5%, 10%, 15%, More?!?

The seeds were sown in the late seventies but the phenomenon came on strong in the eighties, the pursuit of break up value.

Financiers realized from years of studying US firms that many had undervalued assets. Years of business as usual percentage based budgeting (budget expenses for next year up 5% without calculating an exact amount) was one of many bad behaviors that drove inefficient business practices, poor hiring decisions, and overall management laziness. All of these bad behaviors were masked, to some degree, in successful companies by OK performance.

Not masked enough though, as eagle eyed analysts found many companies where, by their calculations, the value of a company’s assets (net asset value) was greater than the current market value of the company (stock price times the number of outstanding shares).

Many companies were bought and sold for parts. My most intimate connection to this behavior was CBS, a broad based entertainment conglomerate in the seventies and early eighties. They were in many different businesses: music, broadcasting, publishing, and musical instruments. Bought by Larry Tisch, they were broken up into many pieces leaving only the broadcast entities as CBS.

This pursuit of break up value applied pressure on all companies to actually improve the efficiency of their operations to protect themselves from these corporate grabbers. The reality was that many had slipped from excellent performance to being quite average by not being more precise in their operations.

Throughout this era, many is the time the “request” came down from on high and landed on my desk to cut expenses 5%, 10%, 15% or sometimes more.

The 5% to 10% category for most operations was not that difficult, at least the first time. We had all been guilty of the percentage budgeting technique and other less than optimal approaches.

New techniques were developed to optimize operations. One of the best, in my estimation, is Business Process Re-engineering. Here all business processes are mapped out and analyzed. The object is to create large changes in operating characteristics through the discovery of inefficient cross functional processes.

We also took hard looks at the overgrown command and control organization structures with all of their layers of management. Often human resource problems were solved with organization changes. An employee reaches the point where they should be promoted, but there is no position to promote them into, so one is created.

These efficiency driven “clean ups” became part of the fabric of most operations. Quality and other Excellence awards came on the scene and operations tightened up and stayed that way.

This all brings me to SAU 29, the local school district. Over the years they pretty much got the budget they wanted from our little city because it was “for the children”. As crunch time hits across the country, it has also hit in our little city. Currently, SAU 29, consumes more of our tax dollars than the city itself (45% vs. 40%). They care for a couple of thousand students vs. the city and its twenty-five thousand residents.

As they struggle to find ways to save, I have heard suggestions to eliminate one elementary school principle or to completely close one of the elementary schools. Immediately, my brain thinks that there is no way that they have done the kind of thinking that can deliver 5%, 10%, 15% or more in savings.

Why eliminate a single principal? Why not eliminate that entire layer of administration? Understanding how to do something like this takes a very comprehensive study of how processes are done and how they are governed. The skills to do this do not exist in SAU 29 and no one is demanding that they go through the drill as the takeover behavior did to corporations in the eighties and nineties. SAU 29 answers only to the voters most of whom are, quite naturally, not well informed about such matters and most of whom DON’T vote.

If anyone suggests tougher targets, they are immediately accused of wanting to hurt the children. This emotional response is really unproductive and typically comes from the cushy, protected job environment that has been created over the years. My old home, New York City has grotesque examples of this with $100,000 plus a year teachers, some of whom are awaiting resolution of various offenses including sex offenses against students, are being paid and are sitting in “rubber rooms”. In the corporate world, these folks would have quickly been dismissed and any liability associated with them eliminated. This seems appropriate in a world where individuals have to take responsibility for their actions. A characteristic not found in the world of our education institutions.

What to do? The protected job folks want the voters kept in the dark with the “it’s for the children” mantra strongly heard. The progressive local press does all they can to support this position. Isn’t this extremely unfair to the voters, the children (study after study shows that forty years of this kind of behavior has done nothing to improve education), and the city in general?

Seems so.

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