126 – ‘A new theory of value creation for local government’. Do we need one? Part 1 – Strategy.

Posted by Lancing Farrell                                                                              850 words

value diagram shaded

This is the first post in a series  exploring the relationship between business strategy, the business model and operations strategy. It is an attempt to pick up on the ideas in Colin Weatherby’s previous post discussing Henry Mintzberg’s ideas about different models for government organisations. Hopefully the series of posts will make my case for a local government theory of value creation.

I will begin with business strategy. To set the scene, I have chosen the following quotations from management consultant and academic David Maister  to highlight the strategy problem for local government.

“A strategy is not just choosing a target market, but is about actually designing an operation that will consistently deliver the superior client benefits you claim to provide.

However, each decision you make to be more effective at delivering the preferences of those you target will (inevitable, inescapably, unavoidably) make you less attractive to clients or market segments that look for different benefits.

You could try to design your operations to meet a wide variety of preferences and needs, serving each client or customer group differently, according to their individual wishes.

Your market appeal will then come down to ‘tell us what you want us to do for you and we’ll do that. We’ll do something different for other people tomorrow!’

The very essence of having a strategy is being selective about choosing the criteria on which a firm wishes to compete, and then being creative and disciplined in designing an operation that is finely tuned to deliver those particular virtues.

An operation designed to provide the highest quality is unlikely to be the one that achieves the lowest cost, and one that can respond to a wide variety of customized requests will be unlikely to provide fast response and turnaround. Any business that tried to deliver all four virtues of quality, cost, variety and speed would be doomed to failure.”

Maister may not have had local government in mind when he wrote this piece, but he provides an insight into the challenges in determining what provides value to people receiving services. He calls it ‘superior client benefits’. In the public service context, academic Mark H. Moore has called it public value. It is the same idea – recipients of services have preferences and not every recipient’s preferences can be met. Decisions have to be made and operations designed to deliver on them.

Strategy is a particular problem for local government because councils are multi-service organisations serving a defined geographic community or customer base, which can itself be quite diverse, to deliver whatever services they want at whatever service levels they decide they need. This is a requirement of the Local Government Act.  It is quite different to private sector strategy decisions where organisations tend to focus on particular services delivered to defined markets or market segments and the primary goal is to deliver value that satisfies customers, generates demand over the long-term, and returns a profit to shareholders.

In this context, strategy does not mean strategic plan. I think this is a common confusion in local government, where the actual strategy is usually not documented and it only becomes evident by studying the behaviour of the organisation over time. Strategic plans are usually just plans of actions to be taken. Sometimes they explicitly explain the thinking behind the decision to take the planned actions, which can be ‘strategic’. But not always.

I am referring to strategy as the position that an organisation takes in relation its market, the value it decides it can create, and how it will do that and operate at a surplus. In the local government context it means the position taken in relation to the community receiving its services, the public value to be provided through those services, and how the organisation will be structured and managed to deliver services to create value at break-even or surplus. Here is another view on strategy, this time from academic Constantinos Markides in discussion with Henry Mintzberg.

“A strategic position is nothing more than the answers a company gives to three simple, but difficult-to-answer, questions:

  • Whom should I target as customers and whom should I not?
  • What should I offer these customers and what should I not?
  • How can I do this in the most efficient way?

These are not easy decisions to make, and each question has many possible answers, all of them apparently logical. As a result, these kinds of decisions will unavoidably be preceded with debates, disagreements, politicking, and indecision.

Yet, at the end of the day, a firm cannot be everything to everybody, so clear and explicit decisions must be made. Companies that fail to make clear choices on these dimensions drift aimlessly without a clear direction until they eventually fail.”

The issues raised by Markides are not unlike those of Maister and his questions are certainly not easy to answer for local government. Each council is faced with a wide variety of demands for services from their community as individuals seek private value from the taxes paid. It is the responsibility of the council to understand the collective view of the community and the agreed range of services they regard as valuable with regard to the use of public money and authority – i.e. how to create the value expected by the community. The ‘public value’ defined by Mark H. Moore. It is then up to each council to budget to deliver the agreed value and use resources efficiently in doing so.

The conceptual tool illustrated at the start of the post shows these relationships. There is more information about this tool here and here.

The next post discusses the link between strategy and the business model.

Maister, David 2006. Strategy Means Saying “No”‘.

Mintzberg, Henry, McCarthy, Daniel J., and Markides, Constantinos 2000. View from the Top: Henry Mintzberg on Strategy and Management [and Commentary], The Academy of Management Executive (1993-2005), Vol. 14, No. 3, Themes: Structure and Decision Making (August).

Moore, Mark H. 2013 ‘Recognising Public Value’.