turnaround techniques

News Flash: The Federal Government is “Out of Control”

by tomgray | on Feb 16, 2012 | 2 Comments

Boston Bruins goaltender Tim Thomas refused to attend the White House ceremony for his team as Stanley Cup champions because the federal government is “out of control.” Who knew? Of course, we all knew.

Thomas did not define what he meant by “Out of Control,” but we can easily do that for him:

  • Too costly: growing faster than the underlying economy that must pay the bills.

Federal spending grew by $1 trillion (35%) since 2007, yet GDP is lower in 2011 than 2008. Spending exceeds revenue by $1.1 trillion or 42%. No serious effort has been made to reduce costs. No budget has been submitted for three years. The President supervises more than 20 direct reports. Government continues to grow.

 

  • Too distracted: focused on side issues rather than the main concerns of the population.

Polls show the priorities of the population are jobs, economic growth, mortgages, and government debt. 88% of federal spending is in defense, healthcare, pension/Social Security, welfare, and interest. Yet government has been working on temporary subsidies, raising taxes, increasing healthcare costs, funding inefficient energy sources, and regulating the financial sector.

 

  • Too intrusive: issuing more new regulations than perceived to be needed.

4200 new regulations are in the pipeline, according to the Federal Register. Its page count grew 20% from 2009 to 2010.Agency budgets are up 16% and agency employees are up 13% since 2008, while private employment fell 6%. Rule-making is a growth industry!

 

  • Too arrogant: government solutions are the first resort; market solutions and individual responsibility cannot be trusted.

Free healthcare guarantees excess consumption. Sarbanes-Oxley compliance costs increase prices and divert profits from shareowners to accountants. Interest rate controls damage pension plans and retirement investments while they reduce the lending that could support business growth. Ninety-nine weeks of unemployment insurance and other foolish subsidies distort job markets, energy markets, the housing market, etc.

 

The parallels to a distressed business are obvious to turnaround professionals: costs out of control, management working on the wrong priorities, and incompetent management too arrogant to change. The only classic symptom missing is a cash shortfall; foreign lenders continue to finance the US government.

 

How would turnaround professionals attack this problem? What business techniques can transform an “out of control” government? Comment with your ideas, and see them in the next part of this series.

 

Tom Gray is a management consultant focused on small business and telecom and a Certified Turnaround Professional (CTP). He can be reached at 630-512-0406 or tgray@tom-gray.com. For information on the scope of Tom’s activities, see www.tom-gray.com.

 

 

Turning Around a Government “Out of Control”

by tomgray | on Feb 16, 2012 | No Comments

Turnaround professionals have the business techniques to turn around our out of control federalgovernment (see News Flash: The Federal Government is “Out of Control”), but the government we have today is missing some key elements to make those techniques effective (see Turnaround Techniques for “Out of Control” Government). Finding those missing ingredients is not so hard. The real challenge is electing enough officeholders with the will to put them in place!

Here is a turnaround plan that provides the missing elements:

1. A Vision consistent with the values of most citizens, and fitting the competencies of the federal government:

  • Equal opportunity to succeed without undue government interference in our lives.
  • Preference for relying on individual responsibility and market forces to achieve desirable outcomes, with government action (subsidies and favoritism) being the last resort, not the first.
  • A society marked by economic growth based on effort, innovation, and competition; equal opportunity; respect for the individual; a safety net for the truly poor; and a government limited to doing what it does best and living within its means.

 

2. Clear goals for the elements of the Vision. Examples include:

  • Percentage decline in government regulations
  • Government spending as a percentage of its receipts

-  Note: a 30% spending cut is needed to match receipts in 2012.

  • Government spending as a percentage of GDP
  • Unemployment and inflation percentages
  • GDP growth rate
  • Percentage of government spending dedicated to redistribution and subsidies
  • Others consistent with the Vision

 

3. Strategy designed to achieve the Vision and Goals – in writing to enable public progress review

 

Process: The Strategy would be published 100 days after the Presidential election; the budget would be submitted to Congress 60 days later; annual State of the Union speeches would be supplemented by a written progress report on achieving this initial strategy and goals.

 

Given the Vision proposed above, some obvious Strategy elements are suggested below:

  • Provide healthcare, social security and welfare only to the truly poor: 15 to 20% of the population. For the rest, tax credits for private healthcare insurance would decline with income.
  • End subsidies and other “state aid” to corporations
  • Privatize government operations, introducing competition to provide such services wherever possible. For the Post office, see Turning Around the Post Office (USPS) Requires Privatization. Proceeds from asset sales would be used to pay off debt.
  • Federal workforce: freeze wages, benefits, and headcount; require partial payments by employees to pensions and healthcare; introduce bonus incentive system for above average performance on strategic activities only.
  • Defer overhaul of the tax code until the effects of other strategic activities can be seen. Only then can the revenue goal be determined – perhaps no new revenue will be needed. Once tax overhaul begins, all other strategic activities will halt.

4. Motivation Tools

Once there is a clear strategy to work toward, motivation will shift from pleasing the boss (re-election) to achieving that Vision and strategy, if it is inspirational. Those government employees who contribute the most deserve to be rewarded the most, if the goal is not equal outcomes but equal opportunity. Revising Civil Service rules to enable performance bonuses for achieving strategic annual objectives would introduce incentives for excellence to the federal workforce.

5. Manager for Implementation

In other organizations, the CEO is responsible for Vision, Strategy, and external relations. Often, there is a COO responsible for operations. The President is the CEO of the federal government. He or she is also the COO, with more than 20 direct reports including 15 cabinet departments plus those in the “Office of the President”. We elect Presidents for their vision (CEO), not for their executive management skills (COO). Yet their duties require them to coordinate operations over a huge span of control. The advisory role of the Office of Management and Budget does not solve this problem.

The above Strategy places even more importance on Operations, due to the fundamental changes it calls for. Who will make these happen within the Executive Branch? Perhaps there is a role for a COO supervising the operational functions of the Cabinet departments, while the Cabinet secretaries supervise the policy functions of their departments. Such a COO would drive privatization, asset sales, reorganization, and workforce initiatives such as headcount freeze, compensation, benefits, and incentives. He or she would be the one to “control the checkbook.”

Are these effective turnaround techniques for an out of control government, i.e., if implemented, would they work?

Tom Gray is a management consultant focused on small business and telecom and a Certified Turnaround Professional (CTP). He can be reached at 630-512-0406 or tgray@tom-gray.com. For information on the scope of Tom’s activities, see www.tom-gray.com

 

US Post Office: A Turnaround Candidate?

by tomgray | on Jan 02, 2012 | 1 Comments

The United States Postal Service (USPS) is technically bankrupt, with liabilities exceeding assets by $14 B in 2010. It might be entertaining to speculate on how we could apply private-sector turnaroundtechniques to make lemonade out of this lemon!

In 2010 USPS lost $8.5B on operations including a $5.5B payment to pre-fund retired employee health benefits. Its borrowing capacity, limited by law to $15B, will be reached this year.

First class mail, which represents about half its revenue, has fallen by 45% since 1998 and 19% 2010 vs. 2007. From 2009 to 2020, it is expected to fall 37% more. At that point, unless things change, the Postmaster General (USPS CEO) expects an annual loss of $238B on operations! So what is USPS doing to offset this decline in its core revenue?

The law says it cannot introduce new products unrelated to delivery and shipping. The law says it cannot raise stamp prices beyond an inflation-based price cap. The law says it must deliver 6 days per week, to every mailbox in the country: 151 million, growing by ¾ of a million annually. The union contracts provide for above-market wages and benefits growing much faster than inflation, and these are 80% of costs.

With volume spiraling down and revenue options limited, management has addressed costs: automation to eliminate the jobs of these expensive employees, and asking for approval to close about 12% of the 31,000 post offices in the country and eliminate Saturday delivery. Naturally, it would also like to increase postal rates.

On the plus side of the ledger, USPS has an infrastructure that reaches all of America. What could it be used for? In other countries, the Post Office sells financial products, operates banks, and charges higher postal rates. In some other countries, the government decided to privatize the Post Office, selling it to private interests and using the proceeds to retire debt. Could that work here?

Might one spin off just the delivery part (with most of the people), and keep the sorting/shipping infrastructure as a wholesale backbone? If the delivery function was privatized, would there be one delivery entity per city, or one for the country, or seven regional entities like the AT&T breakup, or would the number of delivery entities be unlimited to foster competition? Is it better to spin off both delivery and backbone, but do so separately? Would the USPS delivery assets be auctioned, or assigned to successors? What about the employees? Would the bankruptcy process be used to void union contracts or retiree health benefits in this process? Could bankruptcy be used by an “independent agency of the executive branch” which is not a company? Would the feds keep a “golden share” to ensure that the public interest was protected?

Or should the USPS sell access to its monopoly, that is, allow others to deliver or stuff documents into to mailboxes marked US Mail? Or should it just shed employees by changing to a pickup rather than a delivery service, with delivery available for an extra fee?

What about it, turnaround experts? How would you use turnaround techniques for a technically-bankrupt USPS?

Tom Gray is a management consultant and Certified Turnaround Professional (CTP). He led the Ameritech team in negotiating the privatization of Belgacom, the Belgian telephone company. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com