[analysis]

When it comes to leaders limiting the electoral fallout from political fiascos, it’s not unknown for otherwise adequate ministers to be thrown under a bus.

After a month of horror headlines, New South Wales Local Government Minister and former Mayor, Paul Toole, must be wondering whether he will soon become the fall guy for what’s turning out to be one of Premier Mike Baird’s biggest political gambles: forced council mergers.

It’s a bet that has so far cost a heap of political capital with almost no dividends.

It’s also left Toole, the National’s recruit gained prominence after snatching the seat of Bathurst from Labor with a hefty swing in 2011, followed by another comfortable win in 2015, in an invidious position.

Sometimes there are ministries you just don’t want, even if it means not getting a ministry at all.

With a state election not scheduled until 2019 (NSW has fixed terms), Toole could win his seat again, but his chance of getting a promotion or even retaining his ministry will not be so easy given the increasing amount of flak Baird is copping thanks to grass roots animosity over council mergers.

The snowballing problem for Baird, and to a lesser degree Prime Minister Malcolm Turnbull, is that the ham-fisted execution of the amalgamation process now threatens to keep generating painful reflux until at least September 2017, when fresh council elections are held.

Predictably, NSW Labor Opposition Leader Luke Foley, has made some opportunistic accusations about gerrymandering and some noise about potentially reversing mergers through popular votes; but he’ll be quietly thankful that Baird is doing the heavy lifting and sparing him a thankless job in the future given Labor has also had amalgamation on its own ‘to do’ list for years.

Foley also knows well that mergers are an omelette that can’t be unscrambled (apologies to Peter Reith).

To cap it all off, prominent conservative talkback radio hosts like Alan Jones are now openly gunning for Toole, with Alan Jones claiming to “understand” Toole will lose endorsement for his seat from the Nats at the next election.

Here’s why it’s playing out so badly.

Consolidation doesn’t equal automatic savings

One of the first rules of competitive business is that smaller, newer and more nimble enterprises challenge bigger incumbents for customers and market share by finding better, simpler, cheaper ways to deliver a product or service.

Smaller businesses usually have lower costs and overheads, respond to change and market conditions quicker and are leaner creatures.

Concurrently, it’s fair to say that a core premise of the Liberals’ philosophy is that government ought only intervene in a free market when it needs to, and smaller government is better government because a natural economy is more resilient and prosperous than a planned one.

The problem is that amalgamated mega-councils aren’t really smaller government – they’re lumbering bureaucracies in the making, where direct and intimate connections between community and services are often sacrificed in the (arguably flawed) pursuit of scale-driven financial savings.

A golden rule of successful mergers and takeovers, whether corporate or government, is that sufficient organisation synergies must be present to realise a net gain. Miscalculating or overestimating synergistic opportunities usually destroys value.

Forced fits are also a well-trodden path to failure. The business world is littered with the wrecks of big companies buying successful smaller ones to try and absorb and replicate their success: Woolworths and Dick Smith; Telstra and Kaz Computing; News Corp and MySpace; and the ultimate aggregation failure, ABC Learning.

The fundamental problem with the NSW council merger process (it happened in Queensland too) is that, somewhere along the line, decision makers started drinking the consultancy Kool-Aid and blindly believing in automatic efficiency gains from consolidating systems, purchasing and administration.

Where it went wrong

Smaller councils are a curious thing. Their mistakes, like small businesses, might be plentiful but the negative effects are constrained. Fixes are also usually faster to apply.

Bigger councils, on the other hand, make bigger mistakes with bigger consequences, especially when there is less flexibility to change quickly without pain. Decision timelines frequently longer as the weight of bureaucracy increases.

A real risk that’s been conveniently forgotten is that as the size of the ship of government increases, its manoeuvrability can decrease along with its responsiveness.

Blind faith in an underlying assumption that consolidating councils will of itself improve performance is at best optimistic, at worst fundamentally flawed.

There’s also a cost in shooting the messenger. In any difficult change and downsizing process, there’s a natural tendency to retain people who just say ‘yes’ and remove obstructionists. But when legitimate criticism and pertinent warnings are dismissed as resistance, expensive erroneous decisions slip through much more easily.

Such conditions can be a fertile breeding ground for processes triumphing over actual outcomes – where it’s the customer who’s wrong, not the organisation and service quality expectations are deliberately managed down.

The absence of challenge, critical feedback or independent validation is actually the very reverse of what progressive, customer-centric successes like Service NSW or the federal Digital Transformation Office are trying to accomplish.

If Toole and Baird aren’t worried by this, they should be. It’s the kind of captured, rusted-on, self-propagating bureaucracy that helped dispatch NSW Labor with such a massive swing.

Reform: Top Down vs Bottom Up

If there’s an arena local government in Australia has conquered in terms of playing gatekeeper, it’s councils’ back office systems and their wider procurement processes.

Reform processes, especially mergers, usually make a big deal out of reducing the number of council entities, councillors and administrative headcount. But they often underestimate (sometimes deliberately) the real costs associated with consolidating, migrating and integrating underpinning systems.

The most efficient local government systems are those which have achieved standardisation, consistency and interoperability. Land, mapping and geospatial systems are a standout leader because they harness agreed national and international standards and products.

Roads, water and infrastructure asset management are also mature, stable and well developed.

But the same can’t be said of financials, payroll, revenue, rostering and so-called Enterprise Resource Planning (ERP) systems that have often evolved in isolation to create disparate information ‘silos’ that then endure as unwieldy legacy systems because they are simply too expensive to untangle.

Forcing integration of these systems on a tight timeline is fraught with serious risks because the imperative for change from doesn’t take into account the underlying architecture and business processes that have to be banged together.

For suppliers to government, especially software vendors, it means a shrinking market where larger companies are more likely to prevail over smaller ones, even if their products are of a lesser quality and cost more. Choices go from getting the best fit and value to the least worst.

Take financials. Smaller councils that may be using modern cloud-based ‘as-a-service’ applications that are highly cost effective are more likely to be forced to adopt larger, more expensive and less nimble products from a larger council because the integration costs of migrating away from the larger platform is just too high.

It also means that bigger organisations captured by technology vendor ‘lock-in’ will most likely end-up having their incumbent and potentially  inferior systems become dominant, entrenching inefficiency for years to come.

As those costs are passed through, the savings generated by mergers are quickly consumed by an army of contractors and consultants who know they have the whip hand in any deal because of a deadline.

Fighting the clock

The concurrent timing of mergers is also problematic because it sharply raises the demand for skilled labour, thereby inflating its cost. Both federal and state agencies have learned the hard way that generating artificial skills shortages causes cost blowouts. It lets suppliers pit agencies against each other when they should be competing for government business. It’s a seller’s market.

A more effective way to reduce costs would have been to identify where urgent standardisation needed to occur first, then mandate that change to occur in a phased manner over a more reasonable period of time.

Another technology opportunity likely to be lost is the creation of common service hubs where councils use collaborative procurement to give scale to contracts and services rather than going it alone.

An accurate, collective picture or catalogue of what systems councils use should be a vital tool in estimating merger costs, but whether this exists in unclear.

Without an accurate picture of what technology integration costs will be, it’s next to impossible to know if the merger savings even stand-up.

The cost of broken promises

If there was one major political and administrative lesson from Queensland’s divisive and often acrimonious merger process it was that state politicians need to be hyper-cautious in how they pitch the benefits to the community, especially the financial ones.

Despite being promised improved, more efficient and cheaper services, many communities quickly found service levels deteriorating and costs going up. Combined with understandable anger over a loss of local identity and a loathing of insensitive ‘big government’, structural change soon became a nightmare for Peter Beattie and the Anna Bligh and gift for Campbell Newman.

Mike Baird and Paul Toole’s promise to electors is that NSW council mergers are needed to put downward pressure on rates and to keep local government sustainable.

Supposedly around $2 billion will be saved over 20 years, a number that’s largely meaningless in terms of what people will see on their rates bills and service charges. If anything, the creation of such a long-term target betrays the fact that significant up-front savings are simply not there.

New South Wales already has rate-capping, a revenue constraint that deliberately limits what councils can raise irrespective of what communities might be willing to absorb financially in terms of better services.

That limitation means that councils need to wait for either the state government or Canberra to provide money for projects and services that can range from extra childcare places to running fibre broadband down the main street of a town. It also encourages opportunistic cost shifting.

Electors have a legimimate suspicion that bureaucratic tinkering for its own sake could well cost them more and deliver less.

If Paul Toole and Mike Baird are not able to demonstrate some conspicuous community advantages – like new facilities or better public amenity – by the end of 2017, their crusade will have been a wasted one.

If disadvantages and cost blowouts come, and they could come quickly, a blame game inevitably follow.

And the chances of Paul Toole being offered up as a sacrifice to appease increasingly angry voters grows every day.

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