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Business Process Advantages of Consolidation

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A study from Ball State University explains how local government reform could save Indiana taxpayers $620 billion each year. The evidence is forty years of data on consolidation.

A summary of the report appears thanks to of Inside Indiana Business, but the actual document goes into great detail. The opening explains the techniques used in the analysis:

We use statistical methods and data on consolidation referendum attempts in the United States since 1970 to test whether governments that consolidate (voters approve the consolidation referendum) have higher spending prior to consolidation (measured by local government employment, payrolls, or expenditures) than the average local government in the state. If these indicators are higher than the average local government in the state, this suggests that the consolidation is driven by the level of government spending. Citizens perceive spending to be “out of line,” and consolidation is one way to address this. If, on the other hand, governments that consolidate have lower spending or spending is not statistically different from the average local government in the state, we interpret this to mean that consolidation is driven by the quality of government and that citizens view consolidation as one way of improving quality.

The approach employed by researchers to prove their point is brilliant and methodical. First, review other areas across the country and identify correlations between consolidation and savings. Then, use this to weight to the argument for increasing government efficiency. For Indiana, the value of the process is around $620 million per year, every year.

Indiana State House

© Flickr user netmonkey

The study also outlines a point of view that is fairly widespread:

Economists (and the general public) have long recognized that there is likely to be a general slackness in government operations. X-inefficiency occurs when a government fails to produce the maximum output obtainable with a given level of inputs. The result is that costs are higher. Government inefficiency may result from several sources including lack of competition, coordination difficulties, corruption, or padding the budget.

Although likely not their intent, this paragraph neatly defines the sources of inefficiency into segments:

Lack of Competition

Although competition is not the solution to every problem, the best business process improvement campaigns involve looking at multiple options and to select the best. Because government services aren’t often competing with other entities, and because individual departments and positions are not often evaluated side-by-side, stagnation can result.

Coordination Difficulties

Much of the work in any large bureaucracy requires handoffs between teams. Furthermore, distribution over a wide geographic area or to meet a large need means there may be duplication of effort.


The word “corruption” inspires visions of bribery, extortion and other enormous crimes. But the term also includes more subtle actions such as the abuse of discretion (like letting someone slide) or simple favoritism. These are problems both with controls but also with culture.

Padding the Budget

This final form of inefficiency shows the role of incentives in management. If there is more money, there is more breathing room. In many environments, there is no penalty for requesting too much money. Therefore, it’s no surprise padding the budget is commonplace.

If you work for a state or local agency looking to reclaim some of that $620 billion dollars, or if you work for a private sector business ready to make improvements to productivity,  contact the business consulting experts at AccelaWork.

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