How can cutting waste in the public sector be anything other than a good thing? The answer is by misunderstanding what waste actually is and where it comes from.
The point is made by John Seddon in an op-ed for the LocalGov website. In particular, he takes on one of the most important waste reduction strategies – the sharing and outsourcing of ‘back office’ functions:
The idea is that by separating itself from the ‘front office’ – the part of a public service that actually deals directly with the public – the back office can get on it with its work undistracted by service users. By pursuing efficiencies, the cost of each task or ‘transaction’ undertaken by the back office can be reduced.
The trouble with this approach, though, is that by disconnecting itself from the public the system loses the knowledge required to get customer needs sorted out first time. Thus while the cost of each transaction might come down, the savings are outweighed by the increased number of transactions required to finally get the job done.
John Seddon calls this phenomenon “failure demand”. A familiar example is when a boiler repair company has to send out a second engineer, because the first engineer didn’t have the right part.
In the public sector, Seddon cites the example of housing benefits:
But are there really no savings to be had through the sharing and outsourcing of back office functions? Seddon admits that there are, but that they’re superficial and distracting:
The distinction between cost and value is crucial. If we really want to reduce the size of Government, then we need public services that help people to become independent of the state, instead of merely trying to reduce the administrative cost of dependency.