Summer 2008 The Economics of Recovery: How Business Tools Can Help

Summer 2008 The Economics of Recovery: How Business Tools Can Help

Donald M. Fitch, MS

Donald M. Fitch, MS

By Donald M. Fitch, MS
Executive Director
Center for Career Freedom

In late April, NYS Governor David A. Paterson sent a memo to all eleven State Agency Commissioners asking them to submit their plans for reducing their agencies projected 2009-10 spending by 3.5 percent. This would slow the growth of the states’ annual budget of one hundred twenty two billion dollars from an average of seven percent, to just one percent.

DOBs’ projected 08-09 Mental Hygiene Budget of 8.9 billion contains a number of budget saving initiatives including deinstitutionalization, community housing, managed care of High-Cost Beneficiaries, eliminating unnecessary use of inpatient, nursing home & emergency rooms, minimizing overtime, consolidation and/or closure of state run facilities, improved coordination among OMH, OSAS, OMRDD, and DOH, holistic health care and other plans to prompt cost-effectiveness. (budget.state.ny.us/mentalhygiene/allfunds)

The Governors’ memo also suggested the Commissioners "rethink their hiring practices, leave nonessential positions vacant and fundamentally reevaluate your agency’s operations from top to bottom".

You often hear taxpayers asking "why can’t governments operate as efficiently as business"? Before we can address this question; we need to better understand the world of corporate America. While their tools are effective, there is a price government and non-profits might not be willing to pay.

The World of Business

The core mission of business is to make money. As the chart below illustrates, for-profit corporations are organized to provide a product or service to their customers in return for payment. Collectively, the consumer has the power to determine which companies will be successful and which ones will fail. If the consumer is satisfied, they will continue to purchase the product or service. If they are not satisfied, they will take their business elsewhere. Competition ensures continuous product innovation and maintains the price/value ratio.

In business, success or failure is always defined quantitatively in terms of sales, profits, stock, market share, etc. If you make your numbers, you’re rewarded. If you don’t, you will be demoted, transferred or fired. The sword cuts both ways. (Jack Welch, former CEO of GE reportedly had a policy of letting go five percent of the least productive people in each department, each year, to raise employee performance!)

In addition to the competition both inside and outside the organization, forprofit employees must cope with layoffs, mergers, budget cuts and sixty hour work weeks. There is no job security; you can be fired at will without due process. The preferred communications style is like a PowerPoint chart presentation; the maximum amount of information transmitted with a minimum of words in the shortest time; tables, graphs and bullets. There is an addiction to information; all kinds, all forms, all the time. Knowledge is power – but only if you act upon it. Since the consumer is king, their opinions count the most, especially the “hard core loyal users”, the twenty percent of the customers that account for eighty percent of your sales.

Companies spend millions to identify and quantify the consumers’ knowledge, attitudes, usage, shopping patterns, lifestyle, psychographics, demographics, etc. Any and every measure that would yield a competitive advantage. CEO’s would never risk millions launching a new product or service on the opinions of a few focus groups or “expert” consumers. Every opportunity and risk is quantified. (Just ask your pharmaceutical representative) The distribution of resources in business is based on proven performance and investment in exceptional opportunity. To do otherwise would be to risk ones company and career.

"Too often, failing government agencies get bigger budgets, while successful agencies have their budgets cut – because government caters to those screaming the loudest, regardless of what they are screaming about. In business it’s exactly the opposite. You invest more in the most successful departments and less in those that aren’t performing." (mikebloomberg.com)

For-Profit Solutions

What if a President of a major corporation had received Governor Paterson’s memo ? How would they respond? How would they decide where to cut? In sum; they would follow the money. For example, with OMHs’ inpatient care running at about $200,000, per person, per year, the cost for four-thousand consumers is about eight hundred million dollars. Transferring just five percent of this population to community housing and supportive services, at a cost of 50k/yr, would save taxpayers thirty-million dollars ($150k x 200) (plus the cost of union contractual buyouts and retraining, less the sale of the property and contribution to the tax rolls, etc.)

Second, the CEO would zero in on the “High-Cost Beneficiaries”--- the fifteen percent of the consumers that account for almost two-thirds of OMHs’ budget. The CEO would ask; “What are the expense components”? “Which holistic care configuration would reduce the number of inpatient days”? “Ambulance trips to the ER”? “Crisis team interventions? etc.” The daily savings for inpatient diversion is about fourteen hundred dollars.

The traditional Govt/Non-Profit approach is to first build consensus through committees, stakeholders, and testimony from “expert consumers”. Then, conduct informational/training/sell-in sessions and finally, to enact the program.

By contrast, the business/for profit approach is to start with the consumer; to identify and quantify their needs. How effective are the current services? What works? What does not? How do consumers respond to the new service? etc. The program is then tested & refined through a series of pilot tests before rolling-out.

Business asks: “Where are we? Where can we go? What is the best way to get there”? It’s like building a roadmap; without it, we can & do wander for years. Until Government and non-profits accept that the ultimate success or failure of any program lies with the consumer, they will continue to waste time, money and lives.

The Center for Career Freedom is located in White Plains, New York and can be reached at (914) 288-9763. Visit us atwww.economicsofrecovery.org

Info Graphics Summer 2008 The Economics of Recovery: How Business Tools Can Help