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Learning lessons from the private sector's recession

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The pay freeze announced in the recent Budget gives a bitter foretaste of things to come, with widespread cuts looming across public services.

It may seem like an insurmountable challenge at the moment, but the public sector is capable of rising to it, especially if they take the lessons from private sector leaders who recently had to deal with the recession.

Our recent research Back from the Brink asked senior industry leaders to explore the successes, mistakes, ideas and results of their initiatives and there are some valuable lessons for local government leaders.

The private sector said how important it was to keep their eyes on the customers. For local government, this means putting yourself in the position of your citizens and listening to their views on how you are operating. Using this information will help prioritise services for the future and how they can be delivered more efficiently.

Are you offering services that could be outsourced, provided in a different way or perceived as lower value and so could be reduced or even stopped? There are potentially major benefits and cost savings to be had through more effective collaboration between local authorities and their partners.

Of course, upheaval will have a negative impact on morale, but the research found that there is no simple relationship between the scale of cuts and the damage to staff engagement. In the private sector, it has been found that cuts of between 5% and 20% inflict roughly the same amount of damage on morale. It is the drip feed of bad news that is most harmful. Thus, three rounds of cuts of 6% will be three times more damaging than making a 20% cut in one go.

Due to the large scale of many local authorities, it may not be possible to achieve all cuts in a single blow, but it will be important to act decisively, keep the number of rounds to a minimum and keep communicating about the programme and the process throughout.

But the research tells us it is possible to maintain employee engagement by communicating continuously. Be upfront and transparent with staff: explain the rationale for changes to help maintain trust and confidence in the leadership. And keep talking even when there is no news, as rumours can wreak more damage than the honest truth.

And when the axe falls, it will be crucial to hold on to talented employees at every level. Early retirement or redundancy programmes must ensure that vital experience is not lost. Assessing employees’ potential rather than just current performance will help to establish who has the capacity to add the most value to your organisation in the future.

Employers need to create a specific talent management plan and work actively to keep and engage the people who are most needed.

The final theme was to not waste a good crisis. Some 88 per cent of respondents in the private sector believed the recession was ultimately a good thing, because it forced them to question the way they did business. There is an opportunity here to reshape councils and their partners to serve citizens better than ever and to maximise the potential and contribution of council employees.

Jon Gay is a director in Hay Group’s public sector practice and previously worked for Somerset County Council

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