating ideas from the drawing board (or flip-charts and post-it notes) to the live environment. Redesigns that yield substantial efficiency gains on paper fail to translate into practical savings, and one of the major reasons for this is organisations' budgeting systems. It's a factor that most affects the public sector, because their need for financial control and accountability means that rigorous procedures are in place, and in short 'the accountant is king'.

The following diagram illustrates the problem graphically. Services organisations are traditionally structured on a functional basis, whilst it is well known that customers often cross the whole organisation experiencing each of the functions as they progress.

The lean service approach takes this customer perspective and redesigns the end to end process to minimise duplication waste and overlap. However, without a total restructure of the organisation, those same functional areas are still in place, and budgets remain allocated by these functions rather than by the process as a whole. The budget holders -those with the real power - can be viewed as sitting at the top of those functions and retain control of their part of the process rather contributing to the big picture.

The result is resistance to change, partly because the finance system has no means of attributing end to end cost savings between functionally based budgets, but also because of a natural reluctance by individual budget holders to relinquish any part of their empire - "You can't do that, I'd lose half of my staff". Just to prove that the problem applies to private organisations as well, check out the following cartoon exchange, between Dilbert and his spiky-haired boss.

Sadly some people don't find this funny because it's too close to the truth.

Budgets are the enemy of efficiency because organisations so often budget by function rather than by process. To be fair, some glimmers of hope have appeared in recent years where pooled budgets (for example between health and social care) have given commissioning organisations the opportunity to review service provision on a much wider basis and fund it accordingly. But sadly these examples are all too rare (and might even have to be re-learned when GP commissioning comes in). What we still see, despite everyone saying that the scale of public expenditure cuts demands new and innovative responses, is the same of approach of top-slicing budgets. "Our income has reduced by x%, so we'll take x% off everyone's budget". It's an approach being applied now for the same reasons it always has been - because no one can think of a better way to do it.

Sadly, I'm pessimistic about our prospects of most organisations achieving real change in this area. Their historically-based budgeting systems have become so sophisticated and ingrained over many years that changing them is about as easy as turning round and oil tanker. There is hope though, for those organisations that 'get it' and appreciate that real improvements are not achieved by compiling detailed reports, but by changing the way the organisation thinks. It's only by doing this that they can move to a position where outcomes - not people - own budgets and hence where efficiency really can work.

Check my web site at for more information and ideas.

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