Cutting Costs, Not Missions
Congress enacted legislation that requires $1.2 trillion dollars in budget cuts before January of 2013—but determining where cuts should be and how they should be implemented can be a challenge. So how can agencies reduce inefficiencies and redundancies without significantly impacting their core missions? One approach is through merging, integrating, consolidating and divesting.
- Robin Lineberger, CEO of Federal Government Services, Deloitte LLP
- John Powers, Principal and Managing Partner of Mergers, Acquisitions and Restructuring Practice, Deloitte Consulting LLP
- JoAnn Boutelle, Partner, Deloitte & Touche LLP and Former Deputy CFO of the U.S. Department of Defense
- Why the "peanut-butter spread" approach to cost reduction may not work this time around
- Making effective budget cuts through merging, integrating and consolidating
- Taking a three-step approach to implementing change
- Lessons learned from the commercial sector
- Factors that contribute to an effective transformation
The following is a full transcript of FedCentral' s interview with Robin Lineberger, John Powers and JoAnne Boutelle conducted by Jane Norris on January 4, 2012.
Welcome to Fed Central, brought to you by Deloitte – a program where executives and Federal government leaders talk about the issues and initiatives that are making a real impact on the business of government today, to help government help America. Thanks for joining us.
Today we're discussing cost-cutting in the Federal government, specifically how agencies can reduce inefficiencies and redundancies in their organizations without significantly impacting their core missions. Congress enacted legislation that requires $1.2 trillion in budget cuts before January of 2013. But where these cuts are made and how they will be implemented is a matter of discussion.
Here to offer insights about the government's potential to save dollars through merging, integrating and consolidating are Robin Lineberger, CEO of Deloitte's Federal Government Services within Deloitte Consulting LLP. It's a $1.3 billion practice with more than 6,100 employees. Under Robin's leadership, Deloitte Federal Government Services provides consulting, risk advisory and financial advisory services to every Cabinet-level agency in the U.S. government. Hi, Robin.
And John Powers is a managing director at Deloitte Consulting LLP. He's the current leader of mergers and restructuring in Deloitte's Federal Practice. For more than seven years, John has led the planning and execution of consulting services for transactions totaling more than $100 billion in value. His specialties include developing integration strategies, designing global governance programs, and creating validation approaches for services focused on merging and restructuring public and private organizations. Hi, John.
And JoAnn Boutelle, a partner with Deloitte and Touche LLP, is a former deputy CFO of the U.S. Department of Defense. While at the DoD, she was recognized as a committed leader to reforming business processes. JoAnn continues that work at Deloitte, where she helps clients take costs out of their activities through reengineering processes, integrating and divesting functions, and enhancing business processes with technology. Hi, JoAnn.
Good morning, Jane.
Well, this is a great group. It's a pleasure to have you all here. So let's talk a little bit about how the Federal government is going to approach some of its cost pressures. Robin, I'll start with you. The Joint Select Committee on Deficit Reduction, the so-called Super Committee, failed to meet its objective – meaning automatic sequestration cuts will begin in 2013. So how do you see the U.S. government effectively making those cuts?
Well, there are a couple approaches that they can take. I think, first, as they begin passing on the dollarized cuts to the various agencies across the board, providing guidance to the organizations of what the priorities are, what they should continue doing and what they should consider reducing.
Secondly, as the agencies receive their budget numbers, it could be tempting to take this classic peanut butter approach, spreading the cuts evenly across the organization. But I would suggest we take a look at prioritizing the activities, looking for those that are the least value-added or the least productive, taking those out and then using the remaining budget for those higher priorities, more value-added activities.
John, do you agree?
Absolutely, I think the key word to think about here is as people take a peanut butter approach, which is a simple and easy way to take costs out of anything, it starts with the basic assumption that everything is already allocated perfectly. So when you apply that approach, you're assuming I have everything exactly the way I want it. I just need less of everything in the same distribution that I had. That's rarely the case.
As facts change, as conditions change, commercial or public sector, you need to go back and reevaluate what your priorities are. As Robin just said, you need to rethink how I would change what I want to get done, given the limitations or constraints that are now upon me. And so I think it's really important to actually look for ways to take the cost out more intelligently and look for ways to find avenues of reduction as we talk about merging, consolidating and integrating. Basically, look for places where you can take advantage of redundant or fragmented operation that doesn't impact the mission. So you really have to look for "where can I take out things that haven't yet been fixed or aren't yet efficient that will not impact the mission?" So you do have to reprioritize.
So, has this been tried before? JoAnn?
Well, in the past, the way the government usually handles these large budget cuts, is to do the peanut butter spread as Robin mentioned. And you know, the challenge here is to eliminate the inefficiencies and the redundancies and the processes in organizations without impacting the core mission. They want to preserve that. And so it's going to be a challenge this time for them.
You know, I think that most of us would agree that it wouldn't be wise to cut major weapon system programs at the risk of not being able to defend our country or our way of life, and instead that the Department of Defense and other departments need to look at cutting cost reductions in their business and administrative functions, much like what John has said.
So, it is going to be a challenge. I do think that they could learn a lot from what we do on the commercial side and use the business cases to develop a strong justification for the decision makers so that they look at both the pros and cons of some of the alternatives that are available to them.
Yeah, I would just add from the commercial side – at Deloitte we've done quite a few restructuring activities to the public and private, quite a few mergers, and we've done a lot of work with agencies, UK, Canadian and U.S. as well – and it's almost a universal truth that you find when you look at these operations. We will look at operations and find different levels of performance across the same activity, meaning one is more efficient than the others, which is especially true when you're looking at commercial integrations, especially large organizations meaning the finance function of one company happens to be more efficient, happens to have better infrastructure.
And when you go to integrate, what we try to do is look for the best of the best is what we'd call it. And we'll find internal best practices. It's a classic way to find efficiency – meaning we don't need to do great, grand studies. We can look inside the organization and try to determine which part of the business, the two that are now going to combine and sometimes it's three, actually is the best performer and we'll model that as the future operations going forward and try to bring everybody to that standard. And that is a great way to quickly get to what the realm of the possible is when you're looking through not taking out activities that do not affect the mission but where there is redundancy that's basically inherent in just being different organizations.
But you know, John, I have seen in DoD when I was there, and I'm sure it's across the rest of the government, that often folks think that they can figure out these changes themselves. And my experience has been that it is hard to look at what you're doing everyday and say, "Well, there's no value in doing this. Maybe we should eliminate my job or a great portion of it." So how do you deal with that on the commercial side when you go in and help those companies?
It's especially hard to take a look at yourself to assume that you can find the "best of the best" or even – especially if you look at your narrow I only have this operation. You don't have the advantage of or the perspective of seeing across multiple different types of that same operation. So on the commercial side, it's really important to bring basically three things together. Usually it's two organizations that have to come together – essentially the objective third party that arbitrates what the realm of the possible is.
So, that's usually the consultants like us. In most cases, we have to show each of them what the benefits and risks are of taking one or the other approaches to the business. So you have to look at there's efficiency, there's cost – but there's also the way the work gets done and you have to analyze that to try to find truly what is the best from the most objective standpoint. And that requires a different method of looking at it, and you have to have a certain tool set to do that, and you have to have certain processes to do that, that look at the facts and take the people out of what they're used to doing, what they're seeing everyday and give them an opportunity to see what the future could be.
So, what do you see as the prime targets, Robin, for this kind of organizational restructure?
I think we should sort of break through and generically break the organizations down into various pieces. So you have the classic back-office or administrative activity, and then you have the mission function. And then you have parts of the organization that are developing capability for the mission function such as IT and those sorts of things.
So I think if you look at the administrative areas, there's opportunity there for the same type of consolidation synergies – re-looking at some of the approaches that are currently under way around outsourcing if you will, the shared services concepts.
And I think here we really have to talk about some of the themes that ran through the conversation so far about structural changes, is that we can't any longer continue to look within our own organization, is looking out into the organizations where you may be able to partner or joint venture if you will with organizations to accomplish a similar function rather than just consolidating within your areas. Let JoAnn talk a little bit about the mission side, since she's focused on the DoD for so many years.
Well, I agree with what you said. I think we've got to focus on owning less, so whether they're using more cloud computing, whether they're divesting in more real estate. I do think that those are the right things to do, consolidating back-office functions, whether it's the data centers, whether it's human resources functions. I also think there's a big opportunity in eliminating the number of business systems that are out there.
Over the past 20, 30 years, there's been a lot of systems that have grown up that are very functionally aligned but not enterprise-aligned, and they could eliminate thousands of systems if they developed strategies for successfully implementing these enterprise processes. In addition to reducing the cost that they spend on systems, it should also produce better financial information to guide them on making better business decisions going forward.
So I agree, I think that there are a lot of things. I guess I wonder, again, on the commercial side when you go into a large, complex company and you are faced with these different pieces of an organization like we have in the Federal government, how would you approach those?
Well, the key is it's a standard model you see in almost every situation – which is, we look for the same people doing the same kinds of services for the same kinds of customers in different places using different processes on different infrastructures. That is essentially fragmentation and redundancy, and when you find that, and you will find that when you're looking for integration opportunities, that's a great place to start the process of trying to integrate those operations into single models and put them in single places as you talked about. Potentially use outsourced infrastructure. And the last thing to look for is also classic in the hundreds of these activities that we've done, you'll often find that there's basically too many layers in an organization, the span of control is too small and people's jobs have been defined inconsistently when they're doing the same work. So again, another standard set of symptoms as we call them, of places to look when you look across organizations as opposed to when you look within.
The key is these you can find when you look across. They don't appear to be there when you look within your organization.
Well, we're going to take a quick break here, and we'll come back and talk more about this and talk about what the costs really mean for actually taking on some of these responsibilities. So stay tuned. Budget cuts and budget challenges are nothing new to the Federal government. But now, I think a lot more thought is going into how that gets done. So we'll be back with more in just a moment.
We're talking this morning with Robin Lineberger, CEO of Federal Government Services at Deloitte Consulting; John Powers, a Managing Director and the leader of the Mergers, Acquisitions and Restructuring Practice at Deloitte Consulting; and JoAnn Boutelle, former deputy CFO of the U.S. Department of Defense and now a partner at Deloitte and Touche LLP.
You're listening to Fed Central brought to you by Deloitte. I'm Jane Norris.
[Break 00:12:54 - 00:14:05]
Welcome back to Fed Central. We're talking this morning about budget cuts and budget challenges that the Federal government is facing in 2012 and beyond. Robin Lineberger, CEO of Federal Government Services at Deloitte Consulting; our guest John Powers, the leader of mergers, acquisitions and restructuring at Deloitte Consulting; and JoAnn Boutelle, a former deputy CFO at the Department of Defense and now a partner at Deloitte and Touche LLP.
So here we are, and we're talking about how the government goes through the cost-cutting process. But that costs something, and with all the scrutiny coming from Congress, people will have something to say about how all of this gets done. So if you're an agency faced with making significant reductions, what is a cost-effective way to invest in integrations or divestitures? Is there a way to do this, to invest the money to make the cuts, or is that just redundancy?
You're asking a very challenging question, Jane. Clearly, the leadership of the organization is facing a dilemma to some degree, and with facing budget costs, how do you enact and take advantage or how do you implement the budget cuts knowing you need to invest in a way that allows you to continue to carry out the mission. Because they haven't been asked to do less. They've been asked to execute what they're doing with less budget.
So the identification of those key areas and the development of a sound business case, I think, presenting that to management and looking top-down at where we're going to get the best bang for the buck. We're going to have to figure out how to carve out temporarily budgets to execute these changes to invest in the technologies or to make the organizational changes necessary to enact the new restructuring and to do that in a sound way.
You look at the cost and the benefits and the prioritization of those, and then we have to remember that all $1.2 trillion is not going to happen the first year. It's time phased over I believe nine years, so it will be programmed out for those years. So you have the opportunity if you can start the seeding at the beginning, investing in a way that creates the savings, then you can continue this, if you will, cascading effect -- be able to bring those budgets down while you continuously invest in those highest, biggest opportunities through your management analysis.
One of the things to consider, while it does cost money to take these actions on, the rule of thumb that we find in commercial, and we've seen it work in the public sector as well, essentially a dollar invested today in trying to work through this problem, invested once typically will be able to return a dollar in perpetuity related to that area you're trying to integrate or restructure. And it works that way because you have to spend the money up front, which feels painful, but you get it back in the long term, and you get it back over and over again.
The other thing to remember is spending the money on the right kind of investments to get that dollar is critical. You need experience that people have been through this problem before and access to tools and methods that have been proven to work before – and you like to have access to information. Most organizations go through something this significant, this transformational, once in their career. A person will go through it once in their career.
A firm like ourselves that does this over and over again, we have people that go through this just as their career – so this is my career. I do these once a year with very large organizations, and I've got a practice very similar with hundreds of people that just do this kind of work. It's critical to bring that kind of experience on a specialized problem like this because your organization will be much better off to take advantage of that to get to the answer faster, they'll get to a better answer and the answer's going to be – will come with less risk, meaning a much higher probability of success in long-term implementation.
So, JoAnn, is the Department of Defense amenable or open to this kind of discussion, do you think?
I think that as the budget cuts keep coming, and I think that they've already had, with the budget control act, they had some cuts. With this one, there's going to be even greater cuts that they're going to have to start looking for other ways to identify what they're going to spend less on, just as John and Robin have been talking about. It's a dilemma and they can't keep doing the peanut butter spread and asking people to take little pieces out of the organization or the processes.
They've got to start doing some transformational type of initiatives to really drive the cost down. I think the only way they're going to be able to do this is to bring in contractors with the skill sets to assist the government in developing well-thought out business cases. So I do think that we're going to see more of that across the government if they are to be successful.
Yeah, that's something that they both have alluded to here, and we probably all as managers put together that beautiful business case, gone and tried to take and get it implemented. The real key here is to continue to capture those benefits and to ensure that when you move into implementation, that there's solid control structures, measurements, and that you actually capture the benefits –because if we start out at the front of this journey not being able to capture the benefits, then you starve the downstream activity that you've spent your investment money on.
You're not reaping the benefits, and so, hence, you haven't created the wedge that allows you to continue to invest and redeploy dollars for future savings. So it's key that through the implementation phase, we actually can capture those benefits.
So, actually, Robin, you bring up the very next question that again in the government that I've often seen folks struggle with is: So, you have a great business case, and, you know, you've thought it out, you've looked at all the pros and cons and you've identified the benefits and what you're going to say. Now you have to execute. And often what happens in the government is it gets delegated down from once the decision-maker makes that decision and then the results do not turn out to be what the business case had actually laid out because things start being compromised. Robin, I know you've dealt with a lot of these types of acquisitions and implementations as well as John. What do you two see as the key in deriving this and making this successful?
A couple of the keys, one top-down, I think you mentioned that. The next is carving out – it needs to be somebody's job. It's not as though when you push this down it's going to be picked up by someone and run – the specific assignment to a capable manager who's accountable for achieving those outcomes so that it doesn't drift and that it goes from start to finish.
And, John, what's the process? What would be the best process to implement this?
The best process is – essentially to lay this out – we use a three-stage approach. We call it initiate, plan and execute. In Initiate, you essentially drive out the assessment of what is possible based on the available accommodations, integrations that you look at across the organization, and then ultimately you'll test that against – and create – a business case. How much does it cost to achieve each of those, and you'll put together a portfolio of options.
From there you build belief, and I think that's a key thing that we need to mention here. You have to build belief into the people, into the organization, that they can hit that end-state. And that belief comes with a very clear plan – steps laid out very clearly with transparency as to who's accountable for what.
And lastly, once you go to Execution, put skin in the game. I say skin in the game meaning make people not only believe but also be invested in the then-successful outcome from top – all the way from the top to the bottom. Sometimes it could be where the end-state is going to take the organization related to their mission, meaning capabilities achieved, capabilities enabled through this.
Sometimes on the commercial side, we do it through compensation. And oftentimes in the commercial sector, and I've done it in the public sector as well, is we'll have in essence our success – or the success of organizations is our success, meaning we go at risk. We call it value-based billing, but it's important. If you are confident in your ability and your processes and your tools to get to the end-state, it's much easier to show the organization, the people, that you're willing to take that journey with them and take the risk with them because you believe just like they need to believe.
And so if there is a leadership change … or, as with any Federal government agency, there will be change. So how does that all impact this?
Well, you bring up a good point. I mean Secretary Panetta is in DoD right now and as well as secretaries across the other organizations. But those may change next year, right? And it's going to be important that the culture changes in some of these processes are put in and apart of what people are doing. So you have business cases, you have top-down leadership movement, then you get things happening and there becomes this snowball effect and it keeps rolling. But it has to be managed at the very top levels.
I think that's a very good point is as you begin making the business cases around which area you're going to attack, assign the management we know that there is. Let's call it the career workforce, right where the Senior Executive Service, those that aren't as transactional if you will, moving around the administrations – that sort of thing. So being proactive about how – who you have take those on so that you provide some level of sustainability into the process so that you can see it start to finish, will be very helpful in executing across administration changes.
Okay, so what ideally should be in place for an effective transformation? JoAnn, you want to take that?
Well, again, I think we've gone through a lot of things. There's got to be a strong business case, there's got to be top level management involvement that drives the execution. I think there has to be some metrics, performance metrics, so that you know if you're heading in the right direction. If not, tweak your plan, stay focused and put together a communication plan – because I think, Robin made a good point. There's going to be other folks that are going to be impacted, and surviving changes in administration and communication cannot be over-utilized. So communicate down through the organization so people know the value of the change.
The only thing I would add is I think you have to have a vision on where you're going to take the organization so that people believe in the end-state. And I think you have to build change through the process. And, lastly, you have to build that change through short-term victories – meaning you can't wait for all the benefits to be found at the end of this process. You have to show people that there are interim milestones and achievements that build their confidence and also start to build their belief in the total program.
I think the one thing we have to consider throughout this, at the end of the day, this is a lot about people – people that work in the government, people that support the government. As you go through that, they've talked about this idea of change management, and so we have to consider the human capital and their involvement along the way – particularly new roles, responsibilities, how we transition from one job to the next, those sorts of things. So that at the end of this, people are well-positioned and well-trained to be able to execute what their new roles and responsibilities will be.
And that is a challenge that the Federal government will be facing.
We thank you all for joining us today to talk a little about this interesting show. Make sure you check it out at federalnewsradio.com and you've been listening to Fed Central brought to you by Deloitte. Our guests, Robin Lineberger, CEO of Federal Government Services at Deloitte Consulting LLP; John Powers, Managing Director, and leader of the Mergers, Acquisitions and Restructuring Practice at Deloitte Consulting; and JoAnn Boutelle, former Deputy CFO of the U.S. Department of Defense and now a partner at Deloitte and Touche LLP.
Thanks so much for joining us for Fed Central. Please join us again. This is Jane Norris on Federal News Radio.