Much has been written about the political positioning of the budget – including claims by commentators that it turned the screw on the rich and the banks and scattered sweeteners for first-time home buyers and pensioners. As we’re not political strategists but business and organisational strategists, we’ll leave the political commentary to the experts! In this blog, we focus on the significant organisational challenge of cost reduction in the public sector.
So what is the scale of the challenge for cost reduction? The Institute for Fiscal Studies estimates that departmental spending – the discretionary part of government – will be reduced as a share of national income from a peak of more than 25% this financial year, to 21% by 2013-14.
By 2013/14, public sector capital spending – money set aside to build military facilities, hospitals, schools, roads and railways – is planned to be about £15bn lower than budget 2008 figure. Of the total cuts, £3.5bn of savings comes from capping public sector pay at 1% from 2011, and further £5bn of cuts have been specified. However, a further £23 billion of current spending cuts remain to be outlined in detail.
It appears that of the £66bn in total savings targeted for 2013/14, more than half – about £38 billion – remains ill defined. This incorporates £23 billion of ill-defined current spending cuts and £15 billion of ill-defined capital spending cuts. Economists generally agree that this lack of specificity was the weakest part of the budget presentation.
Mr Darling says that spending plans from 2011 will be “very tough – the toughest for decades” but he has not outlined how this will affect public services except to say that labour will “protect spending on those frontline public services on which we all depend”.
So what can leaders and managers within Government do to preserve critical front line services and those critical capabilities needed to meet their objectives? A process gaining more attention within the public sector begins with identifying the strategic asset base. The idea of a strategic asset base is a relatively recent development in strategic thinking based on a resource-based view of organisations.
Strategic assets are essentially those critical attributes that enable an organisation to achieve its goals. Once strategic assets have been identified, consideration can be given to which assets should be protected, leveraged and enhanced, and the best means to do so. Management can then be confident in what to change, what to change it to, and also what to leave alone.
Based on these insights, managers can approach cost reduction, or capacity development, in an informed manner. A shared understanding of the core value activities, and those who perform them, helps to identify the key interactions between activities that could feasibly be eliminated or outsourced.
Preserving front line services in light of the imminent budget cuts present a significant, if not unprecedented, management challenge. Our recent experience suggests that an approach based on an understanding of strategic assets, a relatively new advance in management practice, is needed to help rise to this challenge.
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