Andrew Jepp 10 November 2010

Managing the cuts – a long-term perspective

Facing a tough financial environment, local authorities must now deliver more for less – but also minimise the impact this strategy will have on both residents and council staff, as Andrew Jepp explains

Last month’s Spending Review clarified what, for many local authorities, was a worst fear. More than £1bn off the overarching CLG budget, an estimated 750,000 public sector job losses, and spending down – with the added twist of front-loaded phasing, which will increase the challenges ahead.

Now, senior teams are taking stock, reprioritising, and preparing to implement the unavoidable changes that will come from reduced funding.

In research we conducted for our latest report, Tough choices: Different perspectives on the long-term risks facing the public sector and wider civil society*, it was clear that the question on the public’s lips was, What impact will these changes have?

Some of the biggest fears highlighted in our report were that the quality of local public services would decline (44%), or that services to vulnerable groups could be compromised (33%). Worryingly, almost half (48%) of consumers felt that organisations across the public sector would not be able to respond to the challenges they faced.

So, perhaps the question local authorities need to focus on is, not only how to deliver more for less but, specifically, how to minimise the negative impact of this conundrum – internally as well as externally.

Two-fifths (41%) of local authority executives we asked felt that workforce management was an important risk.

Funding cuts were already leading to redundancies but it was important that staff cuts were not made in response to short-term pressures, to the detriment of future challenges.

Setting a depleted staff the challenge of achieving the same or better services, potentially on lower pay, is a recipe for discord. Equally, stripping numbers could also mean stripping skills – yet those same skills, even if they seem less important today, may prove vital at a future juncture.

Voluntary redundancy programmes, while desirable to staff and unions, often result in loss of key skills and retention of the wrong people.

At the same time, staff commitment will be affected by how people see their colleagues treated through the process, and the leadership values demonstrated during change will shape the culture for years to come.

Cuts are being made over a four-year period, meaning there will be a constant threat or even expectation of more and more cuts, creating an environment of fear for staff. Managing morale will be a real challenge and, more than ever, will require leadership of the highest order to hold the organisation together to deliver against a common purpose.

Poorly-managed staffing issues, as well as impacting delivery, also threaten to damage the council’s reputation, alienating the public at exactly the time when their support and understanding is necessary.

A total of 71% of council leaders we asked believed reputation was an important risk, and issues such as low staff morale could influence reputation, especially within smaller local communities, where the same people who were losing jobs within the council might also experience cuts to local services.

Our experience has shown us that the holy grail of implementing change, on any scale, is making sure people understand the bigger picture and feel that their views are taken into account.

Leaders who share a compelling vision, who listen, and honestly explain the benefits of what must be done, will be best placed to avoid workforce issues derailing their strategy. Indeed, one of the key findings of our report was the importance of viewing all decisions as part of a bigger, longer-term picture.

Inadequately-handled workforce issues may also lead to strike action, which can severely impede service delivery, and reputation. The significant place of unions in public sector organisations presents a special challenge to CEOs, as they often combine a representative role and a political agenda.

The leadership response may need to be a flexible combination of tough management and creative solutions, putting effort into communicating directly to staff to win hearts and minds, and create the environment for successful change.

Equally, making sure those affected are actively involved, rather than being kept at arm’s length, can pay dividends – many people are at their best in a crisis and can often be expected to rise to a challenge.

HR can support managers in implementing workforce changes, but must never usurp the managers’ responsibility for the daily engagement of staff. All managers must embrace their role as people leaders, and HR can help them by giving them the authority to match rewards to performance, while flexible benefits and total reward programmes can enable staff to maximise value by tailoring their package to their lifestyle needs.

The role of the HR function itself is crucial. It needs to be clear on the distinction between low-cost, faultless delivery of its core services, its role as a strategic partner shaping the leadership and performance culture of the organisation, and the need to have the organisation and skills to accomplish both.

The challenges facing local authorities, and the rest of the public sector, are not small – and the costs of failure are high. While they may seem overwhelming, many of those challenges and their associated risks are manageable. Moreover, they also offer opportunities for successful transformation, but only for leadership teams which consciously evaluate the risks they face, assess their strengths and create the capabilities they need.

Tough choices: Different perspectives on the long-term risks facing the public sector and wider civil society was developed by Zurich Municipal and Ipsos MORI. It is available to download at www.newworldofrisk.com.

Andrew Jepp is director of public services at Zurich Municipal

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