Thursday, October 28, 2010

Avoiding scelrosis in a super sized council

Is bigger better, or simply more bureaucratic?
Technically, bureaucracy is the rational response to size in organisations.  As organisations get bigger, particular structures and processes are needed to ensure equity and even handedness, and to avoid service failures .  Consistency and predictability become everything.  Quite simply, more and more resources need to be committed to internal management, including more managers of managers. 

As a result, large organisations become slow moving and resist change as internal relationships and established ways of doing things dictate their response to changing market conditions.
The ups and downs of organisational performance
This explains the widely observed U-curve describing organisational performance.  As they  grow organisations are initially able to reduce costs by increasing the volume of transactions – products manufactured, sales made, or services delivered – faster than they increase costs.  They do this by more effective use of people, machines, or distribution channels, by better buying, easier access to capital, and investing in machinery, people, and processes to improve how they do things. 
But at a certain point costs start to increase faster than transactions.  The specialisation of functions which helped achieve scale economies begins to get in the way of internal coordination.  Fixed costs -- in buildings, plant and machinery – increase and cannot be readily reduced to offset a slowdown in demand or stronger competition. Large workforces and long-standing labour agreements reduce the ability to adjust to changing circumstances.  At the professional and management level, silos emerge and internal communications can become a sticking point.
Organisational implosions - some industry examples
Consequently, if tastes change, new markets emerge or old ones decline, technology advances, or new regulatory rules come into play, large, bureaucratic organisations struggle to respond.  Smaller, more flexible organisations emerge to fill the gap.
I have seen this in a number of industries I have worked in over the years.  New Zealand’s meat processing sector is one.  The  forestry sector is another, international aviation yet another. 

The recent tribulations of the US automobile industry also come to mind.  Any long-established industry dominated by large organisations subject to changing external demands is vulnerable, with long-established brands and dominant players suddenly collapsing – or propped up by hapless taxpayers – as the world around them changes.

How to respond?
There are ways to avoid organisational sclerosis – but they don’t always work.  Matrix management is a complicated and not especially effective attempt to align external functions across internal divisions.  The creation of special project teams within organisations is another response, restructuring another.  These, though, may simply delay the inevitable.  Breaking up an overgrown organisation is the most common end point, voluntary or not. 
Diseconomies of scale in local government
It is widely argued that local government operates on a U-shaped cost curve . When we researched local government in the 1980s, the literature suggested that the optimum size for a council was one with a population of between 80,000 and 180,000.  The precise point depended on the range of functions and was difficult to pin down.  Maybe administering a population of 180,000, even 200,000 is a good guide for a maximum council size today.  [1]
Working with experienced local government management we established why this happens.  As councils have to deal with an increasing number of residents and businesses, they simply need more employees and skills.  They need more managers based on simple organisational precepts like limiting spans of control. 
As demands proliferate across communities, the range of specialisations required also expands.  Internal communications become a growing challenge.  Larger councils rely on increasing delegation.  This in turn leads to a reduction in the autonomy of staff and an increase in rules to maintain consistent outcomes - the classic bureaucratic response to scale. Initiative at the front line diminishes, and with it responsiveness and client satisfaction.  Constituents become further removed from representatives.  Senior managers operate increasingly through intermediaries.
Councils falling out of touch
This is born out by my experience working with councils throughout New Zealand.  In the economic fields, for example, large councils find out what is happening by commissioning reports – often from consultants whose role is to inform the analysts whose role it is to inform the managers whose role it is to inform the politicians. Politicians’ and managers’ external contacts are more likely to be with the secretaries of business associations, chambers of commerce, or lobby groups than with the people actually doing the business. 
By way of contrast, in smaller councils, politicians and senior managers sit down with local business people to discuss what is happening and what they may require of the council.
In community development, large councils commission reports, conduct internal workshops, and hold meetings with other agencies.  Staff who work well out there with the community come inside to become managers.  By contrast, the staff who work well with the community in small councils continue to do just that, work with the community.  Door knocking is their main mode of operation.
So what can Auckland City do?
So where does this leave the new Auckland unitary council, with a population going on for 1.5 million? 
There may be ways to avoid the premature ageing associated with the bureaucratic processes required to keep a large organisation on an even keel.  Key network, infrastructure and developmental tasks have already been hived off into Community Controlled Organisations. The challenge here is for the council is to take advantage of any efficiencies resulting while maintaining consistency of direction across these "external" silos as well as the traditional internal silos based on functional and professional affiliations.

While there is some hope that the spatial plan will provide a mechanism for cutting across the council's internal and external structures, it will take strong governance  to ensure that the service tails don’t wag the policy dog.
And what of the rest of the council’s functions, those that most impact on the quality of places within Auckland?  The key may lie in part in the local board structure.  How far will the council dare to delegate to local boards responsibility for defining and delivering the services appropriate to individual communities?  And how far might it manage to engage the communities themselves in their own governance? 
Creating a form of local government that can deliver services effectively from within the large council structure visited on Aucklanders by the recent reform is the challenge, both an organisational one and a fiscal one .  Failure to meet it effectively might well see the reform process revisited in the not-too-distant future.

[1]             The statistical analyses give mixed results because they are so context-dependent.  However, there is generally agreement that big is not necessarily better in local government.  See the work by Brian Dollery in Australia, for example,

1 comment:

Andrew D Atkin said...

To say, I think it could be interesting to see how the progressive development of the internet (and associated systems) might affect scale-optimums, via improvements in operational efficiencies.

With more standardisation with online communication formats, I could imagine smaller businesses developing improved efficiencies relative to bigger ones.