Otis White

The skills and strategies of civic leadership

The Worst Management Idea of the 20th Century

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I started paying attention to business management in the late 1970s, and my timing could not have been better. I saw all the business fads of the late 20th century paraded before me, from “management by objectives,” “Theory Z,” and “in search of excellence,” through “reengineering the corporation,” “good to great,” and “Six Sigma.” At one point, I wondered, are all these management theories actually the same ideas with new titles?

The fads seemed harmless enough—and may have been useful if they encouraged executives to think about their businesses in new ways. But one struck me, then and now, as dangerous. And that was “pay for performance.” Even more frightening, it has made its way into government, with terrible consequences.

In one sense, there’s nothing new about paying people for performance. Factories have long paid for “piece work”—that is, for each unit a worker turns out. Sales people often receive commissions, which are a share of each sale. And if you tip a waiter, a hair stylist, or a parking attendant, you’re paying for performance.

But extending this idea to employees who work not as individuals but as team members and are involved in complex tasks and not simple, easy-to-measure transactions is a new idea. Like a lot of bad new ideas, it came out of Wall Street.

It began with CEO pay, which Wall Street wanted tied to stock appreciation. If you want to know how executive pay became so grotesque with so little to show for it, that’s the reason.

But why stop with CEOs? In the 1980s and 1990s, the idea trickled down in corporations, aided by an army of consultants. It was easy to see the appeal. Employers wanted their staffs to work harder with better results. They wanted to hold on to the best workers and didn’t mind if the others left. And if pay—in the form of incentives for performance—could do all that, why not use it?

There’s just one problem: It doesn’t work in the way you’d think. Oh, it produces results all right; but some can be downright destructive.

Consider the Wells Fargo scandal that became public last year. The bank set goals for its customer-service representatives that most people considered unrealistic. One was to “close” (that is, sell) 20 new bank accounts a day. And one way was by convincing existing customers to set up at least eight separate accounts with the bank—checking, savings, credit cards, mortgage, and so on. (The CEO had a phrase for it: “Eight is great!”)

You can probably guess how this turned out. To keep their jobs and earn bonuses, employees began opening accounts for customers without their knowledge. And not a few rogue employees; thousands were involved in the fraud.

That’s a problem in a high-pressure environment like a bank. But it couldn’t happen in a government, could it? Well, it has happened. The Atlanta public schools’ test-cheating scandal of 2009 began when the superintendent announced that she would measure principals’ performance by their schools’ progress in standardized tests. For years this strict-accountability approach brought extraordinary gains in test scores—until it became known that some principals and teachers were changing their students’ answers in what were called “erasure parties.”

It happens once in a while in police departments, too, when a zealous chief decides there ought to be a quota for traffic tickets. (“Eight is great!” or something like that.) And predictably, cops start writing tickets just to meet the quota. Not exactly a formula for great police-community relations.

If setting quotas and paying for performance can turn into a disaster, then how should we think about compensation and motivation? Here’s the sensible alternative:

  • Pay employees a fair wage that compensates them for their skills, experience, and education.
  • Encourage teams to set their own measures of performance, ones that they will commit to meeting or exceeding.
  • If you feel compelled to offer bonuses for superior performance, award them to the teams and not individuals.
  • Understand that there are other motivations that drive people to work smarter and harder. You’ll find that, once employees have reached a livable wage, personal pride and the esteem of colleagues and superiors work as well as bonuses with none of the disastrous side effects.

In other words, if you want people to perform complex tasks and do so at a high level, don’t cheapen their work with simple measurements and simple-minded rewards. Try coaching, praise, promotions–and maybe a simple “thank you.”

A version of this posting appeared on the Governing website.

Photo by Anil Mohabir licensed under Creative Commons.

Lesson Seven: Process and Results

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The final lesson is not so much about local government as it is about you, as a reporter or blogger: Will you report on results or just on process?

By process I mean the most public parts of government: city council meetings, press conferences, city hall events, public hearings, campaigns and elections. If you are invited to it or are legally entitled to witness it through open meetings or open records laws, then that’s process.

Now, please don’t misunderstand. Process is important, and you really should cover it. After all, elections hold governments accountable, open meetings cause them to be more inclusive and thoughtful, and fair processes keep them honest. But these things aren’t the sum total of government; they’re more like the visible tip. Most of government lies beneath. If these essays on covering city hall have done anything, I hope they’ve encouraged you to go below from time to time and give things a look.

Before doing so, though, let me ask a question: Why do reporters spend so much time on the process parts of government and so little examining results? Well, let’s be honest: It’s easy. When a council member goes on a rant at a city council meeting or a protest march is staged outside city hall, the stories practically write themselves. (I know. I wrote a lot of these stories myself.) Tracing ideas as they move through local government, mapping the compromises made and collaborations created, and measuring their impact on land use and city services? That’s hard.

And, too, city hall reporting has long suffered from the poor examples set by reporters in Washington and in state capitals. In those places, public policy is often treated as if it were a performance and not a series of decisions with lasting impacts on states and the nation.

Am I being too hard on your colleagues? Well, think back to the torrent of reporting on health care reform in 2009 and 2010, the vast majority of which was about political maneuvers. Far less attention was paid to the reforms themselves: the ideas behind President Obama’s plans, where they originated, and their likelihood of success. Since the Affordable Care Act was passed in 2010, there has been even less attention paid to how the reforms are working. No wonder we were so surprised in 2013 when the health care website crashed. Once the political drama had moved on, few reporters were still paying attention.

You can do better than this—and you should. For one thing, local government isn’t nearly as large in scale or ambitions as federal or state governments. Want to meet the people implementing your city’s projects and policies? That’s easy. The results, too, can be seen and measured without much trouble. If you want to know how the downtown is doing, start with the business improvement district director, interview merchants and shoppers along Main Street, talk with a developer or two, and check a few statistics at the city planning department. You can do all of this in a day or two.

Not sure you know enough to judge a city’s performance? The things local government is concerned with aren’t hard to understand. (In fairness to those covering the Affordable Care Act, health care economics is harder.) Keep in mind the difference between strategy and services. As I’ve written, the big decisions in local government are about land use. But this is a subject you can master with a little reading and some time spent with city planners and urban studies professors. The other part of local government is service delivery. This, too, can be mastered by asking simple questions: What is the problem or need in this area? How have you tried to solve the problem or answer the need? What have been the results?

Whether it’s public safety, sanitation, transportation, or water supply, those questions will usually get you started. Check what you hear with independent observers and experts (take advantage of a nearby university), find citizens affected by the issue, and then ask to see the numbers. You can do this.

Here’s a final reason for taking the harder path of focusing on results. Process journalism, the kind that skims the surface of public policy, is rapidly becoming a commodity. Reporting that digs deeper and looks for results is, I believe, the journalism of the future. If you want a preview, check out news websites like Vox and FiveThirtyEight. These sites don’t just report what politicians say is going on; they use data and other indicators to show us what’s actually happening. At the local level, you can find similar results-oriented reporting on websites in San Diego, St. Louis, and Washington, D.C.

To repeat: Please continue covering city council meetings. That’s important. But don’t stop there. Examine how government works and what it produces. If you pay attention, it’ll make for better government and a better city. And who knows? It might also make you a better reporter with a brighter future.

This is the last in a series of postings about better ways of understanding local government and writing about local politics. To read the introduction, please click here.

Photo by Thomas Claveirole licensed under Creative Commons.

The Mayor as Manager

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Mayors have three jobs, but most enjoy only one or two of them. The ones they like are creating public policy or building political support for those policies. Almost universally, the one they don’t is managing the city government.

This should come as no surprise. Most people who run for elected office are drawn to public policy (How do we reduce homelessness? How do we keep our young people? How do we connect land use and transportation?) or politics (How do we create a coalition of interests? How do we persuade the city council? How do we get our friends elected?). They don’t run because they want to manage employees. If they wanted to do that, they’d probably be a city manager.

And yet, local governments are complex and challenging organizations and, as we were reminded in the 2008-09 recession, sometimes poorly managed ones. And despite how a mayor feels about the grind of organizational management, it’s a job that cannot be ignored. To do so is to risk every smart policy initiative a good mayor can create and every shrewd political move she can make.

So what does a mayor–or, for that matter, any civic leader–need to know about managing a local government? Here are four of the basics:

During good times, prepare for the worst. The problem with a good economy is that it creates a false sense of security. If a city depends on development-related fees (such as impact fees) or sales taxes (which tend to spike in good times), beware: They can make leaders complacent. The best things to do with boom-time revenues are pay down debt and make capital investments. The worst things to do are hire more employees and hand out generous pay raises and pension increases.

When you make capital investments, ask how they’ll increase productivity. Productivity, of course, is doing more work with the same or fewer people, and corporations have made great gains in productivity in recent decades. Governments? Not so much. This has to change, and the place to do that is with capital investments.

Think back to the Econ 101 class you took in college. Remember the three “factors of production,” the resources that create goods and services? As Adam Smith explained two centuries ago, the factors are land, labor and equipment (which Smith called “capital”). Labor and equipment have a special relationship in that you can substitute one for the other; that is, you can buy labor-saving equipment to. . . well, save labor. And that’s exactly what governments should do. Every time a local government wants to build a building, buy a new computer system or purchase a sanitation truck, elected officials should ask how many hours of labor it will save. If the answer is zero, don’t buy it. If the answer is that it’ll require more employees, run away as fast as possible.

Don’t just ask about productivity–measure it, set goals for it and hold managers responsible for achieving the goals. Let’s not beat around the bush here: The objective is to reduce the city’s workforce while delivering better services to the citizens. It’s simple math really: 70 to 90 percent of local governments’ operating budgets are salaries and benefits. If you can improve the productivity of workers through labor-saving equipment, good training, better work flow and smarter management, you can reduce your headcount, please the citizens, pay higher salaries and hold taxes in check. It is, as economists like to say, “the only free lunch in town.” It’s also the surest route to re-election.

But change never comes easily even when it promises great benefits. Employees don’t like being told to work differently–say, moving from paper forms to electronic–and neither do their managers. So offering better ways of doing things is just the start; you have to ensure the better ways are implemented. And here is where it is critical to have reliable measurements of productivity (number of potholes filled per worker, number of business licenses processed per hour, etc.). It’s the only way to be sure you’re actually doing more work with fewer people.

The good news is that there has been a revolution in measuring productivity in city governments in the last 15 years. For a glimpse of what’s possible, visit New York’s elaborate NYCStat performance-reporting system. You’ll be amazed at the detail with which New York’s services are tracked. They should be tracked just as diligently in your city too.

Stop feeding long-term liabilities. You know what I’m talking about here: pensions and other benefits. We didn’t create our country’s $1 trillion public pension problems overnight. Oakland, Calif.’s city government hasn’t made a full payment on its pension obligations in a decade and a half, which explains why Oakland owes more in unfunded pension liabilities than its entire $400 million annual city budget.

Neither Oakland nor any other local government is going to solve its pension problems overnight, but we can make a start. This means, at a minimum, moving new public employees to defined-contribution retirement plans (like the 401(k) accounts private workers have), ending health insurance benefits for employees retiring early–and never, ever adding to these crippling liabilities again.

You’ve probably figured out by now that these are related. Productivity gains will help governments dig out of their financial holes. Budget discipline, particularly in good times, will keep us from digging future holes. Capital investments are a key strategy for boosting productivity–especially when married to measurements, goals and accountability. And all of it depends on mayors facing up to their least-favorite job: managing the city government as if it were a serious organization. Which, come to think of it, it is.

Cities and Disruptive Change

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In 1997, a book was published that made sense of the business world – and terrified corporate executives. It was “The Innovator’s Dilemma” by Clayton M. Christensen, a professor at Harvard Business School, and it answered two questions that CEOs in the 1990s were asking frantically: Why were so many highly regarded corporations losing ground to startup companies? And how could they stop it from happening to their companies?

In his book, Christensen focused on technological change – change so great that it altered the business models in an industry. Sometimes, he wrote, this disruptive change came fast, as when the Internet undermined the music industry in a few years’ time. Sometimes it came more slowly, like the decades-long decline of Sears and rise of discount retailers like Target and Wal-Mart.

One thing about disruptive change was clear, Christensen wrote. Big, established companies didn’t handle it well, and the companies that did were mostly smaller and newer.

In this posting, I want to talk about how disruptive change comes to cities – change that alters a city’s growth model. Unlike corporations in the 1990s, the key to how a place manages disruptive change isn’t size – some big cities handle big changes well and many small towns handle them poorly – but rather leadership. And that’s because in communities as in corporations, the way to manage major change is to do things that, to many people’s way of thinking, don’t make sense. For citizens to go along with these things, there must be a high level of trust in city leaders.

But before we talk about cities, let’s go back to “The Innovator’s Dilemma.” The part of the book that terrified executives was Christensen’s discovery that the victims of change were often among the best managed companies – “the kinds that Innovator's Dilemmamany managers have admired and tried to emulate,” he wrote, “the companies known for their abilities to innovate and execute.” Even more frightening, he added, many of these companies had seen the disruptive changes coming, tried their best to accommodate them – and failed.

So what went wrong? In times of disruptive change, Christensen said, executives depended on practices that had served them well in normal times – things like listening attentively to their customers, offering customers a steady stream of new products, and investing in products with the greatest potential returns … in other words, the things they had learned at Harvard Business School.

Problem was, disruptive change wasn’t normal. It didn’t come from a company’s best customers, who were usually happy with the way things were. It began with marginal customers, people who wanted products that were simpler, smaller, cheaper – and far less profitable. These were the people who wanted desktop computers in the early 1980s: hobbyists, early adopters and small companies willing to learn DOS and be their own IT departments. These weren’t the corporate customers that IBM and Digital Equipment Corp. were used to dealing with. IBM tried serving these marginal customers but gave up; DEC never really tried. So the marginal customers (who, of course, became the vast majority of computer buyers in years to come) were handed over to startups like Microsoft, Apple and Dell.

For large corporations, Christensen wrote, the way to manage disruptive change was to do things that almost defied reason. First, they had to devote themselves to identifying and understanding fringe market segments that had the potential of growing fast. Second, they had to supply these marginal customers with cheaper, simpler products, tailored to their needs – even if the profit margins were slim or non-existent and threatened to undercut existing products. Third, they had to create special units to serve these marginal customers. Finally, they had to protect these units from being judged by corporate standards or run according to company rules.

In other words, they had to turn practically every corporate instinct and well-established practice on its head. No wonder so few companies made the transition.

So what does this mean for cities? Well, to begin, there are changes that are every bit as disruptive to cities’ growth models as the technological changes that have swept through business. Here are five:

Natural or man-made calamity: This is easily grasped. New Orleans will never be the city it was before Aug. 29, 2005 when Hurricane Katrina struck, and most citizens accept that.

Economic change: This is much harder to see than a natural calamity – and some will deny it’s taking place. Michigan cities, for example, have known for 30 years that the auto industry was in decline, but many have been unsuccessful at developing alternative economic bases.

Demographic change: Same difficulties as economic change: Demographic change is hard to see because it tends to take place slowly, and denial is a common reaction. There’s an additional problem, and that’s bias. Old-timers often don’t like the newcomers and some will oppose any efforts to help them.

Major political change: Cities are particularly vulnerable to political changes at other levels of government. For example, you can date the long decline of California’s local governments (and, for that matter, state government) to the passage in 1978 of Proposition 13, the tax-limitation law that changed the way government services were paid for.

Changes of taste, values or world view: This may be the single hardest disruptive change to recognize and manage because, unlike economic and demographic change, there are no reliable numbers to point to, and unlike calamities or political change there’s no event (tornado, hurricane, new laws, etc.) to mark its beginning. There’s simply a group of people who begin to think about things differently. Example: The Jane Jacobs-inspired movement toward mixed-use neighborhoods.

Surely, these are big changes. But what makes them disruptive? Because they have the potential of changing a city’s growth model – the elements that make a place grow and prosper and support the services that citizens want. The disruptions can be good ones – as in the turnaround that many big cities saw in the late 1990s when young people and empty-nesters returned to urban centers – or bad (see Proposition 13, above). Either way, the change has to be so great that the city grows or pays for public services in a fundamentally different way afterward.

How do places adapt to disruptive change? Christensen offers a good model:

  1. Begin by recognizing changes before they become obvious. Again, this is easy to do in a natural disaster, much harder to do with changes of taste or world view. But I would add that, except for calamities, disruptive change rarely comes suddenly to cities. If a city wanted to adapt to changes of attitude about transit and mixed-use development, for instance, it had a long, long lead time. Jane Jacob’s seminal book, “The Death and Life of Great American Cities” – the one that inspired New Urbanism – was written in1961.
  2. Don’t try to address disruptive changes using the same processes – or people – your city uses for other types of change. For instance, don’t ask the city’s department of transportation to make the city more walkable if its mission has long been devoted to making it more drivable. Create a new agency or organization to handle walkability issues. Much later, if the DOT has accepted walkability as central to its mission, you might bring it into the department … but be careful.
  3. Don’t measure progress using familiar yardsticks. That’s because you’re investing in the future, not the present. And the future, well, hasn’t happened yet. Transit critics, for example, often point to the millions being poured into light-rail projects and the relatively small numbers riding these new systems. Using that logic, which infrastructure would you have invested in 100 years ago, expensive paved roads used by a few automobiles or  cheap dirt roads for the many horses? Again, the question isn’t which is the most efficient investment by today’s standards but which is the wisest investment for the future.
  4. The key terms, in talking to the citizens, are “future” and “investment.”  Citizens like leaders who are hard-nosed visionaries – people who can sketch an appealing future, point out the ways of getting there and deliver results. By and large, citizens aren’t blind; they will accept some sacrifice, as long as it leads to a place they want to go. They’ll even put aside some of their prejudices, if they can see how it can benefit them in the long run.

But it starts by seeing the changes that are coming and knowing the right responses. And what if you’re not a particularly visionary person? Don’t worry, there are plenty of people in your city who think about the future. Just ask around. Take a few of them to lunch. Look at the city’s demographic and economic indicators. Ask legislators about major changes in politics and law. Read up on how cities elsewhere are changing.

Oh, and it wouldn’t hurt to read a book about managing disruptive change. Here’s a good one to start with: “The Innovator’s Dilemma.”

 

Photo by Tom Blackwell licensed under Creative Commons.

Seven Ways Community Decisions Are Different

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I am sometimes asked if community decision making is different from other forms of decision making – say, the kinds used in companies or non-profits. And my short answer is yes.

But I’d like to offer a longer answer, which is that community decision making is different not in one or two ways, but in a number. And because it’s different, it means we need different kinds of leadership in communities, leadership that is far more patient, collaborative and comfortable with ambiguity than we expect in CEOs or executive directors. I think you’ll see why as we move down the list of differences.

One: In most communities, legitimacy for big decisions comes from the bottom up (citizens), not the top down (CEO or board of directors).  As a result, everyone expects a voice in community decisions.

In most ways, this is the sign of a healthy community, but it can lead to problems if citizens are asked to make decisions they’re not in a good position to judge. Take, for example, a proposal to start a streetcar system. To know if this is a good idea, you might want to visit Portland, Ore. or other places that have streetcars and see their impact, but not many citizens can do this. They depend, then, on others to visit, ask questions and report back to them – people like newspaper reporters and community leaders. And that would be fine, except for the next way community decision-making is different . . .

Two: There is little deference or ceding of expertise in communities. Many business employees and non-profit workers are discouraged and cynical. But even corporate cynics will concede that, in some instances, top executives know more than they do and perhaps have good reasons for trying something new.  But that’s not the case in many communities, where citizens do not presume that community leaders know better than they do – or even more than they do.

Three: It is much easier to slow or stop things in communities and much harder to get them started. That’s by design. In America, responsibility and power is dispersed among levels of government (local, state, federal) and types of governments (cities, counties, government authorities) and then fought over by independently elected officials (mayor, city council, and maybe a half-dozen others). And all of these parties are governed by legal requirements that serve to make the time line of decision making much longer in communities than in organizations. The result is that even the best decisions move slowly – and sometimes get stopped cold.

Four: It isn’t just the legal responsibility that’s dispersed. Resources are as well. Take almost any big community problem – from improving public safety and maintaining neighborhood parks to creating a more walkable downtown – and you quickly realize that these aren’t government problems alone; they involve multiple interests, from neighborhood associations and youth athletic associations to private property owners, businesses and special interests.  All of these interests have resources they could contribute to the solution – if, that is, they agreed with it. As a result, the community decisions must be made collaboratively if they’re going to be effective.

Five: News media coverage of communities is far more extensive than of organizations. Again, this is a healthy thing – except that it exposes the “sloppiness” of decision making far more than in corporations and non-profits.  Don’t get me wrong: Decision making in big companies is sloppy too, with loud debates, false steps and corporate intrigue. But with few exceptions (think about BP’s repeated failed attempts to plug the Gulf oil spill), the sloppiness isn’t apparent to outsiders. Not so in communities. Fumble a big community decision – by going down one decision-making path and then abruptly changing course – and you’ll read about it in the newspaper – and probably lose public support.

Six: Leadership is not as easily defined in communities as in organizations.  That’s because community initiatives can come from many places – local governments, business organizations, neighborhood associations, non-profits or individuals.  (As an example, Kansas City is building a light-rail system because a single person got enough signatures on petitions to place the idea on the ballot and the voters passed it – over loud warnings by government and business leaders that light rail wasn’t feasible.) Companies may make poor decisions, but we know who makes them. That’s not always the case in communities.

Seven: In organizations, the measurements of success are clear: profits for corporations and results for non-profits (the hungry are fed, trees are planted, museum attendance is up, etc.).  There are no easy measurements of success in communities. This makes it harder to know whether past decisions succeeded and opens every new decision to long debates about outcomes and benefits.

I don’t mean to suggest that decision making is easy in corporations. I’ve spent enough time around large companies to know how gut-wrenching it is to deal with markets that suddenly collapse, competitors that emerge overnight or technologies that turn your industry upside down. Decision making in companies is fast because it has to be. CEOs would love to have the long time horizons of mayors and county commissions. But they would hate the ambiguity and loath the painstaking process of consensus building.

So when you hear someone say that your city should be run like a business, just say two words: Not possible.

About Otis White

Otis White is president of Civic Strategies, Inc., a collaborative and strategic planning firm for local governments and civic organizations. He has written about cities and their leaders for more than 30 years. For more information about Otis and his work, please visit www.civic-strategies.com.

The Great Project

Otis White's multimedia book, "The Great Project," is available on Apple iTunes for reading on an iPad. The book is about how a single civic project changed a city and offers important lessons for civic leaders considering their own "great projects" . . . and for students in college planning and political science programs.

For more information about the book, please visit the iTunes Great Project page.

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