Public sector funding cuts

Public sector funding cuts: Are you about to lose the wrong people?

You can increase net performance by at least 10% by retaining the best people to deliver efficient, effective services after a redundancy programme.

Hard to believe, but using an innovative influencer-based approach, we have been able to retain key people, while increasing staff engagement and improving morale both during and after major change programmes involving redundancies.  We achieve this by tapping into the power of 'hidden' leaders and influencers, many of whom are outside the formal hierarchy.  And we have the track record to prove it.


There is a great temptation to manage funding cuts as a purely financial exercise. Sell assets, reduce accommodation costs, let natural wastage take its course and make cuts to specific low-priority services, preferably where redundancies involve younger staff with relatively few years of service, thereby minimising overall transition costs. In the short term, this approach seems attractive but ignores the really big post-cuts objective: to retain key people for the future.

Predictable side-effects of a redundancy programme

In a perfect world, only the least effective staff would leave as a result of the cuts. Indeed, there is considerable evidence to show that overall performance rises as less effective staff depart. In our experience this holds true for staff reductions of up to about 10% of total staff. Although resources have been reduced by 10%, the overall impact can actually be positive: these individuals typically represent less than 5% of the effective work done, and they act as a drag on others (error creation, continuous queries, passing on difficult problems, duplication, etc.) that is so great that their combined overall impact can be negative.

However, a simplistic financial approach to cuts does nothing to reduce the percentage of ‘impact-negative’ staff within an organisation. Typically, a disproportionate number of very capable people leave and find external jobs because of uncertainty and insecurity. The low performers do not have this option and tend to hang on, often waiting for a redundancy pay-off.

Similarly, some of the most capable people will currently be working on services that are to be discontinued.  A simplistic approach to cuts may well lead them straight out of the door.  Also, those that remain may well be de-motivated and disillusioned.

Unexpected side effects of a redundancy programme

In times of change, humans look to their natural leaders rather than their formal managers.

Who are the key influencers and where do they influence? Who do people go to when they need different types of technical or service advice or information? Who are the natural collaborators who can be relied on to link relevant groups across organisational boundaries?  Who keeps the energy levels of teams high through difficult periods? Which formal managers are influential with their staff and have developed effective teams? Which individuals have created effective informal networks that link different work groups? 

These are the key people that need to be retained to deliver efficient, effective services during and after the cuts. Typically, these individuals make up only about 3% to 4% of total employees. Their potential is usually latent and sadly under-utilised. Losing even some of them will have a disproportionate effect on future services. Morale will decline as natural leaders leave; valuable sources of expertise will be lost; collaboration will wither on the vine; and silo mentalities plus levels of disruption will intensify.

Retaining key staff while cutting costs

In the real world, the best approach for public sector organisations will be a balance between financial pragmatism and keeping key people for the future. A combination of natural wastage and voluntary redundancy (with clear guidelines on retaining staff with profiles needed for the future) will provide the main mechanisms to achieve the desired balance. A key component of the voluntary redundancy approach will be the creation of a redundancy ‘pool’, where those impacted by service reductions will be available for re-deployment in other areas of the organisation. This not only allows key individuals to be retained, but also enables entire teams to be moved internally, particularly where a natural leader has built a highly-effective team that can easily be retrained as a unit.

Early identification of, and communication with, key individuals and teams, will minimise the loss of very effective people, who might otherwise be tempted to seek external jobs due to insecurity.

Costs and benefits

As a rule of thumb, using our innovative influencer-based approach to identify the natural leaders and those in key positions within informal networks will cost from about £20,000 for 1,000 full time staff to £50,000 for 5,000 staff – typically about 0.03 % of total budgets. 

The public sector will need to be more innovative in future to deliver more (and better) for less. Innovation should start before the cuts.

Examples of our track record:  major change at National Savings & Investments and Liverpool City Council.

National Savings & Investments

When National Savings and Investments (NS&I) outsourced much of its business to Siemens in 1999 it was then the biggest and most ambitious deal of its kind. A decade on, the Treasury-backed group has been transformed into a sleek, modern-day financial institution which has seen a dramatic growth in business over recent years.

National Audit Office Report 2003 ‘PPP in practice: National Savings and Investments' deal with Siemens Business Service (SBS) four years on’

“SBS has significantly increased productivity (more than 100%) without compulsory redundancies, through reducing the number of staff transferred to it from 4,100 to some 2,000, although the volume of work has remained the same. It has reduced the level of absenteeism to close to the national average of 3.1 per cent, compared to eight per cent when it took over the business. SBS has re-deployed 650 of the 2,100 staff, no longer required for NS&I work, on third party work. Of the remainder no longer employed on NS&I work, 1,200 took Voluntary Early Release and 250 were released through natural wastage.”

Liverpool City Council

Liverpool Direct Limited is a joint venture company set up in 2001 between Liverpool City Council (19.9%) and BT (80.17%) to reduce costs and improve service quality.

BT Report - ‘Partnership transforms Liverpool’s Performance’ 2005:

“Still in the first half of a 10-year, £300 million project – in which BT has so far invested more than £50 million – Liverpool Direct has already enabled the council to reduce its cost base by over £100 million over five years and help to reduce its headcount from 19,000 to 13,000.

A new contact centre is now handling 200,000 calls a month, resolving over 90 per cent of them first time. A Human Resources (HR) intranet is automating routine business (30,000 hits a week) and allowing the council to re-deploy over 1,000 staff, while absenteeism has fallen below the national average. The revenues and benefits functions have also been transformed, leading to performance improvement and financial benefits. The Audit Commission now places 70 per cent of Liverpool’s key services in the upper quartile of the industry standard in its performance indicators.”

Informal Networks contact:
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Tel: 01487 773309
Mobile: 07976 154206

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