Centralisation! You Know It Makes Sense.

(I’m hoping you heard the irony in the title. There is a lot more to follow. There is also a combination of doubt mixed with some cycnicism. )

I can’t help but notice that the centralization (a merger of the Department of Social Services and the Department of Human Services) and efficiency charge is on with the new Australian Federal Governments agenda. Corporates and Governments of all political persuasions love this option and it is the easiest (to argue) of the ‘restructuring’ initiatives to take when putting a stamp on something. In fact it has been popular since prehistory when some alpha male (note the gender bias here) discovered the benefits of ‘power’. And big consultancy houses love to advise it.

Get The Consultants: It all goes something like this! Let’s join two big departments (businesses) to create a more efficient (profitable) super Department (business) and then implement a single Information Technology system for one big place. That’s got to work! When has designing and implementing one big computer system ever been harder than doing two smaller but still very big systems? One bigger system just has to be easier to control, require less staff, reduce duplication, and reduce development costs for a computer system. It’s just so ‘rational’ I could virtually write the proposal myself however I’m a small independent consultant when what is required is a reputable, expensive, brand name, preferably international consulting group (because that has to mean they are independent) to tell you this. And in no time at all, armed with late 20-year-old MBAs from good universities, they will interview a lot of people, get a huge portfolio of metrics and find a bag full of efficiencies to be realized. And they can help you define the system requirements, architecture, and development strategy (+) for a not inconsiderable fee. Sensibly they will choose to exit before everything gets too close to delivery. Any mess should be somebody else’s fault. If you ignore the consulting fees and the redundancy packages the early signs will no doubt be good if you report them correctly.

Overused: Centralization and efficiency are two of the most persistently used and abused ideas in society, particularly the modern industrial corporate society. They almost need no introduction. They just seem so deeply and compellingly rational – always. Especially if you are placed about where the center of power will be. It is almost impossible to tell when these ideas are nonsense. Almost! This is despite the bureaucratic logic that runs counter to our neo-liberal philosophies of economics, the marketplace, competition, and choice. Yet at times they most certainly are nonsense and I have put them together (mergers, centralization, and efficiency) here because these ideas tend to run through the mind as companions. In fact, they often run around with a lot of companion ideas – standardization, process redesign etcetera. It’s compelling (Mergers and acquisitions deserve there own space and so a topic for another day).

The conclusion is: Be very wary if the big idea is efficiency and merging already big organizations, centralizing management and having one great big integrated computer system. It could work but there is more likelihood of failure. The ideas are more attractive from a distance. If there is an estimate for the development of the system then double it and add 50%. And then it won’t work the way it was specified. (For a local case study, that is local for me, look at ‘Shared Services’ for the Queensland Government.)

The difficulties with the ideas are easily found. Centralization very often leads to inefficient, slow decision making (bottlenecks), inadequate information for decision making (despite more information collected), under-resourcing of the organization’s periphery, over-resourcing of its center and bypassing actions by remote staff where the poor decisions don’t make much sense. Layers of management can easily increase while responsiveness to clients declines. It’s simple really. Big organisations are clumsy and important things don’t get paid enough attention. I haven’t even mentioned the problems of mega computer systems – problems  like over-specifying the features and benefits. I could go on but the response sooner or later will be to decentralize. And so the pendulum swings. Cut out layers of management, encourage personal responsibility  …. but maintain control (keep a close eye with onerous reporting systems 🙂 )

Efficiency is great but does require balance with ‘proficiency’ etcetera. This is often overlooked. Poorly managed efficiency drives have the potential to dampen and even kill innovation. But it can get even worse. Cost cutting in the wrong areas often erodes the competitive advantage of the enterprise making it less differentiated and more price focused. That’s a sad position for a lot of companies as it means even more cost cuts and efficiency drives as price becomes the competitive focus. But experience with the public service suggests efficiency is only rarely a priority for the policy and central administrative managers. Yet efficiency will be ruthlessly exercised on the public service operational arms where they exist. In other words, the hospitals will be screwed for productivity and reporting while health department bureaucrats run flabby indispensable departments (that often choke productivity with processes or paperwork ). Now there are some reasons for this flabbiness that has as much to do with politics as efficiency being a lower priority. (See Ministerials! Every public servant will  know what I mean.)

While a lack of trust can be a driver for centralization (and cost reduction a driver for efficiency) there are other psychological variables at play in the decision making. Even knowing the risks of centralization won’t stop relative newbies as hubris or at least inflated egos play a role. Armed with ‘knowledge’ the lead group will progress in the belief that they can manage the difficulties better than others before them. In part because they believe they have insights and expertise the people before them did not … just add leadership, good project management, risk identification, change management etcetera and it’s in the bag.

On the other hand, if the first decision is a bad one then expect more bad decisions to follow.

So, good luck to the Australian Government with the super department and perhaps we should take a closer look at topic of Mergers and Acquisitions. They share a lot of the same deeper underlying rationalizations.

Peter O’Reilly ©

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