Adversity Or Opportunity? Pt. 1 Of 3

Reductions in revenue, debt access limitations, and employee retirements are all factors in our current public sector economic environment that have come together to create a perfect storm.  Some refer to this as “synchronized sinking.”  This is Part 1 of a three-part series discussing the effect of our current environment on public sector organizations.  In this series, we will discuss how these factors, which individually are manageable, will quickly become problematic as a trio.  We will discuss specific mitigation strategies to assist in navigating this perfect storm.

Due in part to the lingering worldwide economic crisis, public sector organizations at both the state and federal levels, find themselves with a rapidly shrinking pool of resources.  Unfortunately, at the same time, their constituent base is increasing demands for accountability in delivering high quality services.

At the spring meeting of the National Association of State Budget Officers, speakers from both Moody's and Standard & Poor's stated they expected little to no change in our current economic slump for at least another several years.

Debt default is a reality investors no longer take for granted.  Local and worldwide economic conditions will negatively impact virtually all revenue-generating sources for public entities such as sales tax, fees, property taxes, etc... Governmental organizations can no longer continue to use debt as the answer to every revenue challenge.  The reality of an upper limit to the amount of debt and financial risk a sovereign nation, state, or local government entity can sustain has been proven by a number of European countries.

In addition to revenue and debt challenges, another storm has been looming on the horizon.  Over the next several years, the flood of public sector employees retiring will undoubtedly magnify the current challenges facing federal and state organizations.

Public sector pension reform is likely to be on most of the short lists of budget control opportunities and will likely increase the already high exodus rate of public sector employees over the short term. Many agencies are expected to lose 20 percent or more of their work forces this year.  To make matters worse, many public sector organizations are being forced to pick between multiple evils to balance their budgets.  Pension obligations are a significant and growing component of every public organization budget.

I would argue now is the time for bold change.  This year may be the best opportunity in decades for transformational process improvements within public sector organizations. A fundamental concept of Lean is inefficiencies and waste are a result of processes not the people.  I have interviewed people across many federal, state, and local public sector organizations, and I am convinced governmental organizations are full of smart and energetic people stifled by ineffective and inefficient processes.

There are many tools available to provide guidance and predict risk during transformational change. These tools include: kaizen events, value-stream mapping, and predictive modeling, amongst many other time-proven and hardened tools.

Beginning a meaningful transformation this year will enable your organization to weather the retirement storm.  In part two of this discussion, I will provide insights on how to select and use tools to achieve meaningful and sustainable transformations.

- By Kent James, Principal