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,

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Creative destruction? What will reform do for local government in Auckland?

Oops, there goes the labour market

1,200 job cuts to save city $66.5m announces the Auckland Transition Agency.

Hooray!  The reforms of local government in Auckland have delivered.  Haven’t they? 

Well maybe not.  We are witnessing the destruction of the local government labour market in the region.  Labour mobility is the stuff of active, engaged organisations.  It promotes productivity.  It attracts talent, keeps people on their mettle, and enables them to find the positions that might best fulfil their potential.  It generates competition for jobs.  It avoids the institutionalisation of poor practices and keeps unions at the negotiating table.

Once a labour market loses flexibility, once positions become entrenched, organisations falter.  When seniority depends on vertical progress  and promotion and rewards reflect length of service, individual ability no longer determines who does what.  Organisational performance suffers.  When labour markets deteriorate, it is hard to attract the best people to the positions that do come up.  Second, third, or fourth best becomes the best available.

All this is particularly true where there are monopoly providers.  It has been the mark of sunset industries – their decline sometimes punctuated and accelerated by the desultory coupling of the fading dinosoars that dominate them .

So why would central government want to engineer such an outcome for local government in Auckland?  The replacement of eight councils with just one will go a long way towards destroying what was a reasonably healthy labour market.  At the heart of the reform is the carving up of middle management, accompanied by a somewhat frenetic programme of placement of the survivors accompanied by a reduction in working conditions.  What possessed the Auckland Transition Agency to take such a negative approach to the quality of local government in Auckland? 

The decimation of middle management which has been trumpeted as an achievment is particularly puzzling.  Middle management is the glue of large bureaucratic organisations.  If it had been a problem in Auckland’s governance, then the obvious response would have been to create smaller units of government, more aligned with their communities and less reliant on paper shufflers.  Instead we have one much larger one.  This one council will be responsible for the economic, environmental, and social governance of a metropolitan region of 1.4m people - and growing (for the moment).  It will also have to provide policy and oversight for a number of council owned service delivery corporations.  Experience demonstrates that, for better or worse, middle management is the glue needed to hold such a large, multi-functional organisation together.

The new council will also face a major issue of internal alignment.  It will need protocols  - meetings, communications , rules and roles to ensure that the right hand knows (and goes along with) what the left hand is doing.  From working with government and non-government organisations throughout New Zealand and Australia it is obvious to me that bigger, more diverse organisations have to commit relatively more time and resources - and managers - to these inward-looking matters. 

The adoption of a matrix structure around functional or professional specialisations on the one hand, and localities, on the other, will make even even more management demands . 

The current shakedown is another reflection of the flawed logic of the  restructuring of Auckland’s governance and of a process that has been too rushed.  It is not a reflection on the people who have lost their jobs, or those who have chosen to go elsewhere , or those who have been shuffled into a position they would rather not have for a lesser reward. 

It all looks a little pointless, too, when the loss of 1,200 local bureaucrats no more than offsets the gain of 1,200 more central government bureaucrats  in Auckland between 2006 and 2009.  Its just half the 2,400 added over the seven years to 2009.  Central government already employed 30% more people than local government in Auckland .  (These figures do not count the "doers", though, such as teachers, police, justice and hospital staff, people in arts and recreation, or in council controlled service organisations). 

If nothing else, this latest announcement confirms the push towards central government ruling the Auckland roost .  In fact, central government has just anounced its very own Auckland Policy Office (cementing in an ad hoc assemblage of mini-departments that slipped into the region several years earlier). 


Perhaps we could do away with local government altogether?   Well, no, not if we value democracy.  Local offices – and local officers – are fonts of local knowledge.  They have the networks and experience to respond to the community because they know the community. 

They can address infrastructure shortfalls or failures based on an understanding of what went before and what is expected in the future.  Councillors, and through them council managers, are immediately accountable to their communities in which they invest and operate locally.

The new Auckland council might get up to speed on the detail of local circumstance over time.  But there will be costs in doing this, costs which would be lower if it could just hang onto the knowledge and expertise of current emloyees. 

Paradoxically, cutting middle management in this instance may may reduce productivity.  Starting out with a lean management structure may simply require operational employees to participate more in internal management, reducing their capacity to get the real work done.  Getting Auckland moving under the new regime is going to be a long and potentially costly haul.  Cutting the legs out from under it is not necessarily the best way to get started. 


Not all may be lost though.  There is a burgeoning legion of consultants in Auckland.  Having doubled over the decade their numbers about to be further inflated by the newly redundant.  They will fill some gaps and help get things done – at a cost.  This will be necessary because it is unlikely that a council organisation of the scale and structure about to be unleashed on Auckland will be able to do the job without consultants, even if many  turn out to be former employees of the old regime.  But, of course, it will require an investment in middle management for the new council to manage them effectively!

Saving $65m?  Let’s wait a while, and then balance that number against the long-term costs of the reform.  If we look back in three or four years we may just see that we have scored an own goal.