Consolidation: Incoherence, Failure and Patronage

Some strategic concepts, if they’re revered as untouchable, may lead us in the wrong direction. While the intent may be admirable, the results are far from it. Something of that sort has happened during the past several election cycles in Westchester County, New York State and even the Federal government.

Two of the most influential strategic ideas widely held in business, and intuitively appealing, are so seemingly sensible that they are very hard to abandon. Yet, these may be a very precarious route to follow.

First, is the premise that, when it comes to strategy, bigger is better. In business it’s believed that bigger is better and avails a larger company a more likely outcome of success in emerging markets. Many believe the chances of winning, in every region and every market segment, are enhanced by size. More salespeople, larger distribution footprints, bigger advertising budgets, more robo-calls — these would prove to be the ingredients for success.

The second misleading idea is that consolidation is inevitable. For years, experts predicted that most consumer goods would end up with just two or three big rivals, a handful of niche players battling over the scraps, and a few private-label brands for value consumers. On the Federal level, we see this mentality with Obamacare. In New York, we see it with the Cuomo-Merger mentality and in Westchester County its ugly head has gained visibility under the guise of Consolidation from many.

Together, these two myths have been the mantra of most political pundits, wannabes and potential candidates. Someone said that if we follow a business model to run our government, we would streamline costs, curb spending, and return our respective fiscal houses to some sort of order. Of course once one politician says something catchy, and the media outlets report it, the others follow suit. It’s why we have so many backbenchers in government unable to bring any ideas to the table. In time, these same people that might get elected or appointed, often fail to find the path to success, and we see a fragmentation of efforts, cycling back to the same thing they proffered to ease us from.

To be sure, Westchester County has experienced this same phenomenon with our County Executive and our County Legislators – similar in the ever hostile bickering between two or more siblings that a parent would have ended before it got to this point. In such an environment, no one prospers, with each successful politician finding their own path: some end up fat-and-happy, some remain small with insignificant participation, playing along to get along, and some segregated by regional issues of no interest to others. But none of the paths taken involve forwarding us, the electorate, to a positive outcome. Instead, the growth that could lead to profitability turns to incoherence, failure and patronage. And, in Westchester, the patronage machine is operating at whirlwind speed by the current power brokers. Even minor players are attempting to gain a presence.

Coherence is a town or village’s ability to concentrate its resources and collective intelligence, and marshal all of them in the service of a well-aligned group of products and services with a focused strategic direction. Highly coherent ones have three to six major distinctive capabilities, all of which are integrated into a single system that is used throughout. This type of strategy and management execution allows municipalities to be efficient in their activities, disciplined about their services, and differentiated in the eyes of customers. The towns and villages that employ administrators, instead of supervisors or mayors, seem to understand and prosper with this.

In fact, many executives of companies have often overlooked the value of coherence. They have focused on sheer size and scale instead. But size and scale are no longer as critical as they once were in business — at least not in the mature markets of industrialized nations. But, because of the consolidation mentality pervading the landscape, our ineffective, inefficient and morally deficient leaders are adrift.

In assessing the relationship between scale and performance, one might argue that it’s not fair to compare the growth rates of large and small towns and villages. Large towns such as Greenburgh or Mt. Pleasant are so large, compared to the villages, there’s no way they can grow as fast as a village that’s a fraction of their size. A smaller community, especially one that’s run well, always has a better chance of showing dramatic growth because of its small revenue base and hands-on immediacy.

Can we escape the Consolidation Mentality? Coherence seems to be particularly important in consumer products companies, where there is always a temptation to react opportunistically to changing markets. So too, do towns and villages. Why does it make such a difference to resist that temptation? Because a town or village, as a coherent entity, is simply more coherent than its neighbors, they can focus on a few capabilities, increasing a mastery of those critical areas, gaining in efficiency, don’t waste time, money, and attention to capabilities in areas where it doesn’t need to outdo anyone. Rather, they can focus on improving services and revenues.

In assessing the relationship between scale and performance, one might argue that it’s not fair to compare the growth rates of a town to a village. Large towns already have so much invested in their services, there’s no way they can grow as fast as a village that’s a fraction of their size. There is some truth to this — a smaller town, especially one with a real mayor, an engaged board, and most importantly, an administrator, always has a better chance of showing dramatic growth because of its small revenue base. So, if the advantages of size, scale, and quantity of personnel were really that great, one would expect bigger towns to do better than the vast majority of their smaller village peers.

The history of the marketing suggests that size was indeed a vital element in the past. But that’s been erroded. One important factor in this was the rise of digital media. A generation ago, when network television was the most effective way to get a branding message out to residents, players with scale could get the best deals for airtime. Now, with a cable audience divided among hundreds of channels, prime-time network television isn’t necessarily the smartest or most efficient buy. Newer outlets, including infomercials, custom-designed Internet sites, and social media such as Facebook offer better options. Creativity and promotional skill are supplanting sheer size as the determinant of marketing success. Many towns and villages are delivering their own branded experiences through websites or mobile phones — an approach showing more and more promise.

Outsourcing and alliances have also helped erode the value of scale. It is harder for a town to maintain advantages through functions such as customer service. These capabilities can be offloaded to outside partners that can do the job as well as the largest rivals in a market, often at a lower cost. For example, in the private sector, many organizations have outsourced their cleaning crews because their services will be more affordable, efficient and requires no investment in pensions, health care and other expenses that are choking all our communities. Nowadays, a smaller village that needs an outsource function can turn to a specialist firm assuring successful implementation of that service.

Some residents, who are truly loyal to their town or villages employees, don’t care how a large municipality provides it. The value of consolidation, like the value of size, was more substantial in the past than it is today. In the 1980s, village or town with a loosely configured budget pursuing an incoherent growth strategy could maintain adequate performance for years, until the balloon was eventually burst. Those days are gone. Some are proposing consolidation, but wind up fragmenting services, departments and entire organizations instead.

Paradoxically, one of the reasons this situation favors consolidated services is because business has been doing more with less for years now; where municipalities had only to raise taxes. The Town of Greenburgh under the failed stewardship of Paul Feiner, exemplifies this. And now, the constituency has reached its Waterloo and is insisting something be done. Yet, when he’s needed the most for solutions, he’s abandoned the Town, again proven impotent.

In such an environment, communities don’t need the biggest fleet of trucks, the most employees, or the largest budget. They need to gain support with residents through distinctive capabilities, utilizing innovation, services development, and customer service. Residents, for their part, are open to choosing with a high level of engagement or sophistication. Think of the chocolate lover who is drawn to a highbrow brand such as Lindt, or Ghirardelli. Consumer engagement also tends to spread virally; if a large number of people in a community buy specialized pots and pans at Williams-Sonoma, sooner or later their neighbors will look for similar cookware at Walmart or Target. This type of dynamic can be afforded to all municipalities and what they offer their residents and equally important, what they cannot.

Start by assessing the dynamics of your town or village and your potential for gaining advantages there. This exercise would include a close look at the likely future of your communities ‘product’ or service categories: Will consolidation around a few services benefit the community or will they fragment it? In the last consolidation proposal by our County Executive for the Department of Emergency Services and the County Police offered only fragmentation. His advisors were ill prepared to instruct him properly because they aren’t trained to evaluate and implement. Re-read paragraph six.

To wring savings and cost efficiencies out of many parts of its operations, municipalities must use a level of financial discipline more common at private equity firms than at Town Halls. This in itself is a strong capability, and one that has the mark of a top performer. In the end, the problem with many strategic assumptions is not that they’re wrong, it’s that they are not universal. Be wary of the idea that other municipalities and politicians find beguiling; the right strategic destination is different for every level of government, even — or especially — in mature ones such as ours.

Be careful, also, of the ideas that have made you successful over time. Many success stories that have gone from consolidation to fragmentation leave no road to reversal or return. Some have shifted between these dynamics several times. There is always the chance a town or village will find a new service or process that changes the nature of the paradigm altogether. The advantage given to you by your municipal environment is thus transient, and you will have to react ever more quickly in the years ahead. Even so, your greatest strength is steady and long lasting: these capabilities that you hone over the years will be matched to your residents’ needs.